Tuesday, November 11, 2014

Payroll and Performance in MLS

One of the ideas that we focus on in our book The Wages of Wins is the relationship between team payroll and team performance.  We focus primarily on Major League Baseball as that is the sport that the payroll and performance discussion tends to get the most talk.  What we find is that using team performance (regular season winning percentage) and team payroll (relative payroll when comparing multiple seasons or total payroll for one season) we find that there is a positive relationship between team performance and team payroll.  Additionally, we find that that relationship is statistically significant over multiple seasons, meaning that from a statistical viewpoint the two variables are different from zero.  Each of these we find evidence for.  Yet in terms of the amount that the two variables have in common, we find is less than 20% over most time periods.

So, let's take a look at MLS for just the 2014 regular season.  First let me note that since there are only 19 teams in MLS this season, the number of observations is suspect.  So take the following with a statistical "grain of salt".  Eventually, I will like to come back and analyze this over a much longer time period, but it will take some time for me to get the salary data cleaned up from the pdf's on the internet

Thus given I am only looking at the 2014 regular season the statistical results are not very promising.  For the 2014 regular season neither base salary nor guaranteed salary are statistically significant with respect to standings points.  In other words, from a statistically viewpoint either base salary or guaranteed salary do not explain end of regular season standings points.

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