The following graph plots the premier league performance (in terms of points) for the 2012-13 season as a function of the team’s wage bill. Apart from a few outliers here and there the correlation is astounding:
The red line is the line of best fit (according to a linear regression) and comparing team standings with respect to the line shows how well teams performed relative to what their wages would predict.
It is interesting to see that Manchester City almost fall off the charts in terms of wages, yet they could not translate this to on-pitch performance. It can also be seen that Manchester United, Spurs and Everton significantly over-performed given their wage bills.
Based on the wage bill, it would have also been reasonably easy to predict that Wigan Athletic and Reading would get relegated at the end of the season – though it must be mentioned they underperformed their wage bills, but QPR should have done a lot better given the size of their pay packet.
A simple linear regression of points against wage bill shows that every GBP 4 million increase in the wage bill leads to one additional point in the premier league! And the regression has an R-square of 69% – which means that the team’s wage bill can predict 69% of the variation in the team’s performance! Which is extremely significant.
Note that in this post we only use the wage bill and not any transfer fees paid. However, the assumption is that the two are reasonably correlated and we are not losing out on any information by using only the wage bill.