The Ups and Downs of Major League Payrolls, 2000-2021

[Frobby]

I spent part of the long weekend looking at the payrolls of all 30 major league teams for each year from 2000-21.   My main goal was to get some insight into payroll volatility, i.e, the extent to which payroll for individual teams fluctuates from year to year.

First, a couple of basics.   The average team payroll was $56 mm in 2000, compared to $119 mm in 2021.   With one or two small hiccups, average payroll increased pretty steadily from 2000 to 2017, when the average reached $132.8.   But then it flattened out the next two years and actually dropped significantly in 2020-21.   2021 payrolls were back to below 2015 levels.    So, when you think about the coming labor negotiations, you can bet the players are not very happy at all with that trend.

The average payroll for the entire 22-year period was $97.5 mm, broken down as $76.2 mm for 2000-10 and $118.7 mm for 2011-21.   The Orioles were at $87.9 mm over the who period, $73.6 mm for 2000-10 and $102.1 mm for 2011-21.   The O's ranked 18th in payroll over the whole period, dropping from 15th in 2000-10 to 20th in 2011-21.

Now the part about volatility.   I looked at several different aspects, including teams dropping from a prior peak.   I found that every team in the majors had dropped its payroll below a previous peak by at least $20 mm at least once (either over a single year or over several seasons).   The average team did it twice.   The Rays and Indians have done it the most often, four times, with the Orioles, Dodgers, Marlins, Brewers and Rangers having done it three times.   Teams that have only done it once include the Braves, Reds, Angels, Twins, Mets, Yankees, Phillies, Giants and Cardinals.    

Besides how often teams have had a $20 mm+ drop, I also looked to see how high each team's biggest drop was.   On average, the 30 teams had a drop of $71 mm between their peak and a subsequent low point.   Seven teams had a drop of at least $100 mm between a peak and a subsequent low: the 2016-21 Rangers ($157 mm drop), the 2016-21 Tigers ($128 mm drop), the 2017-21 Orioles ($119.5 mm drop), the 2016-19 Blue Jays ($118 mm drop), the 2017-21 Mariners ($107 mm drop), the 2019-21 Indians ($102 mm drop), and the 2015-18 Dodgers ($100 mm drop).   As you can discern, drops that big have been a very recent phenomenon, and that is probably what drives the lower average payroll the last few seasons.   Of course, everything's relative; the DBacks dropping from $103 mm to $52 mm in 2002-07 was just as big a cutback relative to total payroll as a drop from $200 mm to $100 mm would be today.   20 of the 30 teams have had a $50 mm drop at one time or another, some more than once.

I think this data generally supports the theory that most teams sometimes "reach back for a little extra" when they are in a good competitive position, but then eventually need to retrench.    Obviously, not all go into drastric rebuilds; many are more modest adjustments.   The most stable team of all has been the Cardinals, who only had one $20 mm+ retrench, and that was only a very temporary $20.7 mm one-year drop before their payroll swung back up the next year.    They've done a great job of not getting out over their skis, while staying competitive almost every year.

There's also been several retrenches that were motivated by wanting to get below the luxury tax threshold for a year or two to get the tax rate reset at a lower level.   The Dodgers' $100 mm drop started from a high of $265 mm and over a couple of years they got down to $165 mm before reversing course and now they are back up to $257 mm.   Likewise the Yankees peaked at $258 mm in 2014 and then angled themselves down to $161 mm by 2018, and have been back in the $200 mm+ club the last three years.

Anyway, the bottom line is that all teams have their payroll ups and downs.   The O's are in a pretty extreme down mode now.   Hopefully they'll start seeing the other side of the equation soon.