How MLB team payrolls correlate to on-field performance

Major League Baseball operates under an economic structure without a hard salary cap and salary floor, leading to the highest payroll disparities between large- and small-market franchises of any U.S. major sport.

While leagues like the NFL, NBA, and NHL utilize salary cap and floor systems to curb payroll disparities, MLB's model relies heavily on the Competitive Balance Tax (CBT) system that was put in place in 2003 in response to the growing payroll disparity of the 1990s.

• Baseball’s competitive balance issue, explained

So, how do team payrolls correlate with on-field performance and what impact does the current system have on the sport’s most important outcomes?

MLB has massive revenue and payroll disparities from team to team.

Baseball’s market sizes range from New York City (a metropolitan statistical area of more than 20 million people) on the top end to Milwaukee (a metro area of around 1.5 million) on the bottom end. This creates a revenue disparity of 9x between the largest and smallest markets.

Revenues drive payroll, and teams in smaller markets have typically been far less active in the free-agent market and far less likely to retain star players than their larger-market counterparts. But the payroll disparity ratios that have always been part and parcel of MLB’s economic structure have never been wider than they are today, and it has led many fans in smaller markets to believe -- with good reason -- that their teams don’t have a fair chance to compete.

The two-time defending World Series champion Los Angeles Dodgers present the most extreme example of this divide. In the 2025 season, the Dodgers spent about $515 million on players, including their Major League payroll and Competitive Balance Tax payments. That was $446 million more than the Miami Marlins’ $69 million investment. The Dodgers’ $169 million luxury tax payment alone exceeded the total payrolls of 16 MLB teams, and their $515 million in total spending exceeded the combined spending of six teams: the Guardians, White Sox, Pirates, Athletics, Rays and Marlins.

This is not just a Dodgers issue.

The ratio of top-five to bottom-five payrolls increased from 2.6 in 2018 to 4.7 in 2025. That 4.7 ratio was the largest on record, dating back to 1985, and is projected to approach 5.0x in 2026. The previous high of 4.4x in 1999 precipitated the implementation of the modern competitive balance tax starting with the 2003 CBA.

Under the current CBA (dating back to 2022), free-agent spending by just four clubs -- the Phillies, Yankees, Mets and Dodgers -- has exceeded that of the bottom 22 teams combined.

While small-market front offices can out-evaluate or out-develop big spenders, high payroll grants a margin for error that small-market teams simply don’t have. Large-market teams can absorb bad contracts; small-market teams are crippled by them.

Even if every small-market team spent 100% of its local revenue and revenue sharing on payroll, the structural gap in local media rights and market size creates an insurmountable ceiling compared to top-tier markets.

There is a clear relationship between payroll and on-field performance.

While MLB and its fans have enjoyed a wide variety of teams reaching the playoffs with the help of the expanded postseason format and particularly shrewd front offices that have been able to outpunch their payroll rank, there remains a clear pattern to the influence payroll has on outcomes, as evidenced by the data from 1998 to 2025.

Across that 27-season sample, the spread between the top-five and bottom-five spenders was 15 full wins per year. The Yankees and Dodgers rank first and second in cumulative payroll since 1998 and have the two best winning percentages in MLB over the same period.

The variety of postseason participants is largely derived from the existence of the American League and National League Central divisions, in which only two of 10 total teams (the Cubs and White Sox) reside in a designated market area that ranks in the top half of MLB. (Among the 10 Central clubs, only the Cubs are a revenue-sharing payor.)

Parity has been rendered moot in the postseason.

While the Central divisions and wily front offices have helped create parity in the complexion of postseason brackets, it’s one thing to win and quite another to win it all. Small-market teams tend to hit a wall in the postseason, where the superior depth of talent on big-market teams often rules the day.

From 2015 to 2025 (and excluding the abnormal postseason format from the COVID-shortened 2020 season), a total of 108 teams reached the playoffs. During that timeframe, teams in the top half of market size were 1.7 times more likely than teams from the bottom half to reach the playoffs, three times more likely to reach the League Championship Series, six times more likely to reach the World Series and nine times more likely to win the World Series.

*Market size based on 2025-26 Designated Market Area TV Households

The World Series winner has been a top-10 payroll club seven times in the last eight years (the 2021 Braves, who ranked 14th in MLB in payroll, were the lone exception in that span).

Based on the data from 2005-25, if you were a fan of a team in the top half of market size, you had 50% odds of seeing your team win a World Series by the age of 12. If you were a fan of a team in the bottom half of market size, you had 50% odds of seeing your team win a World Series by the age of 73.

Market size is much less important in the other leagues.

The last small-market team to win the World Series was the 2015 Kansas City Royals.

Since that triumph, there have been 16 small-market champions in the other major sports, with no fewer than four per sport in that span. In 2023, all three of the other sports had a small-market champion: the Denver Nuggets in the NBA, Kansas City Chiefs in the NFL and Vegas Golden Knights in the NHL. That year’s World Series was won by the Texas Rangers, who ranked sixth in MLB in payroll and whose Designated Market Area ranks fifth among Major League cities.

The 2025 NBA Finals featured Oklahoma City and Indiana, two markets that are not even considered viable for an MLB expansion franchise (both have Triple-A teams).

From 2021 to the present, the average revenue rank of an MLB champion, per Sportico’s data, was 7.0. It was 12.0 in the NFL, 16.3 in the NBA and 21.7 in the NHL.

But it’s not just about championships. The other leagues’ regular seasons also aren’t guided by market size as much as MLB’s seasons are.

Teams in the other leagues have an equal opportunity for success, regardless of market size. MLB is the only major sport in which where you’re from goes a long way toward determining how far you can go.

A salary cap and floor system would address the disparity.

The NFL, NBA and NHL all have a salary cap and salary floor system that establishes both an upper ceiling and a lower basement for team spending. Such a system, if implemented in the next CBA, would address competitive and financial imbalances in MLB.

A salary cap places a hard limit on the total amount of money any single franchise can spend on player payroll in a given season. This stops the high-revenue, large-market teams, such as the Yankees and Dodgers, from using their local TV and ticket revenue advantages to outspend small-market franchises by outsized amounts. Teams would operate from the same tactical baseline in which talent identification, player development and smart spending are rewarded on a level playing field.