The key to running a successful major league baseball team is essentially maximizing the performance on the field (e.g. the more wins the more success the franchise has) while also maximizing the profit of the organization. There are really two ways to achieve financial success: either spend the minimum on players and staff, and gain money even though the team is terrible (see the Pittsburgh Pirates), or spend a ton of money, become a very successful team, and reap the benefits on the balance sheet (see the New York Yankees; even though that story is six years old, the balance sheet still shows the huge difference between the two franchises' finances).
The best case scenario, however, is to draft well, develop your young players, and have them blossom into stars while you still only have to pay them near the MLB minimum salary. The Tampa Bay Rays are a good recent example of this, as they drafted and developed young stars such as Carl Crawford, Evan Longoria, James Shields (not quite a star but still performed very well in the 2008 playoffs), and Matt Garza. They won the AL East in 2008, and made it to the World Series before losing to the Phillies, while still turning a profit (a lot of that due to the current revenue sharing agreement in the MLB). However, the one problem with this is that eventually, your young stars will need to be paid a lot of money. The Rays will run into this problem this summer, when Carl Crawford and Carlos Pena, both free agents, will be due hefty raises that the Rays probably won't be able to afford. So how do teams sustain both success on the field and on the balance sheet for multiple years?
The real key to success is to find players that cost only a small amount (relative to their peers) while putting up good numbers on the field. A good way to measure the performance of a player over a season or career is by Wins Above Replacement (WAR), which measures how much better the player is compared to a AAA-level replacement player. It is very convenient to use just this one stat to compare how good each player is to another. You can view the 2009 MLB WAR leaders here. The highest WAR per season is usually under 10 (Albert Pujols led with 9.6 in 2008 and 9.2 in 2009). This means that Pujols is "worth" approximately 9-10 wins for the Cardinals, because if they did not have him playing first (and only had a AAA replacement), they would lose 9-10 more games per year.
While WAR measures the performance of the player, teams also need to keep in mind how cost-effective the player is. For example, is it worth spending around $30 million on Alex Rodriguez, who is only worth about 4-5 extra wins per year, when you can spend that money on three or four above average players who will each be worth 2-3 (or more) wins per year? If you are the Yankees, the answer is yes, but for most teams, A-Rod is not a viable option (and that's just in terms of money, we haven't even got into the chemistry and happiness of the team when he's around!). So teams need to also view the salary of the player, and when combined with WAR, a very useful statistic for measuring success is $/WAR. This statistic measures how much money it costs for an extra win per player. For example, last year Pujols earned $13,870,949 in salary while being worth an extra 9.6 wins. So the Cardinals paid $1,444,890.52 per extra win that Albert Pujols was worth. The key to being successful is to have players with a low $/WAR, which means that it costs a low amount of money (again, relative to their peers) for each extra win that the player is worth.
With the $/WAR statistic in hand, in the next few days I am going to explore the conclusions that can be drawn from analyzing the past couple of years with $/WAR, and post the results. What the study should show is that the successful teams will either have a high WAR regardless of cost (e.g. the Yankees and Red Sox, who spend a lot of money to make money), or a low $/WAR, which most teams need to have in order to be successful on the field while making a profit. I am also going to explore how to predict a player's $/WAR, which, if successful, will be the key to running a successful team. If you can predict a player's cost-effectiveness, then you will be able to obtain successful players at lower costs, thus exploiting the market for baseball players and making your franchise successful on the field and on the balance sheet.
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