Team payroll and team performance in major league baseball: 1985-2002

This paper examines the relationship between team payroll and team performance in major league baseball from 1985 to 2002. The results indicate that the relationship has changed over time. Unlike the early years, there is now a much clearer relationship between payroll and performance. Specifically, in the latter part of the 1990s and continuing into the 21st century, the greater the team payroll and the more equally this payroll is distributed among team members, the better the on-field performance of the team. This is a problem of particular concern because of the growing disparity in team payrolls which, in turn, affects the competitive balance of the sport. This growing disparity was also at the heart of last year's contract negotiations between players and owners.