Team Salaries and Playing Success in Sports: A Comparative Perspective

Abstract

Overview • This paper tests for, and confirms, the existence of a well-determined statistical rela-tionship between team wage bills and team performance as a general phenomenon in the four major North American sports leagues and three European soccer leagues. In contrast to some sports economics literature, we find that team wage bills are signifi-cant predictors of measures of team performance for all four North American leagues. For European soccer, Italy and England exhibit a well-determined team salary-performance relationship, Germany less so. We also find that the elasticity of team performance with respect to wage bill has declined over the 1990s in English and Italian soccer, due to structural changes in these leagues and, in particular, a growing movement towards player market deregulation. As a consequence, we find that the real cost of attaining success in these leagues has risen considerably in recent years.