Do Players Perform for Pay? An Empirical Examination via NFL Players' Compensation Contracts

Abstract

How to properly compensate and incentivize players is an important question in the realm of professional sports, and more broadly, is a central question in contract design. With the increasing use of performance-based compensation packages and tax law favoring such compensation design, a natural question arises as to whether workers do indeed perform for pay. We examine this question in a setting that is not fraught with the typical measurement and identification problems found in many pay-performance settings. Specifically, we examine changes in a NFL player’s Win Probability Added (WPA) and Expected Points Added (EPA) in response to his compensation-contract design. Overall, our paper provides evidence that players do indeed perform for (properly designed) pay, and has important implications for future work on compensation and incentive-based contract design.

Keywords: pay-performance sensitivity, incentive-based compensation, NFL, sports compensation, win probability added (WPA), expected points added (EPA), sports analytics

JEL Classification: J30, J33, G34, G39