Baseball success and the structure of salaries

Abstract

The purpose of this research is to examine some competing assumptions regarding the hiring behaviour of major league baseball clubs. One hypothesis is that owners and general managers of teams enter the free agent market with a view to attracting the best talent available in order to win games. We might refer to this as the 'win games' strategy. A potentially alternative view is that they compete in this market for marquee players who will attract paying customers to the ball park. We can refer to this as the 'fannies-in-the-seats', or revenue, strategy. While these hypotheses are not necessarily inconsistent, we can imagine that for some teams, at some times, they are alternative approaches to hiring behaviour. A team committed to the 'win games' strategy may attempt to spread its resources in order to hire as many good players as possible without necessarily hiring elite players. A team committed to the revenue strategy may be content to surround a superstar with second rate talent. In order to test these hypotheses we intend to specify estimable models that relate, alternatively, team attendance, winning percentage and division, pennant and world championships to, among other relevant explanatory variables, its salary structure.

Intra‐Firm Wage Dispersion and Firm Performance: Evidence from Linked Employer‐Employee Data

“…11. For professional baseball teams, see Bloom (1999), DeBrock et al (2001), Depken (2000), Harder (1992) or Richards and Guell (1998). For soccer and hockey teams, see respectively Lehmann and Wacker (2000) and Gomez (2002).…”

Productive Efficiency and Salary Distribution: The Case of US Major League Baseball

“…Using data from the US National Basketball League, Berri (2001) shows that an increase in payroll inequality within a team actually leads to an increase in wins. Richards and Guell (1998) give evidence that MLB teams with greater salary variance have lower winning percentages and that salary dispersion seems to have no effect on the probability of winning championships. Bloom (1999) tests whether increases in salary dispersion within MLB teams have a positive or a negative effect on performance.…”

Does Experience Matter? Salary Dispersion, Coaching, and Team Performance

“…The salary distribution among players and its impact on performance is an active and large area of research in professional team sports. For example, Richards and Guell (1998) found that the variance of the team's salary distribution is negatively correlated with winning percentage for MLB, while controlling for lagged winning percentage and total payroll. Bloom (1999), Depken (2000), Debrock, Hendricks, and Koenker (2004) and Jewell and Molina (2004) all found a negative impact of dispersion in MLB.…”