PEDs, Payroll, and Baseball’s Competitive Balance | Disciples of Uecker

Disciples of Uecker

We'd like to go to the Playoffs, that would be cool.

Last week, in the wake of Ryan Braun’s suspension, I posed a question on Twitter, “What’s worse for competitiveness in baseball — a few players taking PEDs or a few teams with payrolls that double/triple their opponents?” My question was not an attempt to justify Braun’s use of PEDs. With the blowback surrounding Braun’s suspension, I wondered why baseball fans felt that the competitive advantage gained from a player using PEDs is so much worse than the advantage of a team having significantly more money to spend on players?

Of course, it is hard to make such a comparison. Not because PED use and payroll disparity are like comparing apples to oranges. It’s more like trying to understand the similarities between an apple and whatever might be in a mystery box. As Alex Poterack pointed out in Saturday’s column, the black cloud around PEDs prevents users from speaking openly about when they used and how it affected their performance. Currently, there is no good measurement of the impact of PED use on the game. On the other hand, there is a lot of information on how a team’s payroll affects the game.

Now, even with team payroll information available, trying to unpack all of its effects on baseball is too great of a feat for this article. Payroll disparity is fueled by the simple and unavoidable facts that certain teams come from cities with a much larger population and that baseball teams generate a majority of their revenue regionally instead of nationally, unlike football and basketball teams. The entire situation is unavoidable and something MLB has tried to counterbalance with revenue sharing and the competitive balance tax — aka the luxury or” Yankees” tax. Without going off the deep end into the details of revenue sharing, the competitive balance tax, and the accounting tricks that can be used to game the system, let’s focus on the obvious and inherent advantage of certain baseball teams – the size of their fan base.

In 2007 JC Bradley, an economy professor, wrote a book fittingly called The Baseball Economist. One section of the book delves into how much of an advantage a team gains from their market size. Bradley’s regression analysis concluded that every additional 1.58 million residents a team’s city has over an opponent equals one extra win on the year. At the time, Bradley’s calculations concluded that the difference in market size between the Milwaukee Brewers and New York Yankees would account for an extra 10.6 wins per season for the Yankees. Bradley then looked at the difference in wins between the Brewers and Yankees between 1995 and 2004. He discovered that, on average, the Yankees won 26.3 more games per season than the Brewers. After crunching all his numbers, Bradley concluded that market size accounts for 40% of the difference in wins between small and large market teams. The other 60% comes down to how well each team is run.

While Bradley’s calculations provide a framework to begin understanding the effects of market size on a team’s performance, it is uncertain if the equation is still accurate. Bradley’s analysis came during the beginning of what is now deemed the “sports TV bubble”. Teams in large TV markets have added a ton of new revenue by signing long and lucrative TV deals. Earlier this week, Wendy Thurm dug into the topic for FanGraphs.

Her article includes a table that breaks down each team and their regional TV deal. I’ve modified the original table to see the impact of a team’s TV revenue on their payroll. The team payroll figures are from opening day of the 2013 season and courtesy of Deadspin.

Here are the results –

Team 2013 Payroll Ave. Annual Rights Fee TV Deal as % of Payroll
Diamondback $91,158,500 $31 M 34%
Braves $89,288,193 $20-30 M 22-34%
Orioles* $91,793,333 $29 M 32%
Red Sox* $158,967,286 $60 M 38%
Cubs* $104,150,726 $50 M 48%
White Sox* $124,065,277 $45.5 M 37%
Reds $110,565,728 $30 M 27%
Indians $82,517,300 $40 M 48%
Rockies $75,449,071 $20 M 27%
Tigers $149,046,844 $40 M 27%
Astros* $24,328,538 $80 M 329%
Royals $80,491,725 $20 M 25%
Angels* $142,165,250 $150 M 106%
Dodgers $216,302,909 $340 M 157%
Marlins $39,621,900 $18 M 45%
Brewers $91,003,366 $20 M 22%
Twins $75,562,500 $29 M 38%
Mets* $88,877,033 $65 M 73%
Yankees* $228,995,945 $90 M 39%
A’s $68,577,000 $43-48 M 63-70%
Phillies $159,578,214 $35 M 22%
Pirates $66,289,524 $18 M 27%
Padres* $71,689,900 $60 M 84%
Giants* $142,180,333 $30 M 21%
Mariners* $84,295,952 $115 M 136%
Cardinals $116,702,086 $25-28 M 21-24%
Rays $57,030,272 $20 M 35%
Rangers* $127,197,575 $150 M 118%
Blue Jays $118,244,039 $36 M 30%
Nationals* $112,431,770 $29 M 26%

* Denotes a team that also has an equity stake in the regional sports network. Meaning that these teams are most likely raking in more money on their TV deals. For the specific equity stake of each team, refer to Thurm’s original piece.

As the table shows, the percentage of the Brewers’ 2013 payroll covered by their TV deal is one of the lowest in baseball. The Giants own an equity stake in their regional sports network so the percentage of team payroll is probably a little higher. The Phillies, like the Brewers, only cover 22% of their payroll from their TV deal. The Phillies deal with CSN Philadelphia expires in 2015. If the TV sports bubble doesn’t burst, expect the Phillies to be the next team cashing in on a huge TV deal.

So what does all this mean for the Brewers? In terms of the TV market, Milwaukee will always be at a distinct disadvantage. Thurm wrote a piece about baseball’s TV market in 2012 that classified the Brewers as a “Have-Not”. The other “Have-Nots” were the Braves, Royals, Marlins, A’s, Pirates, and Cardinals. Thurm notes that the Braves are only on this list after signing a long-term deal, below market value, before the TV sports bubble inflated. The only positive for the Brewers is that small TV markets also hamstring two other teams in the NL Central (Pirates and Cardinals).

The benefits of taking PEDs may still be unknown but the benefits of being a major market team are apparent. Having access to revenue generated by a large fan base does not guarantee success but is a distinct advantage that cannot be overlooked. Even with baseball instituting revenue sharing and a competitive balance tax, large market teams wield a power over small market teams that one player taking PEDS probably can’t overcome.

For proof, check out the recent comments made by Dodgers co-owner Toddy Boehly. After the Dodgers new $8.5 billion, 25-year TV deal with Time Warner Cable, Boehly wouldn’t comment on specifics but made it clear that the Dodgers could afford to resign Clayton Kershaw to a multi-year deal over $200 M. Boehly also admitted that the Dodgers could afford to spend an additional $200 M on signing Robinson Cano to a long term contract, if they so desired. And, to put a cherry on top, the Dodgers could also afford to spend $100 M in the off-season just on upgrades to their stadium.

The use of PEDs in baseball may not be considered fair but, in view of the impact of TV markets and a team’s payroll on the game, when has “fair” ever been baseball’s goal?

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