A Panel Analysis of the Relationship Between Club Performance and Wages

Abstract

In this study we examine the relationship between club performance and wage in Japanese professional football (J-LEAGUE) clubs. The teams in this league are more concerned about winning than they are about immediate financial success. This is due to the system of promotion and relegation in Japanese professional football. If a team from a higher league has a very bad record, it will be relegated to a lower league, while a team from a lower league with a very good record will be promoted to a higher league. Relegation to the lower league leads to a decrease in ticket revenue, sponsorship revenue, and long-term profits. The literature shows that club performance and wages are correlated. In this chapter, we examine the relationship between club performance and wages in J-LEAGUE clubs by analyzing data from 2005 to 2010 and estimating the order of the 2011 J-League season.

We utilize a fixed effect model and a two-way fixed effect model because there are differences among clubs in regional areas and fan characteristics. The results show that wages and game attendance have a significant influence on club performance, with differences exhibited for higher and lower league games. Our estimation predicts the order of half of the clubs. We also show that for efficiently managed, clubs such as Kashiwa Reysol, Vegalta Sendai, Tokushima Vortis, Tokyo Verdy, and Consadole Sapporo, their actual ranks are higher than predicted. This implies that these clubs have proved to be effective investments.