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Salary Inequality, Team Success and the Superstar Effect

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  • Philippe Cyrenne

Abstract

In this paper, I examine the relationship between a professional sports team's salary distribution and its performance. I first develop a simple model of a team's salary distribution and then using data from the period covered by the recent Collective Bargaining Agreement between players and owners in the National Hockey League, I examine the relationship between a team's salary distribution and its winning percentage. Using a variety of estimators and a variety of measures to describe the distribution of player salaries on a team, I find that teams with higher relative payrolls and lower salary inequality have higher winning percentages. I also find evidence of a superstar effect, in that teams with a higher maximum player salary have higher winning percentages. The results are sensitive; however, to the particular measure of salary inequality used and the endogeneity of the salary distribution.

Suggested Citation

  • Philippe Cyrenne, 2014. "Salary Inequality, Team Success and the Superstar Effect," Departmental Working Papers 2014-02, The University of Winnipeg, Department of Economics.
  • Handle: RePEc:win:winwop:2014-02
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