Major League Baseball has a haves and have-nots problem, that is in part created by their lack of a salary cap. And without a salary cap in any significant form, the ability for teams to spend money is believed to be tied to the size of the market the team plays in.
Below is a look at the relationship between television market size and team payroll (averaged over last three seasons).
Not surprisingly, payroll does trend upward (yellow trendline, R^2 = 0.45). However, that trend appears to be heavily influenced by the New York Yankees. If we eliminate the Yankees payroll, the trendline flattens (R^2 = 0.29). And if eliminate all the teams that play in a market with more than one team (NYC, LA, Chicago, San Francisco/Oakland, Baltimore/DC), the trendline goes back up a tad (R^2 = 0.33).
Of course, the Yankees data is still important, but what we are seeing is that they are not only in a big market, but their payroll still far exceeds what would be expected for a market the size of New York City (teams above the yellow line are outspending their market size and teams below the yellow line have payrolls smaller than would be expected).
And more importantly, once we get past the Yankees, there is little correlation between market size and payroll. This can be seen in the strong disparity in payrolls for teams like the Philadelphia Phillies and Boston Red Sox (big payrolls) and the Oakland A’s and Florida Marlins, who have similar market sizes but much smaller payrolls.
And just by looking at the chart, we can see that if we eliminate the New York, Chicago and LA teams, the rest of baseball just makes a big jumbled mess.
In other words, market size does influence payroll size, but most of that influence is only seen in the largest markets (New York, LA, Chicago). Outside of those cities, the size of the market has little to do with the size of a team’s payroll (you can see the full data below the chart).
Blue circles = National League, Red Circles = American League, Yellow line is a trendline.