Examining Market Size and Team Performance: Major League Baseball (MLB)

Abstract 

This paper examines the relationship between market size and team performance in Major League Baseball (MLB). It focuses on the role of ownership and team management can affect the roster construction and team’s overall success. The MLB consists of 30 teams that each gain financial income through methods such as revenue sharing, broadcasting rights, and ticket sales. Since all teams have different market sizes, the amount of income varies depending on the market. The analysis focuses on the Oakland Athletics as a case study of poor management and low payroll which results in subpar performance and a decrease in fan engagement. Teams have different strategies when it comes to roster construction based on their market size. Big market teams like the New York Yankees have a substantial advantage when it comes to signing players because of their high revenue opposed to small market teams like the Tampa Bay Rays, which are forced to construct their roster differently by relying on analytics and smart management to counteract their low income. Disappointing contracts between the Yankees and Rays are discussed and how it affected each team. The Yankees could afford to give out bad contracts and be stable since they are a large market team. Bad contracts heavily affect the Rays since they are a small market team and do not give out big contracts often. The paper also discusses the MLB’s attempts at balancing the competition through revenue sharing and luxury taxes. Comparisons with international sports leagues, such as the English Premier League’s relegation system portray the limitations of using similar rules in the MLB. The conclusion states that although the MLB tries to balance out the league with certain financial rules, there are significant advantages for large market teams and allow them to have more freedom when it comes to giving out contracts. 

Introduction

Major League Baseball (MLB) consists of 30 professional teams that each have owners and managers. Teams can be owned by families and companies, but the majority of teams are owned by wealthy individuals. Owners have full power when it comes to decision making for the team. This causes controversy because of some owners who choose to not invest money back into the team, which usually results in the team’s failure. Some owners do not care about the success of the team since there is no punishment for having a bad record. On the other hand, some owners try to do anything they can to create the best roster possible based on the team’s revenue, which varies for every team. Teams’ revenues vary mainly based on the differences in market sizes because of sharing revenue, broadcasting rights, ticket sales, etc. Big market teams bring in more money, usually allowing the owner to sign players worth a lot of money (Gough, 2024). Therefore, the thesis of this paper is that bigger market teams have more flexibility and room for risk regarding roster construction compared to small market teams in Major League Baseball.
Background: The Case of the Oakland Athletics 

The Oakland Athletics are a prime example of bad ownership due to their extremely low payroll. In fact, it has been the lowest in the entire league in back to back seasons (MLB). This is unusual since the Athletics should be spending money because of their big market being located in the Bay Area (with a population of 2,104,929 people). Owner John Fisher has disassembled the Athletics where they have been located since 1968 through poor team management and lack of quality signings. This has caused many fans to lose interest in the team. 

Spanning from the beginning of the 2023 season to the 2024 All Star break, they have an abysmal 33% win percentage. (Baseball Reference, 2024). Fans have noticed the team’s poor performance and started boycotting the team because of the horrendous ownership. During the opening day of the 2024 season, more than 25,000 fans stood outside of the stadium refusing to go inside (He, 2024). In fact, many people with tickets to the game decided to uphold the boycott and not enter the stadium. Fans thought this would be an effective way to share their opinion of their displeasure with the management of the team. Many boycotting fans had shirts and signs that read “Sell the team.” According to AP News, a fan shared, “Everyone’s in such a good mood because we’re all here for the same thing” (He, 2024, p. #). Not only is the payroll on the lower end in the league, but so is the stadium. The Oakland Coliseum is a rundown stadium because of its old age with many believing it to be the worst stadium in the MLB (Hoefling, 2024). Thankfully, the Athletics have made a deal to play at a brand new ballpark worth $1.5 billion in Las Vegas starting after the 2028 season. There are questions about where the Athletics will play the next few seasons, however, since the contract for the Colosseum expires after the 2024 season. 

Sport League Structures 

All North American professional sports leagues do not punish teams for poor performance during the season resulting in some non competitive teams because of a low team payroll. This causes owners like John Fisher (Oakland Athletics owner) to continue to mismanage the team every year by not trying to put together a competitive team. He has no incentive to create an impactful team since the MLB rewards teams for having a bad record by giving them higher chances to have a top draft pick in next season’s draft. The MLB also does not give any benefits to strong performing teams either. Teams are given lower odds for good draft picks, which usually results in their picks being towards the end of the round. These draft rules can really boost organizations by giving them the opportunity to draft the most talented players with huge upside (Nic, 2024). 

Other parts of the world, including the English Premier League (EPL) in Europe, have a different philosophy when it comes to punishment for bad records. They believe that only the best teams should be a part of the Premier League and that underperforming teams should be removed. At the end of each season, the three teams with the worst records are relegated to the league below the EPL known as the English Football League (EFL; Woodlin, 2022). The top three teams from the EFL are then promoted to the EPL the next season as a reward for their strong performance. This idea of relegation and promotion happens for all seven leagues in the English Football system. This forces owners to invest into their team in order to stay in a certain league. Being relegated results in many consequences such as financial loss, fan loss, and player contract changes. Teams lose large amounts of money because of the loss of broadcasting revenue, sponsorships, commercial revenue, and match revenue (Woodlin, 2022). Relegation can cause teams to lose out on millions of dollars, which owners heavily strive to avoid. 

However, relegation could never work in the MLB for a multitude of reasons. The first reason is that no fan would want to watch a triple A team because of the lack of known players. The second reason is that it would be bad for the league having star players like Mike Trout in the Minor Leagues. The final reason is that each triple-A team is affiliated with a MLB team. Unlike the English Football system, all of the triple-A teams are linked with a MLB team, which means all MLB teams have players and prospects that flow through the minor league system. It would not be possible since each minor league team is essentially owned by an MLB team. Bringing a minor league team to the majors would also stunt player development and bring down the MLB brand as a whole. 

There can be a variety of different reasons as to why owners choose not to invest back into the team. The majority of the time, it is due to the fact that owners value their personal gain over their team’s success. MLB owners usually do not have to worry about salary restrictions since the league is very relaxed when it comes to player contracts and spendings. The MLB is essentially a free market league with no maximum salary cap, which allows owners to spend as much money as they wish on players. Although this is the case, it is usually the bigger market teams that give out the massive contracts.
Market Size & Team Outcomes 

A big market team is defined by a team that is located in a highly populated region such as the Yankees (New York with an MSA population of 8,432,892) and Red Sox (Boston with an MSA population of 2,374,391) (Streit, 2001). Since New York and Boston have higher populations, there will be more people trying to attend games. However, a stadium can only seat so many people which is why big market teams can make ticket prices expensive. This generates more revenue for the team compared to small market teams like the Milwaukee Brewers and Cincinnati Reds. Both of these cities have lower populations compared to most of the other MLB cities respectively. These cities have smaller populations resulting in less people purchasing tickets. Since there is less demand for the tickets, the price for them will be lower. 

The majority of MLB teams are located in the largest consolidated metropolitan statistical areas (MSA) in the United States and Canada (Streit, 2001). This means that the teams are located in cities with high populations and busy city life which usually includes a central city where many people live and work. This gives the teams the best opportunity to make money. In order to combat the massive advantage that big market teams have, the MLB attempts to even out the playing field by assisting the lower market teams through splitting broadcasting money and revenue sharing (OKennedy, 2021). At the start of the season, each team must pay 31% of its local market revenue into a pot, which is then divided equally amongst all the teams. The MLB’s central fund, an account made up of revenues from national broadcasting contracts and licensing agreements, is then divided unequally based on teams’ revenues. This results in large market teams with high revenues, to get less money than the small market teams from national broadcasting contracts and licensing agreements. This allows teams to get millions of dollars for being at a disadvantage based on market size. 

The league does not implement a salary cap because they fear that it will benefit the owners more than the players. To combat this, the league sets a luxury tax at the beginning of the season which serves as a soft salary cap. The MLB sets a bar for the team’s expected annual salary that teams should be under. Teams that exceed the amount the first time are taxed at 20% on the money spent above the cap. Teams that exceed the amount for two straight seasons are then taxed 30%. After three consecutive seasons or more, they are taxed 50% (MLB, 2024). The price keeps increasing if teams fail to bring their annual salary under a certain amount. With no salary cap, many big market teams such as the New York Yankees (with a population of 8,432,892 people) benefit since they can sign the best players with massive contracts. 

On the other hand, this can hinder smaller market teams such as the Tampa Bay Rays (with an MSA population of 1,356,558) the difference in the team’s total net worth. Both the Rays and Yankees are in the AL East, which is a very competitive division. The Rays have been known for putting together successful teams without spending large amounts of money or paying for star players. However, the Yankees currently have the best record in baseball, whereas the Rays are a mediocre team with a .500 record. The Yankees high payroll has allowed them to be very consistent for many years relying on their star players. Bigger market teams have more flexibility and room for risk regarding roster construction compared to small market teams. 

	NYY Payroll	League  Payroll Rankings	NYY W/L	NYY Playoff Success	TBR Payroll	League  Payroll Rankings	TB W/L	TB Playoff Success
2023	$268,954,047	2	82-80		$64,652,911	28	99-63	Lost WC
2022	$240,290,714	3	99-63	Lost ALCS	$75,327,813	28	86-76	Lost WC
2021	$191,205,996	2	92-70	Lost WC	$60,388,600	26	100-62	Lost ALDS
2020	$110,852,878	1	33-27	Lost Alds	$28,735,222	27	40-20	Lost WS
2019	$223,019,037	3	103-59	Lost ALCS	$49,084,731	30	96-66	Lost ALDS
2018	$168,540,000	7	100-62	Lost ALDS	$78,730,000	28	90-72
2017	$201,539,699	2	91-71	Lost ALCS	$69,962,532	29	80-82
2016	$213,472,857	2	84-78		$73,649,584	28	68-84
2015	$219,282,196	2	87-75	Lost WC	$76,061,707	28	80-82
2014	$203,812,506	2	84-78		$77,062,891	28	77-85
2013	$228,835,490	1	85-77		$57,895,272	28	92-71	Lost ALDS
2012	$197,962,289	1	95-67	Lost ALCS	$64,173,500	25	90-72
2011	$201,689,030	1	97-65	Lost ALDS	$41,932,171	29	91-71	Lost ALDS
2010	$206,333,389	1	95-67	Lost ALCS	$71,923,471	21	96-66	Lost ALDS
2009	$201,449,289	1	103-59	Won WS	$63,313,035	25	84-78

2008	$209,081,577	1	89-73		$43,820,597	29	97-65	Lost WS
2007	$189,639,045	1	94-68	Lost ALDS	$24,123,500	29	61-101
2006	$194,663,079	1	97-65	Lost ALDS	$35,417,967	29	61-101
2005	$205,938,439	1	95-67	Lost ALDS	$29,893,567	29	67-95
2004	$182,835,513	1	101-61	Lost ALCS	$29,506,667	29	70-91
2003	$152,749,814	1	101-61	Lost WS	$19,630,000	30	63-99
2002	$125,928,583	1	103-58	Lost ALDS	$34,380,000	30	55-106
2001	$109,791,893	1	95-65	Lost WS	$54,951,602	18	62-100
2000	$92,538,260	1	87-74	Won WS	$62,765,129	10	69-92
1999	$88,180,720	1	98-64	Won WS	38,027,500	21	69-93
1998	$65,663,698	2	114-48	Won WS	27,370,000	23	63-99

Surviving Bad Contracts: Big Market Teams v. Small Market Teams 

The Tampa Bay Rays organization joined the MLB in 1998, and is now the 5th smallest market team in the league (O’Shea, 2022). For nearly two decades, the Yankees either led the league in payroll, or were second. This has caused them to be very successful, making the postseason virtually every year and winning four world series titles since 1998. The Rays on the other hand have been the complete opposite. When the Rays entered the league, they were very disappointing for many seasons with low annual salaries. It wasn’t until 2008 when they had their first winning season and also advanced to the world series. Although the Rays lost to the Philadelphia Phillies 4-1 in the series, they have found ways to produce successful teams in the following seasons. Since 2008, they have made the postseason nine teams, which is very impressive considering they have one of the lowest payrolls every season. Although the difference in annual salary between the two teams is around $200 million, the Yankees have only made the playoffs two more times than the Rays in the last ten years (MLB, 2024). The Rays have arguably been more successful making the world series once within the ten years, whereas the Yankees have not made it once. 

The two franchises have different ways of managing rosters mainly because of their market sizes. The Yankees have the largest market in the MLB, which brings in substantially more money than the Rays who are a small market team (Trueblood, 2012). The Yankees can offer large contracts to the star players and still be financially stable. This luxury is something that the Rays cannot replicate and instead must resort to a different method. The Rays are masterminds when it comes to putting together successful teams. In their 2021 season where they won 100 games, they had a committed platoon system. They wanted to give their players a slight advantage by making hitters face the opposite side pitching (i.e., right handed hitters face left handed pitchers and left handed hitters face right handed pitchers). This platoon advantage occurred during 59.9% of the Rays at bats which was the 4th highest amount in the league. The Rays also value defense and players that can play multiple positions to create different lineups based on different variables (MLB Network, 2021). 

The Yankees front office is not shy when it comes to spending money to win. In some cases however, players do not perform at the rate the front office had hoped. In 2013, the Yankees signed 30 year old outfielder Jacoby Elsbury worth $153 million over seven years. Elsbury was a star player in Boston leading the Red Sox to two World Series titles. Things did not turn out how the Yankees had hoped, however, with a .264 batting average, 39 HR, and only 520 games played. Although those numbers do not seem bad, his main problem was staying healthy. He only played in about half the games during his contract and was injured the whole season during 2018 and 2019. 

After the 2019 season, the Yankees refused to pay Elsbury the remaining $21 million because he used an unauthorized rehab facility (Hill, 2022). Elsbury was then released from the team and has not played professional baseball since. He only played four seasons during the contract and was only a slightly above average player. Elsbury’s contract was the third highest paying deal for an outfielder ever at the time, but he is considered to be one of the worst Yankees contracts ever. 

In 2006, the Yankees took a chance on Japanese pitcher Kei Igawa who pitched in the Nippon Professional Baseball (NPB) league. The Bronx Bombers signed Igawa for $20 million over five years with another $26 million as a posting fee (Hill, 2022). Igawa’s MLB career was a disappointment from the very beginning. In his first season, he posted a 6.66 ERA and 1.785 WHIP in 71.2 innings. The Yankees had seen enough and sent him down to the minor leagues. Igawa became a solid minor league pitcher with a 3.83 ERA in 533 innings. The Yankees never gave him another chance at the big league level and even tried sending him back to Japan twice. Igawa refused and spent the rest of his career in the Yankees’s double A and triple A system. The Yankees paid a total of $46 million for a minor league pitcher who pitched only 71.2 MLB innings over five years. The Yankees, however, remained relatively successful during these years making the playoffs multiple times. Even with the unsuccessful signings, they were able to maintain their on-field success. The team’s big market allowed them to sign other star players like Alex Rodriguez and Masahiro Tanaka for big contracts. 

Not all teams can afford to give out huge contracts frequently. Small market teams like the Rays have to be smart and really think if the contract is worth it. They decided to invest into the phenom shortstop Wander Franco by offering him a contract worth $182 million over 11 years (Desk, 2023). This was by far the largest contract the Rays had ever given to a player. Unfortunately for the Rays, Franco was accused of having an inappropriate relationship with a minor, which completely derailed his promising future (Fox Sports, 2021). He was immediately kicked off the 40 man roster and placed on administrative leave. Although he was not on the roster, the Rays still had to pay his contract to him which was $2 million for the 2022 season and $2 million for the 2023 season, in which he did not play a single game. 

There are still questions as to whether or not Franco will continue to get paid, but it is most likely that the Rays will void his contract. This was very detrimental for the Rays since they decided to give a large contract, which is something that they have never done. The Rays wasted $4 million on Franco who gave a bad reputation to the organization. The Rays most likely will not give out another deal to this calibur for many years to come.

Conclusion 

The big disparity between the MLB’s markets based on consolidated metropolitan statistical areas provides significant advantages to big market teams and disadvantages to the small market teams. Big market teams like the New York Yankees utilize their pristine location and popularity to build competitive rosters through sponsorships, broadcasting contracts, and gameday revenue. Small market teams like the Tampa Bay Rays construct a successful team through other alternatives like innovative management and analytical thinking. The market size changes the way MLB teams must think when signing players. The MLB attempts to assist the small market teams by the revenue sharing rules and luxury tax. This attempt at lowering the gap between wealthy and poor teams is essential in order to ensure fairness within the league to make sure every team stays competitive. 

However, there are examples in the league where teams purposely do not try to compete at a high level because the MLB has no punishment for poor performance. Owners, such as John Fisher of the Oakland Athletics, purposely do not try because they want to keep the money for themselves instead of investing it into the team, leading to fan disengagement. Although it is disappointing for fanbases, there is nothing that can be done by the MLB since they do not have a relegation system like the European football league. The idea of relegation pressures teams to strive for excellence in order to move up or stay in a certain division. The relegation system, however, would not work in the MLB because of how the league is structured. The MLB has created many rules in an attempt to make the league fair, such as the order in the draft and revenue sharing. Despite the MLB’s effort to make the league fair, big market teams have more financial flexibility during roster construction than small market teams. 

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