Thursday, August 29, 2013

Returns to inequality in sports

Now that the last of my posts on returns to income inequality is up seems like the time for a quick reflection on the concept overall and how well it explained the success of teams.

The returns to inequality

The NBA is where the inequality of a team appears to make a difference in the expected success. This fits with the narrative that teams need to have a star (or several) rather than a surplus of role players. In all of the other leagues analyzed it does not make a significant difference. The NFL and MLB show a negative coefficient. Inequality harms a team in those two leagues. The NHL – most similar to the NBA in salary structure and individual player leverage – is the only other league to show a positive correlation between inequality and team performance.

This whole analysis is necessarily limited. The cumulative build-up of a team’s salaries can only tell us so much (R-squared values MLB=0.13, NBA=0.32, NFL=0.07, NHL=0.13) about the way they perform on the field/ice/court. It is a prediction, sometimes made years before, and made either under duress as part of a bidding process for a free agent or dictated by the terms of the collective bargaining agreement to a draft pick.

Still, it is interesting that one of the coefficients was significant while two others were close (p-value 0.2) after controlling for overall team spending. Even if it just confirmed what people already “knew” it was interesting enough for me.

Looking at a metric more-strictly focused on performance like WAR for baseball or Win Shares for basketball is problematic because end-of-season numbers incorporate the ups and downs of actual performance, so the team’s sum total matches to the performance. For 2012 (or 2012-13 for basketball) the WAR correlation with run differential is 0.89 while the Win Shares correlation with point differential is 0.997. These metrics are very good at allocating out the runs (points) to match their actual totals after the fact.

Unfortunately for us, the effects of a transcendent star making others better – or of a well-balanced team attacking weak links in opposing defenses – are already baked into these backward-looking metrics. To be useful we would need to look at the pre-season expected totals. Perhaps in a future post.

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