PART 3 Money and Performance in MLS

Dave Laidig is back with the second part of his series looking at the use of statistics and numbers in soccer.  For Part I, click here. For Part II, click here.  So far, this series has focused on analyzing objective measures of
performance.  In Part 1, we covered the Castrol Index and an adjusted
index that allows meaningful comparisons on overall contribution to
wins between positions.  In Part 2, we used this information to
determine the potential impact of field players from different
positions on wins.  However, in the business of soccer, resources are
limited.  And one must get the maximum value for their investments in
players.  Here, we review some of the financial aspects of obtaining
the performance levels discussed in earlier installments of this
series.

The theme for this part is return on investment: knowing what can be
obtained for a given price.  And to get this analysis, I made some
assumptions.  For example, I used the 2011 “guaranteed salary”
reported by the MLS Players’ Union, instead of base salaries.  I
believe teams likely know which contract incentives will probably be
met.  Thus, I treat the salaries guaranteed as of Sept. 2011 as
expected by teams, and use them for my salary analyses.  Also, I treat
all guaranteed salaries above the designated player (DP) threshold as
DPs.  I understand there is room for teams to buy-down salary cap
values using allocation money.  But sticking to my dollars and cents
theme, I classify DPs based on actual expenditures, and not salary cap
rules.

With the background aside, we turn to the role of money on
performance.  First, player salaries are poor predictors of team
success.  Between 2007 and 2010, total team expenditures were not
significantly correlated to league points (.193).  Considering
individual players, guaranteed salary was not correlated with Castrol
Index scores or adjusted index ratings (.166 and .172 respectively).
And if we ran the equations in Part 2, with salary replacing the
performance indices as a predictor of team points, there is no
significant relationship to league points and the model R-squared was
a paltry .27 (compared to .78 of a maximum possible 1.0 for the
adjusted index weighted by playing time).  Further, I created an
effective average salary for each team (avg. salary weighted by
minutes), and that was not significantly related to points either.

These results inform us that more money does not lead to more wins in
MLS.  In contrast, in the 2010 EPL season, team salary costs were
highly correlated (.85) with league points.  As a rough indicator of
the value of large salaries, consider whether Designated Players (2011
salaries above $335,000) are more likely to be in the top 20% of
performers.  There were 31 non-goalie DP salaries in 2011, and 11 of
these were in the top 20% of their position group.  This is a
statistically significant result (Chi-square = 4.75, df 1), but the
size of the effect is modest in comparison to the wages.  A randomly
selected DP has about a 35% chance of being a top performer, while the
rest of MLS players have a 19% chance of being a top performer.  And
of course, one could sign several other players for the typical DP
salary.  In MLS, one can obtain high quality player performance
without spending more than opponents.  In short, there is room for
more efficient player spending.

But knowing there is room for improvement and actually improving are
two different things.  A standard is needed to measure the value of
performance, and not just for DPs.  As an initial step, the average
salary per adjusted index point is $31,228 for forwards, $23,425 for
midfielders, $17,849 for defenders, and $18,861 for goalkeepers.  The
median salary per point is about $12,000 for the field positions;
which is interesting even though the average performance index and the
wages differ for each position.  Also, the range of dollars per index
point is very wide.  Indeed, the field players with the greatest value
(typically key starters on a minimum salary) are in the $4,200 per
point range; while the egregious examples can be over 600k or 800k per
point.  And with such incredible variability, I use the median values
as the basis for calculating value.

In addition, I chose to examine a subset of the top players as well.
Some economists have suggested that performance at the top-end is
disproportionately rewarded; possibly due to the all-or-nothing nature
of sports.  Thus, considering the top 20% of performers at each
position, we find their average salary per adjusted index point for
forwards are $84,175 (median $ 13,243), midfielders $40,689 (median $
14,880), defenders $17,339 (median $17,954), and goalkeepers $10,197
(median $ 7,728).  When compared to the entire position groups, it
becomes evident that purchasing higher end talent is slightly more
expensive.

These data points are involved in creating wage standards for
performance levels.  For example, the median wages per point
multiplied by the median points creates an “efficient salary” for a
50th percentile player.  With the math, an efficient salary for a
mid-level forward would be $87,800 (7.48 * $11,738), a midfielder
would be $91,318 (7.44 * $12,274), and a defender would be $91,116
(7.71 * $11,818).  These “efficient salaries” are slightly below the
median position salaries reported in Part 1.

Similarly, we can calculate an “efficient salary” for a top player
(80th percentile) using the median wages per point for the top 20% of
players.  An efficient salary for a top-level forward would be
$107,665 (8.13 * 13,243), a midfielder would be $117,254 (7.88 *
14,880), and a defender would be $146,863 (8.18 *17,954).  Using these
salaries, one can start to analysis the value of a player contract.
These standards represent what a performance increase alone would
justify, based on the current MLS market.  Any expenditure beyond
these levels would require an additional justification.

And soccer is a business.  Any salary or wage must be justified; but
increased performance is only one justification for a DP.  Obviously,
anything else a player contributes to increased revenue would support
extra wages (beyond that supported by performance).  And because fans
will buy Donovan jerseys over Franklin jerseys, the Galaxy are
justified in paying Donovan more, even if both contribute the same to
wins.  Further, there are less tangible benefits as well.  A DP may
attract better competition for friendlies, or lead to more TV
exposure.  And other players may accept less for the chance to play
alongside a star player.  All of which may affect the bottom line.
Consequently, a DP decision process should consider the value
justified by performance (rough estimate of performance * $ per point)
and projected revenue (additional jerseys and tickets) and as well as
the more speculative benefits.

And by using a quantitative method to account for the various buckets
of player value: teams may be able to make better business decisions
by recognizing where their purchase price is going (performance,
merchandising, or improving other players’ performance) and then
evaluate the success or failure of the results.  Over time, one can
quantify the risk involved for each category and improve the market
efficiency of player acquisition.

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2 Responses

  1. This article was well detailed, well analyzed, interesting and well written.

  2. […] Footiebusiness: Money and Performance in MLS Part 3 […]

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