Wages and Revenues Revisited: An Empirical Analysis of European Football’s Financial Drivers

Abstract

The link between team payrolls and their effect on performance is of central significance to professional sports clubs and in the theory of team sports. This paper uses data on team payrolls in four of the five best domestic leagues in European soccer/football between 2005 and 2014 in an attempt to examine the link between wage spending and league performance, measured by win percentages, and the reasons why the relationship differs across countries. We find that the relationship is strongest in the Italian Serie A and that wages are the least reliable predictor of performance in the English Premier League. Additionally, we run regressions to analyze the link between team performance and team revenues, in order to examine both of the most significant financial drivers of a football club; wages and revenues.