Performance or Profit: A Dilemma for Major League Baseball

Team owners and general managers in Major League Baseball (MLB) must balance high quality players and a chance to win with soaring player salaries and stable or smaller profit margins. We examine the effects of team payrolls on the revenues, profits, and winning percentage of MLB teams. Our study finds a strong positive association between high revenues and high player salaries for MLB teams. Further, MLB teams with higher player salaries tend to have higher winning percentages. However, the relationship between gross profit margin and player salaries is negative.