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New York Yankees Editorial: Yankees Financial Advantage Still Shows Up in the Win Column

By Brendan Fitzgerald

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For a variety of reasons, several low payroll teams have experienced various degrees of unexpected success over the past 10-15 MLB seasons. Examples stem from items such as the use of analytics (Rays, Athletics, Pirates) to the  discovery of a dominant bullpen with a touch of luck (Royals),

It might appear that payroll gaps between teams no longer account for a large portion of the win gaps. This would qualify as poor news for the Yankees, a team that consistently outspends the rest of the league (until Stan Kasten, Magic Johnson, and co. with the Dodgers) in hopes of boosting win totals.

Yet, Noah Davis and Michael Lopez of FiveThirtyEight find that payroll difference is still a major factor in driving win difference across the league. In fact, they report that the tie between payroll increases and win increases has been tighter the past 10 years than the decades from 1985-1995 and 1996-2005. This conclusion comes from their win percentage versus salary regression where the line of best fit through the data points appears steeper with each successive decade.

Another neat feature of Davis and Lopez’s article is that they chart a team-by-team breakdown of payroll vs. wins for each team over the past 3 decades. All of the data points for the Yankees appear on the right side of the y-axis which represents a league average payroll. They always spend around 2 standard deviations more than the league average.

Also, all of the data points except for 4 are above the x-axis representing a .500 win percentage. 1989-92 was the only period in which they lost more games than they won over the past 30 years. Finally, the line of best fit through their cluster of data points resembles the upper left quadrant spanning from 9 to 12 on a spherical clock. This appears to represent the diminishing marginal returns that occur at the top end of the win curve. Adding more payroll improves the talent base and win totals to a point. Then each additional win becomes more costly than the previous one.

Said another way: each additional dollar invested in the roster achieves fewer fractions of a win. Nevertheless, the New York Yankees are likely rational in spending these last few millions of dollars. They have a different internal rate of return than the rest of the league and are well within reason to overpay on a per win basis at the upper end of the scale to ensure they maximize their chances of making – and winning in – the playoffs while reaping the revenue hikes associated.

The Yankees financial advantage should continue to drive a large part of the team’s record if this trend articulated by Davis and Lopez continues to hold. Their ability to sign the best free agents, maintain the star homegrown players, take on salary at the trade deadline, and target international talent provides a competitive advantage that figures to persist in the future as reflected in their seasonal win totals.

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