Defining Large, Mid, and Small Markets

Oftentimes you’ll hear that Team X is a Large Market team or that Team Y is a Small Market Team.  But aside from knowing that the Yankees are a large market team and Pittsburgh is a small market team, how are the other teams defined?  And what exactly is a mid market team?

Using readily available data, this article will categorize the 30 teams into these three tiers by three separate categories: Metro Population, Payroll, and Cost per Win.  This article will be a little number-crunchy, so if you like to read the end of the book to see how it ends before you start, feel free to skip down to the Conclusions section.

METRO POPULATION

Listed below is each team along with their metropolitan population, using 2011 population estimates from the U.S. Census Bureau (and Wikipedia for Toronto):

The average of these 30 markets comes to 5,896,175 people.  For markets like NY, LA, and CHI each population was included as if they were separate markets.  Although there are many people who are fervent Mets-only or Yankees-only fans, for example, there are many who may go to both in these markets.  This also accounts for corporate support that may alternate sponsorship between teams or even sponsor both to cover their bases.

Next, a standard deviation was calculated in an attempt to assign ranges to help define large/mid/small markets.  A standard deviation is, loosely, an average of the differences for each data point from the calculated average.  The standard deviation for the population data came out to be 4,533,972.  However, this standard deviation would allow for too broad of a middle zone, as it would be everything from approximately 1.3M people to 10.3M people.  Instead a 1/2 standard deviation of 2,266,986 was used in its place.  This gives the following tiers, using the average +/- 1/2 standard deviation:

Large Market — greater than 8.16M people (6 teams — Yankees, Mets, Dodgers, Angels, Cubs, White Sox)

Mid Market — between 3.63M and 8.16M people (12 teams — Rangers, Astros, Phillies, Nationals, Marlins, Blue Jays, Braves, Red Sox, Giants, Athletics, Tigers, Diamondbacks)

Small Market — less than 3.63M people (12 teams — Mariners, Twins, Padres, Rays, Cardinals, Orioles, Rockies, Pirates, Reds, Indians, Royals, Brewers)

While these results make sense from a population standpoint, there are quite a few markets that don’t pass the MLB eye test, like the Red Sox as a mid market team for example.  Let’s take a look at payroll in the next section.

PAYROLL

Using Cot’s Contracts Opening Day payrolls for each team, the average payroll was calculated from the most recent 5 year period of 2007-2011.  2012 was not used because subsequent sections will need to rely on win totals.  Additionally, only 5 years were used because the economic dynamics of MLB have shifted drastically in recent years due to TV contracts and other new revenue streams.

The same process was used here as above with the Metro Population data.  The average payroll from the data above is $90,117,165.  The standard deviation for this data was again too splashy ($34,670,012), due to only 30 data points and large variations among the data points.  As a result, a 1/2 standard deviation ($17,335,006) was used to define the bands.

Large Market — greater than $107.5M payroll (9 teams — Yankees, Mets, Dodgers, Angels, Cubs, White Sox, Phillies, Red Sox, Tigers)

Mid Market — between $72.8M and $107.5M payroll (11 teams — Astros, Blue Jays, Braves, Giants, Mariners, Twins, Cardinals, Orioles, Rockies, Reds, Brewers)

Small Market — less than $72.8M payroll (10 teams — Rangers, Nationals, Marlins, Athletics, Diamondbacks, Padres, Rays, Pirates, Indians, Royals)

There are franchises that are definitely on the move between the mid and small market categories.  The Rangers prior to last season were in the midst of bankruptcy and slashed their payroll significantly.  If 2012 data were incorporated, they would be in the mid market category.  The Nationals have also established themselves as a franchise with designs on having mid market ambitions.

One last layer of texture, though, is the Cost Per Win for each franchise.

COST PER WIN

Are teams spending efficiently and seeing a good return on investment on their payroll?  Let’s add in the average win totals from 2007-2011 for each team and then calculate how much each win cost that franchise.

Each market size is defined by how hard a team has to work to stretch their payroll dollars in order to put together a winning season.  Large market teams are able to make mistakes here and there, while small market teams have a much smaller margin for error.  The average cost/win from the data above is $1,097,925/win.  The standard deviation is $352,709 and the 1/2 standard deviation is $176,355.  Using the same methodology as the previous two sections, here are the spreads between the markets:

Large Market — greater than $1.27M/win (10 teams — Yankees, Mets, Dodgers, Angels, Cubs, White Sox, Phillies, Red Sox, Tigers, Mariners)

Mid Market — between $921K and $1.27M/win (9 teams — Astros, Blue Jays, Braves, Giants, Twins, Cardinals, Orioles, Reds, Brewers)

Small Market — less than $921K/win (11 teams — Rangers, Nationals, Marlins, Athletics, Diamondbacks, Padres, Rays, Rockies, Pirates, Indians, Royals)

There are some quirks in this phase of the data.  The Mariners are quite a schizophrenic team — a small market by population, a mid market by payroll, and large market by cost per win.  Most of that is due to being horrible these past 5 years while having a bloated payroll of terrible veterans.  This will stabilize in subsequent years as their payroll is already dropping rapidly.  Additionally, the Rockies dropped into the small market category for cost/win from mid market for payroll.  This is not surprising as the Rockies barely qualified as a mid market payroll team  by just $100,000 and are close to the $921,000/win threshold for the cost per win.

CONCLUSIONS

One interesting observation from the payroll and cost per win data is that the Atlanta Braves are the “average, typical” franchise in MLB.  Their average payroll of $92.3M and cost per win of $1.09M/win were the closest duo of data from the average for any of the 30 franchises.

The data provides numerical backup to the sniff test  of whether a franchise is large, mid, or a small market team.  Although some teams on the boundaries between two market classifications may switch back and forth (Rockies, for example), by and large the data makes sense to the eye with preconceived notions about franchises.

The data also shows that there is a decent correlation between payroll and wins produced, as only 2 of the 10 large market teams (Mets and Mariners) did not average a winning season over the last 5 years, whereas only 3 of the 11 small market teams (Rangers, Rays, and Rockies) averaged winning seasons over the past 5 years.

The Pirates are clearly a small market franchise by any metric.  Three weeks ago, Tim took a look at the Pirates’ potential 2013 payroll which came to an estimate of $63.9M.  Using the $921,000/win for small markets as an upper threshold, the Pirates would need to theoretically support a $75.5M payroll in order to have a better than average chance to sustain a winning record.  It will be imperative for the Pirates to find values for their investments in order to compete with less than that $75.5M payroll on a consistent basis.

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