Friday, May 2, 2014

Major League Soccer Salary Inequality

The Major League Soccer Players Union posted base salary (and guaranteed compensation) for this season's players on April 1 - no foolin'.  So what I thought I would do was calculate the amount of salary inequality that exists in MLS for 2014.   Economic theory tells us that salary should be unequal since different players have different productivity levels and different teams have different revenues from the player's productivity.  What I want to come back to later is how salary inequality has changed over the years in Major League Soccer, but for now I have this season's data analyzed, so we will just be looking at a snapshot of salary inequality using the Gini coefficient (more here on how I measure the Gini coefficient).  Remember the Gini coefficient is measured between 0 and 1 (or 0 and 100 if it is reported as an index) and the higher the number the more unequal is income distributed.

I am going to do this in three ways:  for the entire group of players, by player position and finally by team.

First let's look at how unequal salary is distributed for both the player's base salary and for their guaranteed compensation for all players in the league.    For Major League Soccer, I find that base salary yields to a Gini = 0.606 and that guaranteed compensation yields a Gini of 0.614 - which are fairly high as compared to 0.432 (or 43.2) for the United States as a whole in 2011 (note the numbers in the link above would be divided by 100 to compare with the numbers that I am reporting).

So, does this result hold by player position?  Again I am going to calculate the Gini coefficient for both base salary and guaranteed compensation.  In the salary data from the Major League Soccer Players Union website, some players are labeled as having two positions.  For these players, I have included them in both positions in the Gini calculations reported below.  Looking at the table below, the amount of salary inequality increases as we move away from goal keeper to defense to mid-fielders to forwards.  Thus salary inequality is being driven more by the offense and less by defense.  In fact forwards are the only position that has greater salary inequality than the league as a whole, in which I would conclude that forwards are the most important driver of salary inequality in MLS.

POS Base Salary 
Guar. Comp.
D 0.402
F 0.717
GK 0.351
M 0.570

So, are there specific teams that are have a greater impact on salary inequality in Major League Soccer this year?  Yes, and it is driven by four teams:  LA, NY, Seattle and Toronto.  Each has a Gini coefficient above the average for the league, with Toronto having the greatest amount of salary inequality.  The 15 other teams in the league all have Gini coefficients below the MLS average and 10 of those 15 (over half the teams in the league) have Gini coefficients that are more equal than the US was in 2011.

Team Base Salary Guar. Comp.
CHI 0.393
CHV 0.376
CLB 0.416
COL 0.372
DAL 0.444
DC 0.422
HOU 0.353
KC 0.382
LA 0.779
MTL 0.521
NE 0.309
NY 0.743
PHI 0.411
POR 0.397
RSL 0.415
SEA 0.745
SJ 0.420
TOR 0.803
VAN 0.544

Thus Major League Soccer has rather unequal salaries and is driven by forwards and by the Galaxy, the Red Bulls, Toronto FC and the Sounders FC.

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