When Money Does Buy Happiness, World Series Edition
A few days ago, I came across a parody of a MasterCard commercial with the tag line "There are some things money can't buy ... the World Series isn't one of them."
Now, I like baseball as much as the next person (probably more so, actually), but I am more of an economist than specifically a sports person, so I am most intrigued by the dollars and cents behind the business of baseball. (In fact, as I was going through the data referenced below, my best friend commented "You're busy sucking all of the fun out of the nation's pastime, aren't you ..." Excuse me if some people thing that math *is* fun. Sheesh.) As such, the video prompted a few general questions in my mind:
1. What has happened to the size of team payrolls over time? In other words, have players (and by extension World Series titles) gotten more expensive?
2. Does money buy happiness, or World Series titles at least?
3. Why do some teams spend so much more than others? "Should" they spend so much (or so little)?
I will attempt to shed some light on the first question here, and I will address the other questions in an ongoing series of posts.
I assume that there has been a lot written about baseball payrolls (I'm too lazy to actually do my homework on the matter), since there are a lot of numbers-oriented baseball fans out there. (One visit to the Society for American Baseball Research web site will confirm this). But, despite the fact that Michael Porter is a Senior Advisor on Strategic Planning for the Boston Red Sox, economists in general haven't lent their analytical skills en masse to the baseball industry just yet. That said, we have a lot to offer in terms of our ability to tease out causal relationships and such, so bear with me here.
To analyze the above issues, I pulled team payroll data from Baseball-Reference.com, which has the numbers for 1985-2009. Twenty-five years is not quite ideal, but it's at least a good starting point to see patterns. I also took the liberty of adjusting all of the payroll numbers to take inflation into account (I told you I am a nerd), so all of the numbers reported are comparable to 2009 dollars. I'll start with some basics regarding the evolution of team payrolls:
Average Annual Growth Rate: 6.4% Overall, 6.8% for AL, 5.9% for NL
(Throughout the graphs, AL refers to American League and NL refers to National League).
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