Portuguese football league efficiency and players' wages

Abstract

In this article, we use Data Envelopment Analysis (DEA) to measure the efficiency of Portuguese football clubs in the First League for seasons 2002/03 to 2008/09. Clubs spend different amounts of money on their players and use different incentive devices to achieve their aims for each season. Our first aim is to find out whether clubs are spending more money than they need to. Evidence shows that this is the case for several clubs, suggesting that buying players solely with a view to selling them on for future financial gain can seriously damage clubs' accounts and efficiency. This is all the more remarkable as the competitive level is increasing and Union of European Football Associations (UEFA) is issuing more stringent financial stability conditions. Our second aim is to ascertain the relationship between the players' wage distribution and the clubs' efficiency. We demonstrate that a higher wage spread tends to be associated with an increase in efficiency. The implication is that clubs should structure wages so as to have the optimal pay ranking for inducing players' effort.

Keywords:

• football
• efficiency
• wage distribution
• tournaments
• data envelopment analysis

JEL Classification:

• L83
• D21
• L21
• J31
• J44

Acknowledgements

This research was partially supported by the Portuguese Foundation for Science and Technology (FCT). We are indebted to the Ministry of Labour (Gabinete de Estratégia e Planeamento – GEP) for giving us access to the data. We also thank the participants of the Strategic Management Society (SMS) conference in Finland and the Comparative Analysis of Enterprise Data (CAED) conference in London for their comments and suggestions.

Notes

¹ One of the most prominent cases was Boavista: the Portuguese champion in 2000–2001 and semi-finalist of the UEFA Cup in 2002–2003, it ceased to have professional football in 2008.

² It has also been suggested that wage dispersion can induce lower team performance (Akerlof and Yellen, 1988). Recently, San and Jane (2008) presented evidence of this theory, though applied to the professional baseball league in Taiwan, a young and small sports market.

³ This scale gives more prominence to a rise at the top of the table than to a rise at the bottom. Therefore, there is a significant difference between climbing one position from second to first (which allows the club to be champion) and climbing one position from seventh to sixth.