Is Defense Decisive? an Examination of the National Football League Salary Structure and Game Outcomes

Is Defense Decisive? An Examination of the National Football League Salary Structure and Game Outcomes Eric Ness Professor Peter Arcidiacono, Faculty Advisor Honors Thesis submitted in partial fulfillment of the requirements for Graduation with Distinction in Economics in Trinity College of Duke University. Duke University Durham, North Carolina 2010 Table of Contents Acknowledgements………………………………………………………………………..3 Abstract…………………………………………………………………………………....4 1. Introduction…………………………………………………………………………......5 2. Literature Review…………………………………………………………………….....9 3. Theoretical Framework……………………………………………………………..…13 4. Data……………………………………………………………………………………14 5. Empirical Specification...……………………………………………………………...19 6. Results………………………………………………………………………………....21 7. Discussion……………………………………………………………………….…….33 8. Conclusions...………………………………………………………………………….36 Appendix A: Sample Salary Data……………………………………………….……….39 Appendix B: Initial Regression Results………………………………………………… 42 Appendix C: 2008 Variable Data and Winning Percentage……………………………..43 Appendix D: Implied Strategies by Team and Opponent………………………………..48 References………………………………………………………………………………..49 Data Sources…………...……………………………………………………….………. 52 Ness 2 Acknowledgements This paper would not have been possible without Professor Peter Arcidiacono, my faculty advisor, who gave extremely helpful advice at each step of the research process. I am also indebted to Professor Kent Kimbrough for his thorough analysis and constructive criticism, as well as my fellow students in the Economics Honors Seminar for their creative ideas, many of which were used in this paper. Finally, I am grateful for my family, who not only assisted me with creating a tedious and complex data set, but provided me with emotional support both during the research process and my entire career at Duke University. Ness 3 Abstract Professional sports constitute an enormous industry. Maximizing a team’s victories generates substantially increased revenue. A common maxim in sports is “defense wins championships.” The National Football League is an ideal venue to test this adage. A conditional logistic model was used to determine the effect of the percentage of team payroll spent on defense on the probability of victory. In most cases, no evidence suggested that the defense’s share of team payroll had a significant effect on a game’s outcome. However, the percentage of defensive payroll paid to starting players was consistently significant and sizably increased the probability of victory. Ness 4 1. Introduction The ability to predict the outcome of professional sporting events, particularly National Football League (NFL) games, is a skill that many pundits, gamblers, and laypersons desire to possess. The NFL is an enormous entity composed of 32 teams located in all areas of the United States, each of which is worth hundreds of millions of dollars. Every year, the NFL generates $6 billion of revenue (Plunkett Research, Ltd., 2009). Its championship game, known as the Super Bowl, is watched by over 90 million viewers and generates over $250 million for the broadcasting company (Fixmer, 2009). When football fans argue for the supremacy of their sport, facts like these are often cited as evidence that football has replaced baseball as the new national pastime. One of the aspects of the National Football League that attracts many fans and allows the league to generate such a large amount of revenue is the level of parity in the league. Many teams that perform poorly in one season have a winning season the next year, and vice versa. Parity exists in the NFL for several reasons. One of these is the revenue sharing system, which was established in 1961 by former Commissioner Pete Rozelle. Since then, the National Football League has acted as a single entity in many important respects, including sharing revenue generated by the sale of television rights and merchandise equally among all of the teams (Mason, 2004). Without this system, the richer teams located in larger television markets would gain a financial advantage from having more viewers for their games, which would inevitably translate into a competitive advantage. By inheriting largely equal revenue, each team has roughly equal resources to commit to signing players. Ness 5 In addition to revenue sharing, many pundits point to the NFL’s strict salary cap, initially imposed in 1994, as a contributing factor to the league’s parity. Unlike Major League Baseball, which has a “soft” salary cap that can be exceeded with the relatively light penalty of a luxury tax, the NFL has a “hard” salary cap that cannot be exceeded without incurring steep penalties. In professional baseball, large-market teams, such as the New York Yankees, frequently exceed the cap and pay their players as much as five times more than other teams (Associated Press, 2009). These large-market teams are able to outbid the smaller-market teams and drain the finite talent pool such that smaller- market teams are unable to compete. NFL franchises, on the other hand, are restricted by the salary cap and must make wise personnel decisions to gain an edge over their opponents (Einolf, 2004). No single team is able to corner the market on blue-chip players because they are eventually outbid for talent by another team with more room under its salary cap. Another unique characteristic of the National Football League and football in general is the universal use of specialists in each player position. In almost all other sports, individual players frequently play both offense and defense according to the flow of play and the demands of the moment. At the least, players in other sports have widely varying roles within the offense or defense. Football players, however, almost never play both roles. In fact, not only do they play only “one side of the ball,” but they frequently play the same position and line up in the same place for every play. Because of this clear distinction between offensive and defensive specialists, it is possible to examine their contributions to overall team success independently. Ness 6 The existence of revenue sharing, a hard salary cap, and the specialization of player positions make it possible to use the National Football League to explore one of the most well-known adages in sports: defense wins championships. This phrase is frequently cited, especially when a sports team with a particularly stingy defense wins a title. Many journalists and fans, however, have questioned the accuracy of this statement by arguing that no matter how well the defense plays, the offense must score points in order for the team to win, and thus, the offense plays at least an equal role in attaining victory. In fact, some football teams specifically emphasize their offense under the business assumption that fans prefer to watch higher-scoring games and are more likely to attend if their team scores more often (a corollary to the defensive maxim is, “offense sells tickets”). While numerous attempts to correlate defensive performance to team performance have frequently been made by journalists in newspapers and on websites, the literature is lacking a thorough analysis of preference for a good defense and its relationship to the outcome on the field. The purpose of this paper is to measure the probability that a team will win a game given the proportion of salary cap space it devotes to defensive and offensive players. First, a measure of a team’s spending preferences will be found by calculating the proportion of its payroll it devotes to defensive players (defensive lineman, linebackers, and the secondary) and offensive players (quarterback, running backs, offensive linemen, and wide receivers). Here, the specialization inherent in football is crucial because it allows for the money spent on defensive and offensive players to be specifically isolated and compared to the whole. Special teams players, such as kickers Ness 7 and punters, will be placed into the offensive and defense categories, respectively. Then, a regression will be run to determine the relationship between these proportions and the outcome on the field on a game-by-game basis. An assumption that must be made before a more detailed analysis can occur is that more money spent on defensive players correlates directly to better defense and, thus, is a good instrument for defensive prowess (and vice versa for the offense). Certainly other factors affect the defense in addition to salary allocations. Over the course of a season, injuries to players are common, and the absence of players who improve the defense or offense should be factored into calculations. Furthermore, research suggests that wage equity has a positive correlation with success on the field and needs to be included in the regressions (Mondello and Maxcy, 2009; Borghesi, 2008). Also, a good team is not necessarily one with all of the best players at each position (i.e., an all-star team) but rather is composed of players who work together well. This element is difficult to capture in statistical analysis, although one potential measure of team dynamics is the time each player has been with the team, assuming that a team that has fewer personnel changes is more cohesive and functions more effectively. While these factors will be accounted for as much as possible, the main focus of the paper is on the potential effect of salary allocations to defensive and offensive players on the outcome of the game. Ness 8 2. Literature Review The issues of competitiveness and the outcome of games in professional sports leagues have been studied thoroughly. Several studies have shown that competitive games lead to higher attendance in Major League Baseball, particularly when the home team is slightly favored (Rascher, 1999; Meehan et al., 2007). This result makes sense because fans are more willing to pay to watch an entertaining game as opposed to a rout. Higher attendance, in turn, leads to higher revenue for the home team and the league in general. This finding is important because it demonstrates that owners of professional sports clubs should seek to field a team that is competitive with other teams in their league in order to maximize profits.

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