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The wages = wins fallacy

What if I told you that your wage bill is unrelated to your results?

It seems an absurd statement. In the Premier League, the correlation between wage bill* and points across all teams is 82%. Although correlation does not mean causation, this is, very reasonably, used to explain why teams like QPR will almost certainly finish below Manchester United this season (Harry Redknapp recently bemoaned the financial gulf between his club and United ahead of their fixture earlier this month).

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But whilst economics explains the gap Redknapp describes between the top and bottom teams, it struggles to explain the gaps within the top and bottom teams.

If we divide the Premier League teams into ‘rich’ and ‘poor’ groups, suddenly there appears to be room for manoeuvre. Within the rich group, the correlation between how much you pay your players and where you finish in the league is 58%. Within the poor group, the correlation is only 40%. These are moderate relationships at best, given the context.

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This means there are significant competitive advantages to be gained in your ‘league within a league’, given each additional million has an unpredictable relationship with league position.

By benchmarking on-field success against your closest rivals instead of the entire league, the opportunity to find an edge becomes more achievable. Are other teams innovative or complacent? Do they react to results or make decisions on the underlying performance? Are they a club that nurtures or buys talent? Are they planning strategically for the future?

A lack of financial might is often used as an excuse for failure, but there is actually more noise to the wages-wins relationship than we are led to believe. And when there is noise, there is opportunity.

Everton, by virtue of being close to the median Premier League wage bill for a number of years , fall into the group of financially ‘poor’ clubs (compared to, for example, Chelsea, who have consistently been three times above the median). Each season between 2007 and 2013, they won between 54 and 65 points; clubs with a similar wage bill averaged just 50 points during this period. Clubs with a 15-25% bigger wage bill averaged even less – just 49 points. With astute leadership both on and off the field, Everton have found a competitive edge within their group, and have even threatened to bridge the gap between themselves and the richest teams.

Whilst it is impossible to deny that wealth gaps exist in every division, it’s more than possible to punch above your weight through smart decision making without inflating the wage bill.

*All salary data from published club accounts, collated via articles such as these

About Omar Chaudhuri

Omar Chaudhuri has created 144 entries.