I found an interesting link i wanted to share.
The Relationship between Team Payroll and Team poerformance in the NHL.
There have been tests to measure the correlation coefficient for payrolls and performance using winning percentage for performance. And it had been found that there is a moderate correlation. However a moderate correlation would be expected, and further, correlation still does not represent causality.
The Granger Causality Test, rather than measure causality, attempts to measure precedence. Does one one time series variable consistently and predicatably change before the other. If A does occur before B, it still doesnt prove causality of A for B, however it would seem safe to rule out the causality of B on A.
So they tested the hypothesis, does payroll predicatably rise before performance. Three leading sports economists made the measurements of team points regressed against lagged team points and payrolls, and then the other way around.
What they found was that winning percentages Granger caused higher payrolls. However higher payrolls didnt Granger cause higher winning percentages. By Granger caused, is meant one delta consistently, predicatbly and statistically significantly precedes the other (I think is what they said, stats not my strong suit).
In other words,
- winning always precedes increases in payroll.
- but increasing payroll doesnt always precede winning
Their conclusion was that high payrolls are not a necessity in the NHL. The trend is to more competitive balance, and the current competitive balance
encourages the bidding up of players because of the playoff profits which show no sign of imbalance because of money. High payrolls did not mean you would do well in the playoffs, nor did it mean you would make money. Team performance Granger causes relative Team payroll, but the opposite hypothesis can be rejected.
However there is still salary inflation in the league. But this is a result of the competitive balance not a cause of competitive imbalance.
Payroll disparity is not the
cause of an uncompetitive league; its the
effect of a healthy one. This is certainly not an intuitive conclusion. Its fair to say there is salary inflation, but it isnt causing competitive imbalance. You can fix salary inflation if you wish, but you dont need to and wont fix competitiveness balance (fix being an unfortunate choice of words in a sporting context).
This is one reason why I am against a cap. It fixes things that arent problems.
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Here was a another somewhat unrelated link on the baseball background and some of the unscruplous behaviour of owners an dhow they hide money etc. Long and a decade old, but still an interesting read if you have some time to kill. Its from from one of the leading Sports economists Andrew Zimbalist.
His closing paragraph was an intersting one.
Andrew Zimbalist speech on the Economics of Baseball
Its time we got rid of the owners and their constant greedy agenda. The game belongs to us the fans and the players, and its rich history as part of our culture. Its time we went on without the greedy arrogant owners. Hopefully this provides that opportunity.