Team Payroll and Competitive Performance in Pro Sports Leagues Discussed in Latest Entertainment And Sports Lawyer

CHICAGO, Aug. 20, 2004 – The New York Yankees team payroll at the beginning of the 2004 Major League Baseball season, the highest of all 30 teams in the league, exceeded $182 million, compared to the Milwaukee Brewers who had a league low payroll of slightly more than $27 million, a disparity in excess of $155 million. How does this major salary difference correlate to the playing field? As of mid-August, the Yankees had the best record in the American League while the Brewers were hovering near the bottom of the National League’s central division.

An article published in the latest edition of the American Bar Association’s Entertainment and Sports Lawyer, “The Correlation Between Team Payroll and Competitive Performance in the Professional Sports Leagues,” explores the connection between team salaries and on-field accomplishment of teams in the four major sports leagues – Major League Baseball, the National Football League, the National Basketball Association and the National Hockey League.

Ralph C. Anzivino, a Marquette University law professor and author of the article, called the report “the first statistically-valid study of its kind ever conducted or published.”

“There is no question that teams with high payrolls have a competitive advantage over low payroll teams,” says Anzivino.

Anzivino used 18 different calculations to determine the correlation between performances of the teams in the top quartile of payroll in their respective league compared to teams in the bottom quartile.

The article explains that the four professional sports leagues have each taken a different approach to their teams’ payrolls. The NFL uses what is known as a “hard cap” on salaries, where each team cannot exceed a specified team payroll, $75 million for the 2003-04 season, except in very limited circumstances. The NBA has what is known as a “soft cap,” where teams are permitted to exceed the established league payroll under certain exceptions defined in the collective bargaining agreement. Major League Baseball does not have a cap or formula that connects league revenues and team payroll, but uses a “competitive balance tax” or a “luxury tax” as it is generally known, assessed at a varying rate per season against the amount that a team exceeds the pre-agreed spending limit. The NHL has no payroll caps and no luxury tax.

Anzivino finds that the NHL has the highest correlation between a team’s payroll and its win/loss record for each season. The odds are better than 50-50 in the NHL that if a team is in the top quartile by payroll that it will finish in the top quartile by record as well. The NHL is the only league with probability greater than 50 percent, although Major League Baseball approaches that number, at 49.3 percent, and the NBA is modestly below the 50 percent mark at 41.3 percent. The author notes that the NFL has the lowest correlation between total team payroll and team finish.

“Except for the NFL, the advantage is very significant, anti-competitive and unhealthy for the fans and the leagues,” Anzivino concludes in the article.

Entertainment and Sports Lawyer, published quarterly, is the flagship publication of the American Bar Association Forum on the Entertainment and Sports Industries. The Forum works to educate lawyers in the legal principles and transactional aspects of entertainment and sports law, to provide a platform for the discussion of issues affecting these fields, and to foster excellence in the practice of law in these fields. For more information on the article or the forum, visit www.abanet.org/forums/entsports/home.html.

With more than 400,000 members, the American Bar Association is the largest voluntary professional membership organization in the world. As the national voice of the legal profession, the ABA works to improve the administration of justice, promotes programs that assist lawyers and judges in their work, accredits law schools, provides continuing legal education, and works to build public understanding around the world of the importance of the rule of law in a democratic society.