In modern baseball, does it pay to spend?

In this age where pitchers can make $1 million per start and players are being signed to deals nearing $300 million (or more, if you’re Giancarlo Stanton), it’s hard to imagine that a team who can’t afford to offer such deals would be able to compete at all. If the top team salary in the league is nearly four times the bottom, how could those bottom teams possibly compete regularly?

Before looking at the how, the fact is that they do. In 2015, the Astros began the season with the second lowest payroll in all of baseball and won a Wild Card. While the two highest paid teams did make the Postseason in the past year, they won a combined two games (both by the Dodgers in their NLDS loss to the Mets), and none of the teams from three through eight did, while the rest of the Postseason teams were pretty well distributed as far as salary is concerned. Not just in 2015, this has been the case for years including the 2014 Rays, 2013 Padres, 2012 Pirates, and 2011 Rays, who all made it to the Postseason with salaries among the bottom three teams in the league.

There may be a slight advantage to paying more than the minimum amount for a roster, but there doesn’t seem to be a great advantage in spending more than double the competition. Since 2011 (all the stats used will be since 2011 unless otherwise noted), MLB team payrolls have averaged $108.4 million, while those of playoff teams (eight in 2011, ten from 2012-present) have averaged just a little more at $117.6 million. This number is almost certainly inflated by the Dodgers and Yankees, who spent a combined $489.4 million in 2015, a year both made the playoffs (it drops to $104.9 million with the top and bottom two teams removed from each season). While this happened to work out in 2015, there has been no guarantee that spending more than twice the average payroll in baseball will get you a spot. Since 2011, eight of fourteen teams with payrolls above $170 million have missed out on the playoffs including the Phillies and Red Sox twice each.

Beyond the playoffs, there is the question if just increasing salaries helps a team win by itself. Considering that young players get automatic raises (and presumably improve) and big name free agents who are making the majority of that team salary are supposedly worth the amounts they are being paid, there should be a direct correlation. Below is a chart looking at the amount of money each team increased their salary per extra win (or loss) since 2011 with inflation in baseball taken into account. Teams who won more games than the previous season are included in the top group, those who lost more in the bottom, with those keeping the same record being excluded.

The chart above isn’t as helpful as one would want perhaps, but it is reality. Only from 2012 to 2013 do we see the results we would expect, as the teams who lost more games also decreased salary by about $1.2 million per extra loss while those who won more games paid an extra $923,000 per win. This was largely due to the Astros and Marlins dropping a combined $81.8 million in salary and losing 11 more games than the previous season. In two of the four seasons, teams who won more games than the previous year actually dropped payroll.

Since 2011, 35 teams have decreased salary from one year to the next despite an overall increase in MLB salaries (the aforementioned inflation which has averaged $7.34 million per team per year since 2011, the largest increase coming prior to 2015; $10.93 million) and of those teams, 15 have won less games than the previous season when they spent more. That means that in general, teams have actually played better after dumping salary and possibly the most perfect example is the Boston Red Sox.

From 2011 to 2012, the Red Sox added $11.4 million in team salary, largely made up of the escalation of Carl Crawford’s seven year deal and new contracts to Adrian Gonzalez and David Ortiz to keep them in Boston. That year, they lost 21 more games than the previous year, despite the extra payroll. Shedding a ton of salary the next season (more than $20 million, largely due to Gonzalez, Crawford, and Josh Beckett being traded to Los Angeles), the Red Sox relied more on homegrown players, like Jacoby Ellsbury, Dustin Pedroia, and Clay Buchholz and went on to beat the Cardinals in the World Series.

In 2013, the Red Sox added just $1.8 million overall, but gave a larger proportion of their total salary to free agents like Ryan Dempster ($13.25 million) and Stephen Drew ($9.5 million), ultimately losing 26 more games than the previous season. The near $28 million added prior to 2015 netted them seven more wins than the previous season and another last place finish. Just as signing Crawford and Gonzalez to mega deals ended up being a mistake, Boston did the exact same thing in 2015 with different players, giving Hanley Ramirez and Pablo Sandoval $37.35 million for 2015 alone and $183 million over the full length of their deals, not including option years.

Boston is continuing this trend again this offseason as they have already added the biggest (in total salary) free agent pitcher in David Price (seven years, $217M) and Chris Young for their already deep outfield at $13M for two years. With Mike Napoli the only major free agent leaving, the Red Sox will almost certainly have a much higher payroll next year and it most likely won’t equate to an equivalent amount of wins.

The primary reason that dollars don’t equal wins is that the current free agent system vastly overrates players who are already out of their prime. With teams holding control over players for their first six years of major league play, the average player doesn’t hit free agency until at least 29 years old.

Looking at the top 50 pitchers and top 50 hitters in fWAR last year, the average age of these 100 players was 27.6 and the average age of those with a fWAR of at least 5.0 was 27.3. This works well with the principle that a player hits their prime years from 27 through 29, although that timeline may be moving down. The number one and two players in baseball last year were Bryce Harper (22 years old) and Mike Trout (23 years old) and for their efforts they were paid $2.5M and $6.1M respectively. In fact, ten of those top 100 players were under 23 years old and 51 were under 28. While some of these, like Trout, have already been extended and handed guaranteed money, this money is nowhere near free agency value as teams are under no responsibility to pay them above the MLB minimum for the first three years (unless they reach Super 2 status) and considerably less than free agency value for the next three arbitration eligible seasons.

Most of the players currently signing giant deals, like Zach Greinke, Jeff Samardzija, and Jordan Zimmermann will be at least 30 next year and in 2015, only 21 players 30 or older were in the top 100 and only three above 34 years old (A.J. Burnett was the outlier at 38). Of those players, only five had a WAR above five while another five (all pitchers) had one below three.

It is this overvaluation of elderly players financially that allows the cheaper teams to compete with the more expensive. More often than not, teams have to overpay so much for free agents that if the players don’t play at the same level that they did when younger, they have to make giant concessions to get around it. For a team like the Dodgers, who saved the Red Sox by taking the salaries of Crawford and Gonzalez off their books, this extra cost is literal as they had to pay the Padres to take on Matt Kemp’s considerable salary and now have had to pay Brett Anderson $15M and Hisashi Iwakuma $45M over three seasons just to fill out a starting rotation. Since they have already jumped into the ideal of purchasing a team rather than building one, they don’t have the ability like some teams (the Rays, Twins and Indians come to mind) to just plug in players from AAA and feel confident with them.

One final aspect of the increasing salaries in recent years is that only nine teams have increased salary each year from 2011 through 2015. Of these are a couple of surprising teams that had almost no choice as they were at the very bottom of the list, the Indians and Pirates. A few others, like the Rangers and Royals, have increased each year by small amounts to allow for the aging of their players and to add a few pieces here and there (only the Nationals and Dodgers have added more total salary since 2011). Then, there are the Tigers.

The Tigers have added salary each year since 2011 and have had consistently worse results since 2012 after they lost the World Series, losing in the ALCS in 2013, then the ALDS in 2014, and finishing last in the AL Central in 2015. They are already well on their way to increasing that salary for a fifth straight season with the addition of Zimmermann, but throwing more money at the problem doesn’t seem to be the answer.

Detroit already owes an incredible $520.6 million to six players (including $30 million to Prince Fielder, who plays for the Rangers) through the year 2020 (not including Miguel Cabrera’s guaranteed years after 2020, of which there are four with two vesting options). That number equates out to $22.6 million per season per player for the likes of Justin Verlander (2.8 WAR in 2015, 32 years old), Cabrera (4.3 WAR, 32 years old), Victor Martinez (-2 WAR, 36 years old), Zimmermann (3 WAR, 29 years old), Anibal Sanchez (0.9 WAR, 31 years old), and Ian Kinsler (4.2 WAR, 33 years old).

These are the sunset years of the red giants of baseball salary. For those who can’t or won’t dump salary like Boston, big money teams are subjected to the options of falling into last place or continually adding onto salary. It is the fact that teams like Detroit do this that gives fans of teams outside Los Angeles, New York, and Boston a little bit of hope. The style of winning that banks on free agency (or even high end extensions) is not sustainable, largely because players demand so many years of guaranteed money, yet provide a much smaller amount of guaranteed performance. This is the primary reason that teams who focus on developing and keeping talent with a low payroll have been nearly as successful over recent seasons.

In the five years under question, the Red Sox, Phillies and Angels never paid their roster less than $135 million and have averaged $159.2 million since 2011, each making the Postseason a single time during that span. The Astros, Indians, Rays, and Athletics, on the other side of the spectrum, have never paid a team more than $88 million, averaged $66.2 million since 2011, and made seven playoff appearances compared to the three by Boston, Philadelphia, and Los Angeles. It isn’t fun to root for a small market team during the winter when is seems like everyone is out there spending hundreds of millions of dollars, but it turns out you’re not alone (there were 20 teams with less than $125 million in team salary in 2015) and that in the end, there are things in baseball much more important than money.

One of the teams consistently listed among the top spenders does seem to have learned their lesson. The Phillies inflated their team salary to incredible levels in 2012 and again in 2014, handing out mega deals to Ryan Howard, Cliff Lee, Cole Hamels, Chase Utley, and Jonathan Papelbon. Now, with a change of heart, only one of those players (Howard) remains on the roster and they have just $23.7 million on the books for 2017 and $2 million (Matt Harrison’s buyout) for 2018. Instead of perpetually trying to add to the top of a precarious Jenga tower of a baseball team, they finally realized it was time to blow things up and start over. While they had a poor season in 2015, they are in a great position for the future. It’s not as flashy as making it rain, but since spending more doesn’t automatically mean a team will win more, it certainly seems like the cheap way is the smartest way to run things.