| Abstract | This study focused on the impact of payroll investment on the intrinsic value of Major League Baseball franchises. Specifically, I examined how club owners allocate capital to their most crucial and fundamental investment -- players -- and how payroll impacts teams' financial and on-field performance. I addressed this question empirically first by examining the financial trends of the MLB as a whole and the thirty organizations within. Given these observations, I created a simple five-variable model of team revenue. Because outstanding research has indicated that revenue should be the basis for valuation of professional sports teams, this model was meant to reflect the strength of payroll as a predictor of franchise value relative to other key variables, particularly market size, winning percentage, club tradition, and home attendance. The results of my analysis supported my hypothesis that payroll would be a strong and statistically significant predictor of revenue and, therefore, value, so long as franchises are to be valued based on their revenues. Implications for owners, researchers who have studied the business of baseball, and fans of the sport in general are discussed. |
