Finance Uncategorized

Which MLB franchise was the most cost-efficient in 2014?

Find out which club, according to the OFFER formula, was the most cost-efficient of the 2014 MLB season.

(Christopher Hanewinckel-USA TODAY Sports)
(Christopher Hanewinckel-USA TODAY Sports)

This is the final post in a four-part series explaining the O.F.F.E.R. statistic: On-Field Financial Efficiency Rating. The OFFER statistic is a comprehensive yet imperfect formula developed by the author as a loose measurement for MLB franchise financial efficiency. Factors include individual team payroll, regular season wins, playoff games/wins and projected revenue production per win. The OFFER statistic values organizational productivity without factoring irregular variables such as city/market size or the financial worth of individual owners. Here’s Part 1Part 2; and Part 3.

The 2014 MLB season came to a close after the San Francisco Giants outlasted the Kansas City Royals in a scintillating seven game series. Therefore, all 2014 season statistics are final, a World Series champion has been crowned, and the individual OFFER scores can finally be calculated.

So who, according to the OFFER formula, was the most cost-efficient team of the 2014 MLB season? Scroll down if you want to skip straight to the results. But first, here’s how we came up with the answer:

OFFER FORMULA (BASIC)

OFFER formula basicSALARY EFFICIENT FACTORS/DENOMINATOR

X – 2014 MLB average team payroll – $103,391,137

Y –  Individual team payroll (2014) – To be determined

Z – Total regular season games played – 162

When calculating an individual team’s OFFER score, the always constant X variable, set at $103,391,137, will be divided by that individual team’s total payroll in 2014. That number (X over Y) will then be multiplied by the factors for on-field productivity and win-curve factors [bracketed on the right side of the nominator in the equation].

The resulting total in the nominator is thereafter divided by 162 (Z). The denominator is set at a constant 162 to represent the equal opportunity that all 30 MLB have to win games and generate revenue in a single season, as well as to reflect the bonus revenue value generated from a postseason appearance and/or World Series championship.

ON-FIELD PRODUCTIVITY FACTORS

A – 2014 Regular season wins – To be determined

B – 2014 Postseason wins + postseason series played/advanced (in a season without World Series championship) – To be determined

C – 2014 Postseason wins + postseason series played/advanced (in a season with World Series championship) – To be determined

The variables A, B, and C are pure measurements for on-field productivity in a single season (wins), and when calculating an individual team’s OFFER score the values for A, B, or C will vary based on the outcome of their individual season.

All 30 teams will have a positive value for A for regular season wins, only nine teams will have a positive value for B (the total number of teams who advanced to the playoffs but failed to win the World Series), and only one team will have a positive value for C (the San Francisco Giants, who will have positive values for A and C, but not for B).

To further explain, let’s quickly calculate the on-field productivity values for the San Francisco Giants, Kansas City Royals, and the New York Yankees in 2014.

The San Francisco Giants won 88 regular season games this year, so their value for A would be 88. They beat the Pirates in the Wild Card game (1 win + 1 playoff series = 2), the Nationals in the NLDS (3 wins + 1 playoff series = 4), the Cardinals in the NLCS (4 wins + 1 playoff series = 5), and then the Royals for World Series (4 wins + 1 playoff series = 5). So the Giants assignable value for C is 16 (2 + 4 + 5 + 5).

San Francisco: A = 88; B = 0, C = 16

The Kansas City Royals won 89 regular season games this year, so their value for A would be 89. They, like the Giants, won a Wild Card game, over the A’s (1 win + 1 playoff series = 2), the ALDS against the Angels (3 wins + 1 playoff series = 4), and the ALCS against the Orioles (4 wins +  5). But the Royals fell short of a World Series title, winning only 3 games before ultimate defeat (3 wins + 1 playoff series = 4). Therefore, the Royals assignable value for B is 15 (2 + 4 + 5 + 4).

Kansas City: A = 89; B = 15, C = 0

The New York Yankees won 84 regular season games this year but failed to reach the postseason. Therefore, the Yankees’ value for A will be 84, but they will have an assignable value of 0 for both B and C, because they did not actually play in any postseason games.

New York: A = 84; B = 0; C = 0

WIN-CURVE FACTORS (w-factors)

The w-factors serve dual function in the OFFER Formula. The first function is represent the average revenue-per-win (RPW) generated by a MLB team in three separate season types: 1) non-playoff season, 2) playoff appearance season, or 3) World Series championship season

Aw = Win-Curve ratio: average revenue generated per regular season win in a non-playoff season (substituted in the equation with a1, a2, or a3) – 1.513264178

Bw = Win-Curve ratio: average revenue generated per regular season win in playoff season – 1.83776446

Cw = Win-Curve ratio: average revenue generated per regular season win in World Series season – 1.997832513

Win-curve 3 Levels

NOTE: For further clarification on the win-curve and the w-factors in the OFFER formula, see Part 3.

WC Tables

The second function of the w-factors is to serve as either a increase variable (a2 & a3 > 1) for making the playoffs, or decrease variable (0 < a1 < 1) for missing the playoffs. To reflect this second function, the variables a1, a2, and a3 are substituted for where Aw would logically go in the OFFER equation (see below).

a1 = Aw/Cw – Penalty value for missing postseason – 0.757452973

a2 = Bw/Aw – Bonus value per win in postseason year – 1.214437298

a3 = Cw/Aw – Bonus value per win in World Series year – 1.320213973

Calculating the OFFER Scores

The OFFER formula can be simplified from the basic, single equation into three separate equations; only one of which will be applicable for calculating an individual team’s OFFER score.

Screen Shot 2014-10-16 at 5.48.13 PM

So, the Yankees individual numbers will be plugged into the top ‘a1’ formula for missing the postseason, the Royals individual numbers will be plugged into the middle ‘a2’ formula for a postseason appearance, and the Giant’s numbers will be plugged into the bottom ‘a3’ formula for a World Series Championship.

The best way to explain how the OFFER score is calculated at this point is just to walk through it step by step. First, we must fill in all of the constant variables into the simplified OFFER formulas.

X, Z and the w-factors (Aw, Bw, Cw, a1, a2, a3) all maintain constant values.

Once the constant variables are inserted into the universal formula(s), we plug in the individual team variables for total payroll and on-field production (wins).

OFFER Formulas SimplifiedThe resulting value produced is then multiplied by 100 for scaling purposes, and the final number generated from the equation is the team’s OFFER score.

New York Yankees

2014 team salary: $208,830,659 = Y;    

2014 regular season Wins: 84 = A;   

Applicable w-Factor formula: Missed postseason (a1)

Yankees OFFER Score

Screen Shot 2014-11-04 at 1.05.30 PM

 New York Yankees 2014 OFFER score = 19.44

Kansas City Royals

2014 team salary: $90,481,500 = Y;  

2014 regular season Wins: 89 = A;  

2014 postseason wins/series: 15 = B;  

Applicable w-Factor formula: Postseason Appearance (a2)

Screen Shot 2014-11-04 at 11.41.21 AM

Screen Shot 2014-11-04 at 11.46.46 AM

Kansas City Royals 2014 OFFER score: 95.68

San Francisco Giants

2014 team salary: $148,239,158 = Y;  

2014 regular season Wins: 88 = A;  

2014 postseason wins/series: 16 = C;  

Applicable w-Factor formula: World Series Championship (a3)

Screen Shot 2014-11-04 at 12.46.51 PM

Screen Shot 2014-11-04 at 12.51.50 PM

San Francisco Giants 2014 OFFER score: 63.78

2014 MLB OFFER SCORES

[2014 Team Payrolls and Regular Season Standings]Screen Shot 2014-11-04 at 2.57.20 PM

OFFER Statistical Analysis

Ladies and Gentlemen, your 2014 OFFER champions: The Kansas City Royals!

The Royals advanced as far a team can without actually winning the World Series, and they made it there with a payroll ($90.5 million) nearly $13 million under the MLB average. That nearly perfect blend of salary efficiency and on-field production from the Royals organization provided it the highest opportunity for revenue return on the dollar in all of MLB this season.

The top 5

1) KC – 95.68;  2) OAK – 89.84;  3) PIT – 89.12;  4) MIA – 86.87;  5) BAL – 78.62

Its no surprise to see Kansas City, Oakland, Pittsburgh and even Baltimore at the top of the list. First of all, all four teams reached the postseason. We already covered why Kansas City is No.1.

Oakland and Pittsburgh made the playoffs with the 4th and 5th lowest payrolls in MLB, and if either team advanced past the Wild Card game it’s likely one of them would’ve topped the OFFER score chart.

Baltimore advanced to the ALCS with a total payroll just above the league average, which was good enough for a top 5 OFFER finish; right behind . . . Miami.

Bizarre as it may seem to find the Marlins, a team that missed the postseason, at 4th overall on the OFFER board, it’s not all that surprising when considering the factors at hand. The Marlins were still in playoff contention for a majority of the season, generating revenue well after the All-Star break in July. They won 77 games in the regular season, and it only cost them a little more $41 million in payroll to reach that total.

So Miami spent approximately $543,336.36 per win (lowest in MLB). Even though they didn’t see that incremental profit boost from making the playoffs like the other four teams in the top 5, they generated enough wins/revenue at such a small cost that the Marlins franchise was in fact, one of the most cost-efficient franchises in 2014.

The next 5

6) HOU – 75.22;  7) STL – 73.26;  8) LAA – 69.79;  9) SF – 63.78;  10) WAS – 58.86

Again, four of the five teams in this group reached the postseason, with the outlier of course being the Astros.

Like Miami, Houston ranks fairly high as a result of their astoundingly low payroll (approximately $45 million). St. Louis is a perennial playoff contender, and they finish 7th overall in OFFER ratings. The Cardinals franchise, along with the A’s, are model OFFER organizations in light of their efficient history of successfully balancing payroll and on-field production.

The Washington Nationals (6th highest payroll, 96 wins) and the L.A. Angels (10th highest payroll, 98 wins) paid a lot for their production in 2014, but it was money well spent, as each team led their respective league in overall record. Unfortunately, neither team advanced past the divisional rounds.

San Francisco, the World Series champion, curiously comes in at 9th overall in OFFER efficiency. Remember, according to Genarro’s win-curve, a franchise will secure their greatest opportunity for increased profits immediately upon postseason birth. Winning the World Series will boost the Giants’ revenue production to another level, but only slightly higher than the other nine teams who made the playoffs.

The Giants had the 6th highest payroll in MLB, and they just barely qualified for the 2014 playoffs with 88 wins. If not for their remarkable playoff run, their OFFER rating would’ve registered in the middle of the pack.

Can’t put a price on a championship though. I wonder if, in hindsight, Royals owner David Glass would trade $48 million cash to bring that long-awaited World Series trophy back to Kansas City (the difference between San Francisco and Kansas City’s 2014 payrolls).

The middle 10

11) CLE – 49.81;  12) CHC – 47.34;  13) SEA – 46.97;  14) TB 45.37;  15) NYM – 45.31;  

16) DET – 44.93;  17) CHW – 41.56;  18) SD – 41.41;  19) MIN – 39.85;  20) ATL – 39.00

Nothing too out of the ordinary in the middle of the pack. The lone playoff team of the group is the Detroit Tigers. Detroit had the 4th highest payroll in MLB, won their division, and then got swept in the ALDS. Their salary efficiency was below average, but their on-field productivity was above average. Accordingly, the law of averages take balancing effect and Detroit finishes right in the middle of the field for OFFER efficiency.

All nine of the other teams ranking in the middle 10 maintained payrolls that fell in the bottom 50 percent of MLB, but none of these other nine teams listed in this group qualified for the postseason. Again, balancing forces are at effect. These organizations expended below the league average on player salaries, but their return production on the field (wins) was below average as well.

The almost bottom 5

21) MIL – 38.59;  22) CIN – 32.69;  23) LAD – 32.16;  24) COL – 32.04;  25) TOR – 31.01

At this point, it should be fairly clear why the Brewers, Reds, Rockies and Blue Jays rank in the bottom third of MLB for OFFER efficiency. The Los Angeles Dodgers however, at 23rd overall, registered the lowest OFFER score for any organization to make the postseason in 2014. Why?

It might have something to do with that $241 million payroll, which is $138 million above the league average. Not to mention they only won one postseason game before bowing out in the NLDS against St. Louis. Exceptionally high cost for only slightly above average productivity results.

The Dodgers intentionally broke the bank to ensure a postseason birth and secure their major brand over the last two seasons. Having accomplished that goal, albeit at astronomical cost, the Dodgers brought Andrew Friedman on board to cut down that payroll, and increase that OFFER score.

The bottom 5

26) AZ – 27.67;  27) TEX – 24.44; 28) BOS 22.23;  29) PHI – 19.65;  30) NYY – 19.44

Last and least efficient, the bottom five. Arizona paid above the league average for the league’s worst record (64 wins). Texas won three more games than the D-backs (67 wins), spending $132 million along the way.

The Red Sox’ 5th highest payroll was good for the 6th worst record in MLB (71 wins). The Phillies spent approximately 4.5 times the amount on their payroll ($179 million) than did the Marlins ($41 million), and still finished the season four games behind Miami.

And finally, the LEAST cost-efficient team in baseball in 2014, the New York Yankees. The Yankees spent 2.7 times the amount of the Oakland Athletics on payroll, and yet they fell four games short of Oakland for a birth in the postseason.

0 comments on “Which MLB franchise was the most cost-efficient in 2014?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: