Baseball's low-payroll teams can compete, despite what they say

For anyone with a serious interest in baseball, business and economics, last week's playoff series between the New York Yankees and the Oakland Athletics symbolized the now-fashionable argument that denies Oakland's ability to compete.

In 2000, the Yankees spent $110 million on a roster that won 87 games and earned their sixth-consecutive postseason appearance. New York's success and record salary has combined with rising free-agent prices to punctuate the argument that teams with low revenues cannot compete with wealthy teams from larger cities. The Yankees, many argue, can spend their annual $500-million income from local television revenue on big free-agent signings, an unfair advantage over small-market teams like the Kansas City Royals and Minneapolis Twins.

The Yankees' 114-win season in 1998 exacerbated these concerns, and early the next year, Commissioner Bud Selig established the Commissioner's Blue Ribbon Panel on Baseball Economics. The panel consisted of economists and low-revenue team representatives, including Paul Volcker '49 and George Will GS '68. After 18 months of analyzing payroll, revenue and performance data from 1995 to 1999, the panel released its findings in mid-July. The panel provided extensive evidence of payroll disparity, but notably failed to describe how high payrolls lead to competitive success.

Meanwhile, Oakland has built a young, talented baseball team from within itself. While many teams such as the Montreal Expos and Florida Marlins have judged their players poorly, trading away many developing players for lesser prospects, Oakland held on to its best young talent. They ignored the inflated free-agent market, and instead spent money on scouting and recruiting. They developed a sharp understanding of baseball statistics, made extensive use of computer analysis and made impressive draft picks and trades. They signed their best young players to long, inexpensive extensions before free agency loomed.

The result has been that the Athletics spent $32 million, sixth-lowest in baseball, and despite underspending New York by $80 million, they won 91 games. Of course, the fact that Oakland played better baseball than New York this year doesn't settle the question of competitive imbalance in baseball, nor does the fact that the Chicago White Sox, with a salary below that of Oakland, won 95 games, the highest total in the league. But it should raise questions in people's minds: When Florida and Minnesota claim they can't afford to compete, how can Oakland? Are they simply lucky?

No way.

The important lesson to take from the 2000 baseball season is that even if market size might affect a team's ability to compete, there is certainly a steep curve of diminishing returns. For example, the Yankees spent $28.5 million this year, nearly Oakland's entire payroll, on David Cone, Paul O'Neill, Scott Brosius and Tino Martinez — four aging players who undeniably have been among the worst at their respective positions this year, but who are being rewarded for past performances. By pruning this fifth of the team's payroll, New York could have improved itself by picking up average players at $2 million each, or by promoting young players from their own minor league system.

Oakland and Chicago clearly cannot afford these sentimental contracts; clearly, they don't give them. Instead, they recognize that spending money on scouting and signing draft picks yields a higher return at a lower risk than does raiding the free agent market. The low-revenue Pittsburgh Pirates may have picked up a tremendous prospect in former Princeton ace Chris Young '02. If he develops into the pitcher that ESPN's Peter Gammons and others have speculated he might, the Pirates will be gaining a prized commodity for a mere one-time $1.6 million signing bonus. When one compares that to the $100 million it takes to sign a top free agent pitcher, the efficient investment is obvious.

Chicago, Oakland and New York share a similar organizational philosophy. They emphasize the same statistics, make similar trades, field similar teams and reap similar results. Before fans of low-revenue teams complain that their teams aren't wealthy enough to compete with rich corporations and media moguls, they should look at how today's successful teams have been built.

So while the Yankees squeaked by Oakland last week, they face many more questions for next year than do their low-payroll adversaries in the West. The A's will return a nearly identical team next year, while New York has to fill many serious gaps, and will find that revenue can go only so far. Thankfully, at least in baseball, money is far from everything. Joe Dague is a politics major from Carlisle, Pa. He can be reached at joedague@princeton.edu.