Once again, the team with the biggest payroll in baseball failed to win or even reach the World Series. As a result, some commentators have pointed out that money doesn't buy success in baseball. This seems an extraordinary comment. Over the last ten years the Yankees have maintained the highest payroll in baseball and in that same period they have recorded more wins than any other team. In addition, they have won four World Series, and two League titles, as well as being in every post season. Dave Berri in his Wages of Wins Blog points out that having the best team cannot provide statistical certainty. Indeed what would be the interest in sport if it did?
Baseball seems like a pretty good example of the law of large numbers, so why does this cause so much controversy? My colleague Steve Ross gives what I find a pretty convincing answer. He points out that the Yankees controversy is really about straw men. Some people want a policy of constraining the payrolls of teams: these people argue that the Yankees are buying success. On average they are right, but on any given Saturday they may not be. Some people think that there are too many cosy agreements and restraints in baseball: these people point out that money cannot guarantee success. But this only true for a particular game- on average this is clearly not so.
For what it's worth, the correlation coefficient between wages and wins in baseball is around 0.2 in a single season, and around 0.7 over a decade. Are these worryingly big or trivially small numbers? This probably depends on what you want to do to baseball.