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Faculty Sponsor

Dr. Nodir Adilov

Department/Program

Department of Economics

University Affiliation

Indiana University – Purdue University Fort Wayne

Abstract

Many sports purists maintain that in order to win, teams must have the right components and chemistry. Simply paying the best players the most money should not guarantee a championship, right? While having the right players with good chemistry certainly is important, what is the actual impact a team’s salary has on its success? This research attempts to answer that question and what effects different salary regulations have on competitive balance in Major League Baseball and the National Football League.

One of the theories used to discourage the ability to buy championships is the salary cap. A salary cap is an agreement between leagues, owners, and the player’s union that places a limit on the amount of money that one team can spend on player salaries. Salary caps are implemented to keep costs down and promote parity between teams. Salary regulations vary between leagues. The NFL and the MLB are on the opposite ends of the spectrum when it comes to their salary rules. The NFL implemented a hard salary cap and floor in 1994 which adjusts for profits each year. On the other hand, the MLB introduced a luxury tax in 2003. A luxury tax is imposed on teams whose total payroll exceeds an amount determined annually.

The first hypothesis the paper tests is that a team’s salary has a positive effect on regular season wins but not championships, in this case World Series and Super Bowls. There will be a positive relationship between salary and regular season wins, where there are more games played so less opportunity for upsets and out of the ordinary results, as opposed to a playoff format which are determined in sudden death games and series. The teams with the best record make the playoffs, once the playoffs start the nature of the games change. Instead of measuring who is the better team out of 16 in the case of the NFL or 162 games in the MLB, playoffs are reduced to 1 game and a 7 game series which increases the odds of upset.

The second hypothesis is that the MLB will have a higher relationship between salary and wins than the NFL. Because there is no regulation on salary in the MLB, the teams that spend the most will win the most games. In the case of the NFL and a hard salary cap, the teams that spend the most do not necessarily win the most games.

The last hypothesis is that a hard salary cap does increase parity in the league while a luxury tax does not. In the NFL, wins have been spread more evenly throughout all the teams in the league and there has not been long standing dynasties winning multiple championships in a row. Judging baseball from 1994-2003 when there was no salary rules and 2003-2013 with the presence of a luxury tax, we will see that there is a minimal effect on parity, that the teams with the highest salaries will have a majority of wins.

Disciplines

Business | Sports Management

Buying Wins: the Role of Salary in on Field Success in the MLB and NFL

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