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Payroll and Success in Major League Baseball

Explore the relationship between team payroll and success in Major League Baseball, examining the effects of the luxury tax on competitive balance. Discover if money truly dictates a team's performance and how financial regulations impact this dynamic.

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Payroll and Success in Major League Baseball

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  1. Payroll and Success in Major League Baseball

  2. Motivation and Background • Major League Baseball is unique among professional sports in that, until 2003, it had no ‘salary cap.’ • This leads to debate as to whether every team has the same fair odds of winning. • In 2003, a luxury tax, or a ‘competitive balance tax’, was levied on the league. • Baseball is the only national professional sport where the competing teams have such discrepancies in their comparative payrolls across the league.

  3. Research Questions Is money a deciding factor in a baseball team’s success? By analyzing the ratio of number of wins of a baseball team and the money spent by that team, we found a medium-strong correlation. How has the implementation of a ‘luxury tax’ affected this relationship? We found that the luxury tax actually increased the correlation, but decreased the effectiveness of a payroll’s influence.

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