Why doesn't paying win like it used to?

For a while in the late 1990s it seemed like the final standings in baseball were a foregone conclusion. The relationship between payroll and winning topped out in 1998 and 1999 with a correlation of .68 and 0.71. In 2000 and 2001 the relationship dropped to .32 and .31 as the Moneyball A’s racked up impressive win totals on a low budget. While this is a topic that has been addressed at length, I would like to add one more dimension to the discussion: locking in free agents.

Note that correlations differ somewhat throughout - whether calculated on opening day salary or end of year and all related variations. I am going by Dave Studeman's via the next link below.

Free agency only arrived in baseball in the 1970s so data on this phenomenon are already constrained. The collusion of the owners in the late 80s further clouded the issue and drove correlation down to extremely low levels. Dave Studeman at Hardball Times has the explanation:

In the first few years of free agency—the latter half of the 1970s—teams did take advantage of new opportunities by signing top talent to big bucks. It's no coincidence that this period coincided with the Steinbrenner Yankees' return to glory and the introduction of two bottom-dwelling, low-pay expansion teams (the Mariners and Blue Jays). These developments exacerbated the differences between the have's and have-not's.

Beginning around 1980, however, the picture changed as young, lower-paid talent began to make an impact on the pennant races. Players such as Eddie Murray and Cal Ripken in Baltimore, Rickey Henderson in Oakland and George Brett in Kansas City changed their team's fortunes before changing their payrolls. The Mets developed a gaggle of phenomenal, "cheap" young talent. This influx of top young talent helped change the picture in the early part of the decade. At the same time, bad contracts started appearing. The Angels became the first team known for its bloated, underperforming contracts.

Something else happened in the 1980s: collusion. In 1985, 1986 and 1987, free agents such as Andre Dawson, Tim Raines, Jack Morris and many others found no market for their services. It turns out that commissioner Peter Ueberroth had convinced major league owners that they should work together to refuse expensive, long-term contracts. The owners reportedly established standards of no more than three years for position players and two years for pitchers. As a result, average payroll actually declined in 1987.

The impact on the economics of winning was stark, and the correlation between wins and payroll reached two of their lowest points in 1986 and 1987 (0.17 and 0.15, respectively). Money was losing its power and competitive balance seemed possible. Trouble was, this was illegal. In three different cases, arbitrators ruled that the owners had colluded and eventually ordered them to pay damages.

What changed?

What I’m interest in is why the post-collusion, post-strike period of high correlation broke down. After the A’s (and others) pushed correlations down in 2000 and 2001, they popped back up into the 0.50 range by 2004 and hovered there for a while. The last several years, however, have drifted down to a 0.18 correlation in 2012.

Power rankings make my head hurt

ESPN.com produces some excellent analysis. Several of the writers working there can slice and dice data in ways that reveal thought-provoking, insightful conclusions. I have a weakness, however, for those delightfully qualitative pieces known as power rankings.

Even though I know that I should know better, I read them every week. I literally cannot stop myself from clicking on that link (figuratively, of course – I could quit if I really wanted to). Imagine, then, just how little control I had when I saw the NFL Future Power Rankings link on the lower right side of my screen. These rankings purported to give a quantitative look at the prospects of each team in the 2015 season.

I started to suspect something might be amiss when I looked briefly at the methodology. The methodology was to poll some of ESPN’s analysts and produce a weighted average of the results. There were instructions given for each category that seemed to make sense. Don’t consider players over 27 except at QB; look at the 2012 draft class, the team’s picks in the 2013-15 drafts and their track record in the draft.

In all, the five categories included Roster (ex-QBs), QBs, Draft, Front Office and Coaching Staff. The 4 analysts – Trent Dilfer, Mel Kiper (he of this track record), Gary Horton and Matt Williamson – voted 1 to 10 for each category and that was the extent of it.

The results of the survey looked all too familiar. There was Green Bay at the top, followed closely by New England, the New York Giants, San Francisco, Pittsburgh and Detroit. Not until seventh was there a team, Philadelphia, that failed to make the playoffs. Three of the four conference championship game participants made the top four. It did not appear to be significantly different from simply ordering teams based on their 2011 record. I decided to take a look at whether current year results are really that highly correlated with results in four years?