Last year (November 14) I wrote about being skeptical that payroll and performance are significantly related in the NBA. Kristi Dosh (ESPN writer) is not skeptical about the relationship between pay and performance in the NBA and predicted that the top 10 payrolls will make the playoffs. So, how did that work out?
Dosh predicts that the following teams will make the 2013-14 NBA playoffs: Nets, Knicks, Heat, Bulls, Lakers, Raptors, Clippers, Celtics, Thunder and Pacers and the teams in bold did not actually make the playoffs. As I have written previously, "I think
this would be much more convincing if the top 16 teams in terms of
payroll made the playoffs for say ten NBA seasons. That would give much
more credibility to this type of statement. Since this statement only
looks at ten of the possible sixteen playoff spots the prediction is
only 62.5% accurate - or leaves 37.5% of the playoffs teams
unexplained. For statisticians this is a large error." Now the error is compounded with three of the teams in the top ten of payroll not making the playoffs, which is a forecast error of 30%!
As we have written in The Wages of Wins, relative payroll is not a good predictor of team performance in the sense that it does not have a lot of commonality between the two variables.
Here is a look at the statistical relationship between NBA payroll and NBA regular season performance over different time periods.
Since the 2004/05 NBA season (i.e. the last decade) the relationship between relative payroll and regular season performance is statistically significant (95% level), but relative payroll only "explains" 7.2% of the variation in regular season performance (which is statistically called r-squared) adjusted for heteroskedasticity in the data (unequal scatter). If we look at the adjusted r-squared that falls slightly to 6.9%.
Taking the time period of Mrs. Dosh (2011/12 to now) the statistical relationship between relative payroll and regular season performance is statistically significant (95% level) and the amount that relative payroll is in common with regular season performance is higher with an r-squared of 0.188 and an adjusted r-squared of 0.179. Still relative payroll misses over 80% of the variation in regular season performance. I will let you decide if that is a good predictor or not.
Finally, just taking this season into account, now the statistical relationship between relative payroll and regular season team performance is statistically insignificant at the 95% level. Meaning from a statistical viewpoint that payroll is NOT related to team regular season performance.