Dependence Relationships between On Field Performance, Wins, and Payroll in Major League Baseball

This article examines the dependence and direction of dependencies between on the field performance variables, winning percentage, and payroll in Major League Baseball using team data from 1985-2009. Particular focus is given to the relationship between winning and payroll. The method is to employ the PC algorithm, which is an implementation of graph theoretic methods in order to identify these dependence relationships. Results indicate that winning percentage directly depends on fielding percentage, on-base percentage, and saves while payroll directly depends on fielding percentage, strike outs against, and winning percentage. Using this results panel, models are estimated to assess the magnitudes of the relationships. Further, a system based on these relationships is estimated to examine the effects of winning and payroll on each other over time using impulse responses. Those responses show that payroll has a temporarily positive effect on winning but not permanently so. Finally, some cautions are offered in interpreting the results and some suggestions for future research.