Document Type
Article
Publication Date
1-1-2002
Publication Title
Journal of Sports Economics
Abstract
The link between team payroll and competitive balance plays a central role in the theory of team sports but is seldom investigated empirically. This paper uses data on team payrolls in Major League Baseball between 1980 and 2000 to examine the link and implements Granger causality tests to establish whether the relationship runs from payroll to performance or vice versa. While there is no evidence that causality runs from payroll to performance over the entire sample period, the data shows that the cross section correlation between payroll and performance increased significantly in the 1990s. As a comparison, the paper examines the relationship between pay and performance in English soccer, and it is shown that Granger causality from higher payrolls to better performance cannot be rejected. We argue that this difference may be a consequence of the open market for player talent that obtains in soccer compared to the significant restrictions on trade that exist in Major League Baseball.
Volume
3
Issue
2
First Page
149
Last Page
168
DOI
10.1177/152700250200300204
ISSN
15270025
Rights
© 2002 Sage Publications.
Recommended Citation
Hall, Stephen; Szymanski, Stefan; and Zimbalist, Andrew S., "Testing Causality Between Team Performance and Payroll: The Cases of Major League Baseball and English Soccer" (2002). Economics: Faculty Publications, Smith College, Northampton, MA.
https://scholarworks.smith.edu/eco_facpubs/49
Comments
Archived as published. Open access paper.