An Analysis of the Impact of Team Payroll on Regular Season and Postseason Success in Major League Baseball

Major League Baseball, like other American professional sports, has become a multibillion dollar industry. The institution of free agency has led to the escalation of payrolls and altered the make-up of rosters by dramatically reducing owners’ monopsony power. The ability of large market clubs such as the New York Yankees to compete continually for the game’s greatest prize illustrates the power of the dollar. This paper examines four distinct periods from 1977 to 2008 in order to assess the influence of pecuniary advantages on regular season and postseason outcomes. Payroll exerts great influence in the regular season, but not in the playoffs. A time series graph of slope coefficients from regression analyses indicates that an additional ten million 2008 dollars produces between one and three wins depending on the season. In addition, we test several other potential indicators of postseason success and find that October baseball is a truly random event