# Inflation-adjusted efficiencies of MLS front offices

Now that the 2011 MLS Cup Playoffs are in full swing, I've taken a look back at the just-completed regular season with a post on the relationship between payroll and league performance and another on the marginal payroll cost per point won in the league.  In this post, I'll expand the marginal payroll cost study by looking at the previous five seasons, from 2007 until now.

Why 2007?  That was the year when the league implemented the Designated Player Rule, popularly known as the "Beckham Rule".  Before that season MLS teams operated within a narrow payroll band, but in the wake of the new regulations teams were able to spend more money on more expensive and (supposedly) international-caliber players.  All of the MLS teams except Philadelphia Union have had at least one Designated Player on their squad. The impact of the Designated Player has been mixed, as most of them have turned out to be either spectacular failures or marginal successes, with the big exception of Guillermo Barros Schelotto with Columbus Crew.

I use the same quantitative performance benchmarking analysis that I employed in the previous post, but it is complicated by a trio of factors.  The first issue is that the salary data are over multiple seasons, so one has to account for inflation. The second issue is that the number of league matches has changed over the five seasons: this season had 34 regular-season matches, while the previous four had 30 matches each.  The third is that not all of the current 18 teams have played over the entire five-year period. I address the first issue by converting the payroll figures to 2007 dollars — I divide the total MLS payroll in a given season by the total 2007 payroll to obtain a conversion factor, then divide team payrolls for that season by the conversion factor.  I address the second by dividing total league points by the number of league matches played. I address the third by dividing a club's total payroll and points-per-game by number of seasons in which that side participated.

The marginal payroll cost per point is calculated with an additional intermediate step.  The baseline average payroll-performance is set to \$1 million (2007 USD), which translates to about \$2 million in today's dollars, and 0.735 points per game, which correspond to 25 points in a 34-game season.  The difference between the average payroll and its baseline, divided by the difference between average PPG and its baseline, yields the marginal payroll cost per point per game, which will be a large number. I then divide that figure by the total number of points to obtain the marginal payroll cost per point.

The team payroll-performance efficiency gain is calculated by comparing the marginal payroll cost to the league average.  We'll compare it to the league median as well.

Okay, that was a lot of setup.  Below are the marginal payroll costs of MLS teams between the 2007-2011 seasons, ranked by front office efficiency gain.  The league average cost per point is \$78,783.46, so marginal costs below that amount are considered positive and costs above it are negative.

 Team Seasons Avg Payroll (2007 USD) Avg PPG Payroll Cost/Pt Efficiency Seattle Sounders FC 3 \$1,124,157.39 1.673 \$3,893.44 95.06% Portland Timbers 1 \$1,179,406.62 1.235 \$10,553.33 86.60% Philadelphia Union 2 \$1,458,630.35 1.223 \$27,683.92 64.86% Columbus Crew 5 \$1,803,752.02 1.563 \$28,555.85 63.75% Real Salt Lake 5 \$1,681,765.09 1.398 \$30,237.96 61.62% Houston Dynamo 5 \$1,943,636.14 1.515 \$35,599.95 54.81% Colorado Rapids 5 \$1,764,880.49 1.348 \$36,702.52 53.41% Chivas USA 5 \$1,798,225.92 1.338 \$38,925.19 50.59% FC Dallas 5 \$1,994,062.94 1.433 \$41,931.79 46.78% San Jose Earthquakes 4 \$1,661,883.07 1.188 \$43,025.98 45.39% New England Revolution 5 \$1,820,261.17 1.278 \$44,450.57 43.58% Sporting Kansas City 5 \$1,906,537.63 1.327 \$45,086.42 42.77% D.C. United 5 \$2,329,883.70 1.256 \$75,106.38 4.67% Chicago Fire 5 \$3,353,974.31 1.366 \$109,725.34 -39.27% Toronto FC 5 \$2,671,033.00 1.087 \$139,562.89 -77.15% New York Red Bulls 5 \$5,047,479.53 1.297 \$211,835.98 -168.88% Los Angeles Galaxy 5 \$7,090,532.78 1.554 \$218,769.14 -177.68% Vancouver Whitecaps FC 1 \$1,829,366.77 0.824 \$276,455.59 -250.91%

In general, the teams with the highest inflation-adjusted payrolls in MLS have been the most inefficient during that period.  Los Angeles has had the second-highest points-per-game average during the last five seasons, so they appear to be in the "high-cost/high-achievement" class of sports teams.  The big exception is the Vancouver Whitecaps, who spent almost \$200k above the league average to win a league point.  One could make the excuse that it is the first season in MLS for the 'Caps, but this isn't a club created from scratch.  The other end of the table is headed by the other two Pacific Northwest clubs.  I pointed out how efficient the Timbers were in their opening season in MLS, but the Sounders have taken front-office efficiency to a new level.  Over their three seasons, their payroll costs have been on average less than four thousand dollars per point.  Now, that figure's in 2007 dollars but even after accounting for inflation that's less than \$10,000 per point.

Now I present the same chart but this time calculating the marginal payroll costs per point relative to the league median, which was \$42,478.89.

 Team Seasons Avg Payroll (2007 USD) Avg PPG Payroll Cost/Pt Efficiency Seattle Sounders FC 3 \$1,124,157.39 1.673 \$3,893.44 90.83% Portland Timbers 1 \$1,179,406.62 1.235 \$10,553.33 75.16% Philadelphia Union 2 \$1,458,630.35 1.223 \$27,683.92 34.83% Columbus Crew 5 \$1,803,752.02 1.563 \$28,555.85 32.78% Real Salt Lake 5 \$1,681,765.09 1.398 \$30,237.96 28.82% Houston Dynamo 5 \$1,943,636.14 1.515 \$35,599.95 16.19% Colorado Rapids 5 \$1,764,880.49 1.348 \$36,702.52 13.60% Chivas USA 5 \$1,798,225.92 1.338 \$38,925.19 8.37% FC Dallas 5 \$1,994,062.94 1.433 \$41,931.79 1.29% San Jose Earthquakes 4 \$1,661,883.07 1.188 \$43,025.98 -1.29% New England Revolution 5 \$1,820,261.17 1.278 \$44,450.57 -4.64% Sporting Kansas City 5 \$1,906,537.63 1.327 \$45,086.42 -6.14% D.C. United 5 \$2,329,883.70 1.256 \$75,106.38 -76.81% Chicago Fire 5 \$3,353,974.31 1.366 \$109,725.34 -158.31% Toronto FC 5 \$2,671,033.00 1.087 \$139,562.89 -228.55% New York Red Bulls 5 \$5,047,479.53 1.297 \$211,835.98 -398.69% Los Angeles Galaxy 5 \$7,090,532.78 1.554 \$218,769.14 -415.01% Vancouver Whitecaps FC 1 \$1,829,366.77 0.824 \$276,455.59 -550.81%

The order of the teams remains the same, but the use of the median statistic gives a better measure of front-office efficiency in a league with a skewed distribution of payroll costs.  The efficiency gains of the Sounders and Timbers are even more apparent, as well as the gross inefficiency of the Whitecaps and the big-money coastal sides.  The large efficiency gains of most clubs relative to the league average no longer look so impressive when compared against the league median.  In fact, most of the league teams have either mediocre or mildly efficient performance over the five-year period.

There are some further studies in the pipeline that hopefully will give some insight as to what the Sounders and Timbers are doing right in their front-office decisions and the Whitecaps are doing so poorly.