Now that I have some free time, I thought that I would also look at the relationship between payroll and performance in the NFL after having done the competitive balance calculation. Here is a step-by-step guide to doing this type of analysis using MLB as an example. So just for the 2012 NFL season (which is admittedly a rather small sample) I am going to estimate the relationship between payroll and performance. Historically the relationship between payroll and performance in the NFL has been rather small over long periods of time, so we should not expect much of an effect for just one season.
After collecting the data for winning percentage in the 2012 NFL regular season and for payroll for the 2012 regular season I ran the following regression: winning percent = f(payroll). There is no need to adjust for relative payroll if only using one season as the average payroll for all the teams is the same for just one season - again this is a small sample size for this type of analysis.
The regression (ordinary least squares) results show that for the 2012 season, payroll has no statistically significant effect on wining percentage. In other words the effect of team payroll on team performance in the 2012 NFL regular season was statistically zero, as the t test was less than two in absolute value.