Yesterday, I
blogged about competitive balance in the NFL for the 2018 season. Today I will look at the relationship between payroll and performance in the NFL for the 2018 season. The basic idea is that teams that pay higher salaries to their players will perform better. As sports economists, we tend to be highly skeptical of this hypothesis, but it is a persistent topic - especially in baseball. So let's see what happens.
To do this, first I need the data. Payroll data is from
spotrac and performance data is from
profootball reference. Once that is done, the first thing I did was to calculate the correlation coefficient between payroll and performance, and the correlation between payroll and performance is NEGATIVE!! That is a first for me. Now, one thing we know statistically is that you should not draw conclusions from descriptive statistics, but there are those that do. If one was to draw a conclusion (again this is not statistically valid, then those who do this would have to conclude that lower pay results in better performing NFL teams). I doubt you will hear much from the pay and performance crowd about the 2018 NFL season.
Running a regression between performance and payroll (with robust standard errors), I get that the coefficient on payroll is negative and statistically significant as well. This is a problem for the payroll and performance hypothesis holders. Additionally, just for the 2018 season, payroll "explains" only 17% of team performance, so this seems to be not only the wrong sign, but also the not a lot.
