The Captain's Blog

Now that the All Star Game has passed, players from the American and National Leagues will go back to being strangers until the two circuits meet up again in the World Series. However, before we say goodbye to this vestige of interleague play, let’s wade once more into the never ending DH debate that has become so commonplace this time of year.

David Ortiz is one a few high-priced, full-time DHs.

Earlier in the interleague schedule, I examined the relative fairness of playing interleague games with two sets of rules and concluded that, in aggregate, the net impact was a wash (however, DH and pitcher performance at the plate does correlate to interleague success). More recently, Dan McLaughlin shifted the debate from the field to the board room by suggesting that economic impact of the DH is what creates the greatest conflict between to the two leagues.

Writing at Grantland.com, McLaughlin concludes that because the DH amounts to a full-time position, players filling the role require a higher salary, which in turn inflates the payrolls of American League teams. To prove his theory, McLaughlin points to the $13 million gap in each league’s average payroll over the last five years, a disparity that increases to $20 million when only considering teams above .500. Finally, to support the notion that the DH plays a role in this discrepancy, McLaughlin calculates an average “full-time DH” salary of $6.8 million, which is more than two times the league-wide average.

Anecdotally, the connection between the DH and payroll seems compelling. However, there are several flaws in the logic. For starters, defining a full-time DH can be an arbitrary process. McLaughlin identified 57 full-timers since 2006, but the baseball-reference play index shows only 46 who had at least 300 plate appearances as a designated hitter during one season in that period. Also, not every full-time DH was signed to fill the role. The Yankees’ Jorge Posada is a perfect example. His $13 million salary is one of the highest among all DHs in 2011, but he was signed to be a catcher. In many cases, highly paid DHs are usually winding down big money contracts signed when they played other positions.

Even if you accept the $6.8 million average salary as being accurate, you still can’t conclude the DH outlay is an incremental expense. Although some American League teams might spend more money because they have a full-time DH, others are just as likely to cut back elsewhere. For example, if a team has a prolific DH, they might decide to accept less offense at another position. If so, the added expense of the designated hitter would be mitigated. Similarly, just because a National League team doesn’t have to spend money on a DH doesn’t mean they can’t use the money elsewhere. If NL teams are really saving $7 million on average, wouldn’t at least a few spend that surplus in other areas?

Average Payroll by League: 1988 to 2010

Source: USA Today payroll database

If the DH really is a significant driver of higher payrolls in the American League, we should be able to observe that relationship over a longer period than just five years. However, one does not exist. According to USA Today’s payroll database, from 1988 to 2005, there was little difference between each league’s average payroll. Over that span, AL teams only paid out approximately $1.5 million more than their NL counterparts. Also worth noting is that NL had a higher average payroll from 1988 to 1991 and again in 2003.

So, if the DH is not the reason the American League currently has a much higher average payroll, what (or who) is? The knee jerk response would be to “blame” the Yankees, but the growing disparity between the leagues has actually occurred while the Bronx Bombers’ payroll has been leveling. Although the Yankees’ 2010 payroll was still a relatively high 15% of all AL player expenditures in 2010, when it peaked at 20% in 2005, the two leagues were only separated by an average of $3 million.

Yankees Payroll Compared to League Averages: 1988 to 2010

Source: USA Today payroll database

Even if the Yankees can’t be blamed directly, perhaps the rising tide in the Bronx has lifted all American League ships? As evidenced by the chart below, the largest payroll increases since the end of the 2005 season have belonged to American League teams. Meanwhile, the Yankees’ payroll has stayed relatively flat.  After setting the bar high in the first half of the decade, it could be that the rest of the American League has since been playing catch-up, a theory that would explain why AL payrolls exploded just as the Yankees’ reached a plateau.

Payroll Increases, by Team: End of 2005 to End of 2010

Source:USAToday payroll database

Although it could take some time to reverse, especially with the financial struggles being faced by the Mets and Dodgers, the payroll discrepancy between the leagues seems to be based on the underlying competitive environment, not the DH rule. A variety of catalysts could shift the balance back toward the NL, but the most likely scenario would involve a team (maybe the Phillies?) having a similar buoying effect on the rest of the league. Until then, owners in the senior circuit should enjoy their higher profit margins while they last and quit lamenting the payroll of the Yankees.

Average Revenue and Operating Profit, by League: 2001 to 2010

Note: 2002 data not available
Source: Forbes.com