Evaluating Spending Efficiency in Major League Baseball

In this new era of big spending in an evermore competitive marketplace, efficiency has become crucial to a given team's success. If a team fails to be efficient with its resources, it will not have an opportunity to compete for a postseason spot. Efficiency comes in all forms, but the primary focus of this piece is pointing out the teams that have produced the best overall results through limited resources in the past, hopefully leading to an insight into how to have a successful future. The goal of every consumer is to get the most while spending the least - baseball should not be treated differently. A team that can limit spending while still seeing favorable outcomes is fundamentally going to be more successful in the long run. A scale of the most efficient teams and seasons will be given by accounting for different levels of cash spent as well as overall wins and run differentials.

Methodology

As with most of these articles, if you’re more interested in the results than the mathematical process, feel free to skip ahead. Including the process of my findings is essential to being able to prove what I’ve found, but it may not be essential to you the reader. Seeing as you’re still here, let’s dive in.

Sample

To make sure only the most accurate data was utilized, only the 2013-2021 seasons were used (excluding 2020), yielding 240 team years to look at. Spending data before that beginning point was not clear enough to factor into the evaluation. All cash spending included was made completely relative, meaning that the amounts spent were adjusted to be relative to that year's average. This allowed many figures to be more accurate, as spending in 2013 is simply not equal to that in 2021.

Developing the Formula

Deeming an efficient team as one that produces the best with the fewest resources, developing a formula relied on a given team benefitting if they managed to spend less and produce more value than average. To measure that value, simple win percentages and run differentials were considered.

Knowing how value was measured, the question then transferred over to measuring spending. Obviously, a team needed to spend less as a whole to be considered efficient. The total amount of cash used was considered to include every possible factor in a team's strategy. As mentioned in the sample excerpt, everything is relative. A team's total cash spent for a given year was scaled in relation to the average total cash spent that year. This yielded spending scores, the last essential part of crafting the formula.

Both win percentages and run differentials were considered equally. Hence, two parts of the equation were calculated: the rate at which teams spent on run differentials and the rate at which teams spent on win percentages. But not only the rates were considered. There needs to be more context.

If a team spent dollars and produced below the MLB average, that spending cannot be considered efficient whatsoever. They had no chance at the playoffs and the money that follows from those extra wins. The same logic goes for run differentials - if they were not better than the MLB average then the team's spending is considered non-efficient. The value of wins (and therefore runs) in given situations can be considered within another topic, but for the sake of simplicity, a team must have produced above the average to be considered efficient. Hence, any team with a positive run differential and win percentage received a positive efficiency score, while a team with a negative run differential and win percentage received a negative efficiency score.

With all the factors, devising the formula was somewhat simple. Simple multiplication and division were all that was needed, with only some weighting. As both factors need to be equal, both were weighted and set to relatively equal figures. The scores were calculated from these formulas:

RD Efficiency Score = (Run Differential / Cash Score) * 0.00066107

WP Efficiency Score = (Win Percentage - .500) / Cash Score

Efficiency Score = RD Efficiency Score + WP Efficiency Score

The Results

As mentioned, the scores were based on individual years for teams. For a given year, the teams with the highest efficiency scores were the most efficient at producing wins with fewer resources. Before diving into what teams were actually the most successful, let’s provide context to the whole sample. The range of Efficiency Scores was from -0.167 to 0.422, with the median at 0.042. The majority of scores fell between the -0.01 to 0.04 mark (which is somewhat around the median), although the sample didn’t exactly experience a normal distribution. This chart showcases this:

Distribution of the Efficiency Scores in the sample.

The team seasons that clearly rose above the rest started around 0.19, which puts them at about the 91st percentile. 22 total team seasons cleared this benchmark, with many of the same teams having multiple seasons. The Tampa Bay Rays and Oakland Athletics dominated the list on top, with teams like the Astros and Indians not too far behind. These teams have been consistently touted as some of the most progressive thinkers in all of baseball, which is why the following list of the Top 5% most efficient team seasons should not be surprising.

The top 5% of Efficient Season Scores.

To be successful, a team needs to be efficient for an extended period of time. The following teams had the most seasons that ranked within the top 20 percent in efficiency during the sample.

The number of seasons a given team had in the top 20% of efficiency scores in the sample.

Analyzing the Results

The above section is packed full of data, some of which can be easily confusing. What aspects of this data mean something, and how should these findings be interpreted? For starters, team efficiency is not an absolute concept. This is probably somewhat obvious, but it is worth clarifying that teams experience a scaled degree of efficiency within a given season - this is not a yes or no concept. Judging on a scale allows for some teams to be ranked above others, which rewards the proper deserving parties. Quantity also comes into play - a team must be able to have high-efficiency numbers for multiple seasons. A single efficient season could be allotted to luck. Lots of efficient seasons reveal a skill. Keeping those key points in mind, both data sets will be evaluated separately.

The Most Efficient Team Seasons

Referencing the Most Efficient Team Seasons chart, the clear number one is shown to be steps ahead of everyone else. In 2021, the Tampa Bay Rays had a 0.422 efficiency score, or about one standard deviation above anyone else. They spent a minuscule $84.7 million in cash (59.1% of the average cash spent in 2021) that season and managed a .671 win percentage with a +200 run differential, winning the AL East. Such a result surely seems like a fluke, although that is not the case. The Rays also had the second most efficient season during the sample, with their 2019 team narrowly beating the 2018 Oakland Athletics. Their keen analytics ability is known throughout baseball, ultimately being so good that their record makes it hard to tell that they are at a large spending disadvantage. Tampa Bay may not have the biggest quantity of efficient seasons in the sample, but as of now, I believe them to be the most efficient team in baseball.

A number of other analytically-driven team seasons appeared in the top 5%: the Houston Astros, Oakland Athletics, Cleveland Indians, Minnesota Twins, and Seattle Mariners. The former two had multiple appearances, with Oakland appearing as the next most efficient team behind the Rays. The analytics of Moneyball may now be obsolete, but the Athletics have adapted. Faced with one of the lowest cash balances in baseball year-over-year, they continue to compete for playoff spots, with this year being an exception. Houston has also had success, having a similar number of appearances a bit lower on the list. Books such as Astroball have shown how innovative they had to be in order to be successful, which has paid off through their conservation of resources that still yielded great results.

The 2017 Cleveland Indians spent a decent bit of money with their $147 million in cash disbursements (94.8% of MLB average that season), but their record was 130 points above .500. That success was paired with an incredible +251 run differential. They were an absolute behemoth, and all they needed to spend was roughly the MLB average to be successful. The Minnesota Twins are known to be on the edge of analytics, although the extent of their ability to utilize data is not as widely known as the Astros or Rays. Their impressive 2019 season could have possibly been a fluke in happening to be efficient, especially with their run differentials not matching well with their win percentage. An answer is not entirely clear, though, as the Twins have managed some success outside of that season. Seattle has also been known to deal with budget limitations, which has not helped their playoff drought. Their 2021 season was one of the most efficient in baseball, but it was not enough to get them into the postseason. In fairness, their “most efficient” season was erred with a horrendous Pythagorean Win-Loss (the projected win percentage based on runs allowed versus runs against), making the efficiency aspect likely a fluke. However, Seattle has done much better since spending more.

The Most Efficient Teams

Now viewing the chart of seasons within the top 20%, the Indians surprisingly come in as the sole number one. They had 6 appearances on the list, or 2 more than the next closest team. Money-wise, the team tends to spend around the league average. Based on an average efficiency, one would expect them to produce wins and runs at about the league average. That is not what has happened - Cleveland has been a continually competitive team with multiple playoff appearances and even an AL pennant. Knowing that they weren’t the biggest market, the team recalibrated to beat the spending goliaths of baseball. And through research and analysis, Cleveland has built a system that consistently provides them with cheap talent. They do not over-leverage their resources, opting for long-term wins over short-term gains.

There is a five-way tie for second with the Oakland Athletics, Los Angeles Dodgers, Tampa Bay Rays, Washington Nationals, and Houston Astros all having 4 appearances a piece. Oakland should not be a surprise - they have been winning consistently, and everyone knows that they still have one of the lowest cash spending rates in baseball. The Dodgers spending lots of money may hurt their efficiency ranking, but by winning as much as they do, they were bound to appear on this list. Even spending lots of money can be efficient if the proportion of that money garners enough wins. The Tampa Bay Rays don’t really need much further explanation. They are extremely smart, don’t have a lot of cash to spend, and still manage to win. Ranking the highest in the most efficient team season category above, the consistency of their efficiency further proves Tampa's legitimacy. The Nationals are somewhat of a surprise, but mainly due to the mega-deals that they have signed recently. They were still very good over the past decade, although this efficiency streak will likely not continue in the future due to their current outlook being so bleak. After being bought by Jim Crane, the Astros revamped approach to baseball has been fruitful. By hiring some incredibly bright minds to reapproach the regular strategy in baseball, they have produced an incredible amount of wins while utilizing a new influx of cash (something that is likely to continue).

The rest of the teams were not incredibly notable. Some can be easily owed to flukes, while others had publicized augmented approaches that added incredible value. The Braves specifically come to mind with this, as they’ve been able to sign their all-star caliber talent for well-below market value. Factors such as these will obviously lead to an increase in efficiency, as the whole idea of efficiency scores is extracting as much value for as cheap as possible.

Conclusion

Like any great business, a baseball team needs to be efficient to be successful. Having a massive amount of cash does help, but it is far from being the only contributor to success. The team must actually spend those dollars wisely in order to yield the most amount of wins from the least amount of resources. The teams that are able to do this showcase a skill, which deserves merit. The Tampa Bay Rays and Oakland Athletics both had some of the most efficient team seasons in recent history. That defies the common dogma that money is everything in baseball, but that methodology has been proven untrue anyways. The Cleveland Indians were considered to be in the Top 20% of the whole sample in efficiency in 75% of their seasons, something that no other team came close to doing. Analytically progressive teams generally outperformed those who were considered more conventional thinkers in these ratings, although no hard conclusion can be made due to the lack of knowledge concerning which teams are more advanced than others.

When a team leverages its resources more than others, they separates themselves from the competition. They use less cash and consequentially have more cash to spend in the following year. This cycle can continue, which shows how essential this concept is to a team’s sustainability. A team may garner lots of wins, but if they used more resources than they should have, they’re doomed to hurt themselves in the future. The teams specified above are the ones that are not only looking to win now (for the most part) but ensuring that they can continue to win in the future. Their profits will continue to roll in, and assuming there are no major detrimental changes in management, they will continue to grow. By utilizing efficient spending methods, these teams have helped their future success.

Sources:

Spotrac.com

"Billy Beane - General Manager Oakland A's" via Leaders Event licensed under CC BY 2.0