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Team Payroll Versus Performance in Professional Sports: Is Increased Spending Associated with Greater Success?
by Grant Shorin
Abstract
Professional sports are a billion-dollar industry, with player salaries accounting for the largest expenditure. Comparing results between the four major North American leagues (MLB, NBA, NHL, and NFL) and examining data from 1995 through 2015, this paper seeks to answer the following question: do teams that have higher payrolls achieve greater success, as measured by their regular season, postseason, and financial performance? Multiple data visualizations highlight unique relationships across the three dimensions and between each sport, while subsequent empirical analysis supports these findings. After standardizing payroll values and using a fixed effects model to control for team-specific factors, this paper finds that higher payroll spending is associated with an increase in regular season winning percentage in all sports (but is less meaningful in the NFL), a substantial rise in the likelihood of winning the championship in the NBA and NHL, and a lower operating income in all sports.
Professor Peter Arcidiacono, Faculty Advisor
Professor Kent Kimbrough, Faculty Advisor
JEL Codes: Z2, Z20, Z23, J3
Incentives in Professional Tennis: Tournament Theory and Intangible Factors
By Steven Seidel and Joshua Silverman
This paper analyzes the incentives of professional tennis players in a tournament setting, as a proxy for workers in a firm. Previous studies have asserted that workers exert more effort when monetary incentives are increased, and that effort is maximized when marginal pay dispersion varies directly with position in the firm. We test these two tenets of tournament theory using a new data set, and also test whether other “intangible factors,” such as firm pride or loyalty, drive labor effort incentives. To do this, we analyze the factors that incentivize tennis players to exert maximal effort in two different settings, tournaments with monetary incentives (Grand Slams) and tournaments without monetary incentives (the Davis Cup), and compare the results. We find that effort exertion increases with greater monetary incentive, and that certain intangible factors can often have an effect on player incentives.
Advisor: Curtis Taylor, Marjorie McElroy | JEL Codes: J31, J33, L38 | Tagged: Compensation, Sports, Tournament Theory
Mixed Strategy Equilibrium in Tennis Serves
by Joel Wiles
Abstract
A mixed strategy is a random choice among available strategies, with each strategy being chosen a set percentage of the time. In many games that require unpredictable play, game theory predicts that a mixed strategy equilibrium, a situation where each player uses an optimal mixed strategy, will result. Economists have tested whether people play according to the mixed strategy equilibrium in laboratory experiments with two player zero-sum games—subjects in these experiments generally do not play in accordance with game theory’s predictions. Recently, economists have published papers examining mixed strategy equilibrium play using professional sports as a natural experiment. This paper builds upon Walker and Wooders (2001), which examines mixed strategy play in the locations of serves in professional tennis matches. Walker and Wooders (2001) find that professional tennis players are closer to game theory’s predictions than subjects in laboratory settings, but still “switch their serves up” more than is consistent with game theory’s predictions. My hypothesis is that this result can be explained by a short-term timing effect where a serve that has just been hit is, ceteris paribus, less effective on the next point. I construct a model incorporating this timing effect and work out the theoretical implications of my model. I then estimate the magnitude of this timing effect and determine if optimal play under this model is consistent with the results obtained by Walker and Wooders. My conclusion is that the model accounts for a little under half of the deviation from game theory’s predictions found in the data from professional tennis matches. This suggests that professional tennis players play closer to game theory’s predictions when tested using a model designed to account for more of the complexities of tennis than the Walker and Wooders model, but they still do not play in complete accordance with those predictions.
Professor Curtis Taylor, Faculty Advisor
JEL Codes: Z20,
