Baseball success and the structure of salaries

Abstract

The purpose of this research is to examine some competing assumptions regarding the hiring behaviour of major league baseball clubs. One hypothesis is that owners and general managers of teams enter the free agent market with a view to attracting the best talent available in order to win games. We might refer to this as the ‘win games’ strategy. A potentially alternative view is that they compete in this market for marquee players who will attract paying customers to the ball park. We can refer to this as the ‘fannies-in-the-seats’, or revenue, strategy. While these hypotheses are not necessarily inconsistent, we can imagine that for some teams, at some times, they are alternative approaches to hiring behaviour. A team committed to the ‘win games’ strategy may attempt to spread its resources in order to hire as many good players as possible without necessarily hiring elite players. A team committed to the revenue strategy may be content to surround a superstar with second rate talent. In order to test these hypotheses we intend to specify estimable models that relate, alternatively, team attendance, winning percentage and division, pennant and world championships to, among other relevant explanatory variables, its salary structure.