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Part One: Soccer As A Business

This series is based on some key background information, all found here.

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Chinese Welcome FIFA World Cup Photo by VCG/VCG via Getty Images

Editor’s Note: This article is the first in a series analyzing the effect of money in Major League Soccer. Links to all articles can be found at the bottom as they are released.

Soccer is a business.

We forget that sometimes, getting caught up in the wins, losses and ties of the game, ignoring the fact that sports are indeed an industry. We’re reminded of this at times, like when a favorite player is traded away or released. Even then, we forget to think about the beautiful game in terms of profits.

Soccer isn’t about profits though, at least not in terms of money. Player salaries, stadiums and normal operating expenses add up quickly, often far outpacing the returns of ticket sales and merchandise.

That’s all laid out in Soccernomics, a book written and regularly updated by journalist Simon Kuper and economics professor Stefan Szymanski. Kuper and Szymanski familiarize readers with the relationship between soccer and money, especially how the latter affects the former.

If we view profit in soccer as trophies — or for the many teams who finish somewhere between second and last place, points — we can evaluate the effect of money. Like any business, money going in turns into — if things go right — money out. It’s an investment.

In a basic sense, teams that spend more money should perform better. But how do we define spending more?

The obvious inclination is to view spending in terms of transfers. That’s where the big chunks of money go around, and where much of the attention goes too. The transfer market is a poor valuation of spending, though.

The amount of money involved in a transfer is not always reliably publicized, if made public at all. The ultimate value is not always a good indicator of a player’s value either. Clubs will have to pay more for a player coming off a strong summer tournament, a player who plays a position of demand, or if the negotiating abilities of a front office are lacking. Similarly, a club might be willing to splash the cash on players from specific countries or may snag a deal for a player who has fallen out of favor with their coach.

That’s why Kuper and Szymanski use player salaries as the metric for club spending. Those data are far more accessible and aren’t as likely to be skewed by the aforementioned external factors.

Kuper and Szymanski analyzed the relationship between payrolls and performance in England in Soccernomics and found a strong correlation between them. Teams that spend more on their players tend to be successful.

That’s not to say that a team could guarantee a first-place finish by giving all of their personnel a raise. Rather, teams that are willing to pay more tend to sign players who deserve to be paid more. Payroll then becomes an indicator of quality, which in turn influences performance.

Kuper and Szymanski’s model worked extremely well, aided by the Football League’s system. With very few financial regulations and a clear hierarchy, the results are very clear.

Compared to the English soccer landscape, Major League Soccer is an oddity. With no promotion or relegation, never-ending expansion, a salary cap and allocation money, creating a model isn’t quite as simple. But at the end of the day, money is money and soccer is soccer, so what does the relationship between payroll and performance look like in MLS?

That’s the question we’re here to answer, and, luckily, we’ve got the tools to tackle it. The MLS Players’ Union releases salaries near the end of each season, and these reports — and compiled versions — can be easily accessed via the Denver Post and American Soccer Analysis.

We can also easily measure performance through Supporters Shield standings, which include the entire league and aren’t divided by conference. Through these two rankings, we can determine what effect — if any — spending has on performance in MLS, as well as analyze other league trends.

Stay tuned for the full analysis, coming in four additional parts over the next few days. Check back to this storystream for all of the articles.