Money On The Line: A Multi-League Analysis on the Effects of Payroll on Win Percentage and Player Performance

Abstract

Professional athletes are among the highest paid individuals in the world. This is largely due to their abilities, but also due to the copious amounts of revenue that professional sports leagues bring in. As such, this paper will aim to examine the following question: what is the impact of increased payroll salary and payroll inequality on a player’s win percentage and individual performance? This paper will examine regular season and playoff data in the MLB, NBA, NFL, and NHL between the years 2011-2021 as they are among the wealthiest leagues with a large pool of athletes. Using standard OLS models with fixed effects, as well as many variables related to a player's wealth and performance, the aggregate study of all leagues combined finds that as the payroll variables increase, a player’s win percentage decreases, yet their individual performance increases in both the regular season and playoffs. Looking at each league specifically, however, the MLB is the only league that finds opposing results, whereby increasing payroll variables raises a player’s win percentage but lowers their individual player ranking.