Getting More from Less
Major League Baseball is a unique sport because of the lack of a salary cap. As a result, there is a much larger gap between what the most prosperous clubs spend on their teams and what those in the bottom rung of revenues spend. To put the spending into context consider how MLB stacks up against its bigger competitor: the NFL.
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The difference between the biggest spender (the Denver Broncos) and the smallest spender (Cincinnati Bengals) is roughly $33 Million. This is a function of there being a salary cap that limits the spending of the biggest budget teams.
In Major League Baseball, the difference between the biggest spenders (the New York Yankees) and the smallest (Houston Astros) is a slightly larger $202 Million. The Yankees spend roughly $6 Million more per player than the Astros. That figure is even a little misleading because the Yankees massive salary is spread across 33 players (so far this season) while the Astros have only had 27 players count thus far.
The key to running a baseball team well is getting a good bang for your buck, regardless of your budget. The image below shows how teams across MLB compare to the league average and one another:
As you can see, there are a few outliers that likely pull the league average up. The Yankees (NYA) and Dodgers (LAN) for example have salaries north of $220 Million, more than double the league average. On the other hand, the Astros (HOU) and Marlins (MIA) boast salaries below $40 Million, the opposite end of the spectrum.
So how do the Orioles stack up against competitors? In the American League East, the Orioles come in second to Rays when it comes to bang for their buck. In order to determine how wisely teams use their money, I took their committed 2013 salaries, and figured out how much they’ve used to this point in the season. In the O’s case, 43.8% of the season is over with, meaning they’ve effectively spent $40 Million and change of their total $92.2 Million in commitments for 2013. Dividing that number by the number of wins each club has gives you their cost per win ($/Win) below:
This, to me anyway, is impressive. The O’s may be second in the division to the Red Sox, but they are currently paying almost $700,000 less per win to get to the 40-win plateau.
All of this may not seem like a big deal, but the reality of the situation is that not every team has the luxury of revenues in the billions like the New York Yankees. Every team operates within a budget to one degree or another. For some it is closer to the luxury tax threshold, and for others it is tied closely to their annual revenues. For every LA Dodgers (salaries are up 128% over last season) there is a Tampa Bay Rays (salaries are ‘down’ 1.5%). While Tampa Bay takes every effort to keep their salaries consistent from year to year, teams like the Dodgers can more than double their salaries after the signing of a new TV deal (and new ownership).
One benefit of keeping your cost per win low is that you can then spend that money in other areas of the club. Teams like the Rangers, Cardinals, Athletics, and Rays have built competitive teams by managing salaries, allowing them to spend savings on the farm system, scouting, player development, etc. O’s fans should be ecstatic to see the club doing well once again with getting a good bang for their buck.
For the Orioles to be competitive, it will take a lot of things going their way. One way they can help themselves is for Dan Duquette to continue finding valuable yet cheap players (Miguel Gonzalez for example) who provide a lot of surplus value to the club. This will go a long way when the team looks into locking up young stars like Matt Wieters of Manny Machado. Keep an eye on this in the coming years, because while salaries may not get up to that magical $100 Million dollar mark as quickly as fans like, it might just mean that the team is focusing more on extracting value from the guys they can get at discount rates. Surplus value is crucial, no matter where it comes from.
**All data from this post from Baseball Prospectus.