The Price of Performance: A Principal Component-Based Analysis of Marginal Revenue Product in Major League Soccer

Abstract

Player compensation in professional sports is assumed to reflect on-field value, yet this relationship is less clear in leagues where individual performance is difficult to isolate or where institutional constraints shape wage structures. In Major League Soccer (MLS), compensation is determined within a system that centralizes contract ownership and imposes strict salary regulations. This thesis investigates the relationship between player salaries in the MLS and the value players contribute on the field. Specifically, it estimates each player’s Marginal Revenue Product (MRP) – a measure of the additional revenue a player generates for their team – to evaluate whether compensation aligns with individual performance. Using detailed data on individual on-field performance, the analysis constructs performance indexes inspired by Principal Component Analysis (PCA) to represent key dimensions of play. These indexes are used to trace the pathway from individual contributions to team performance, from team performance to competitive success, and from success to revenue. The estimated MRPs are then compared to actual salary figures to assess the alignment between contribution and compensation. The findings reveal a disconnect: while high-profile attackers are often paid in excess of their estimated MRP, a substantial majority of players – particularly those in midfield and defensive roles – are undercompensated. Approximately three quarters of players in the MLS earn at least 5% less than their MRP suggests, indicating that MLS salaries reflect more than just performance-based economic value. These results point to the influence of positional visibility, marketability, and structural wage-setting mechanisms on compensation in a League where performance is not the sole currency of value.