Academic journal article Economic Inquiry

Structural Change, Competitive Balance, and the Rest of the Major Leagues

Academic journal article Economic Inquiry

Structural Change, Competitive Balance, and the Rest of the Major Leagues

Article excerpt


Competitive balance is the object of significant attention in the analysis of pro sports leagues. Under Rottenberg's (1956) uncertainty of outcome hypothesis, enough imbalance may actually drive down the demand for pro sports and league revenues with it. But the analysis of competitive balance, itself, also is insightful for the impact of league self-regulation choices. In this paper, we extend recent approaches in time series analysis found in Schmidt (2001), Schmidt and Berri (2001a, 2001b, 2003, 2004), Lee and Fort (2005, henceforth LF), and Fort and Lee (2006) beyond its exclusive focus on Major League Baseball (MLB) to the National Basketball Association (NBA), the National Football League (NFL), and the National Hockey League (NHL). We restrict ourselves only to North American leagues (henceforth, NALs), although Davies, Downward, and Jackson (1995), Simmons (1996), and Dobson and Goddard (1998) provide interesting time series analysis in world leagues as well. These works add dramatically to the understanding of structural impacts found from ad hoc cross-section approaches (the review is in LF).

In NALs, a number of structural changes have been hypothesized to dramatically alter competitive balance among teams over time. First, there are the familiar macro occurrences of depression and war and exogenous league factors like the fundamental alteration in local revenue brought on by increases in the value of local TV broadcast rights beginning in the late 1970s. Second, there are more direct league circumstances--changes in the rules of the games, the draft, the end of the reserve clause, changes in the number of teams (merger and expansion) and their locations, salary caps, and labor issues. LF also examined the impact of racial integration on competitive balance. But for the rest of the NALs, there is no clearly defined point marking their racial integration. Finally, Schmidt and Berri (2003) and Eschker, Perez, and Siegler (2004) have begun to investigate the impacts of the influx of foreign-born players.

We apply break point detection techniques, described at length in LF, to within-season competitive balance measures in the rest of the NALs. There are a number of interesting insights. All breaks detected for these other NALs occur after 1966 (and not until 1970 in the NBA). Rule changes in the NFL in the late 1970s correspond with a break point in that league but, generally, rule changes do not correspond to any break points. The imposition in NALs of the draft and free agency conform to Rottenberg's invariance proposition (IP) except for a general negative trend in competitive balance in the NBA. When they do correspond with break points, league expansion and team relocation have predictable impacts but some of these alterations do not have corresponding break points. Mergers in all three of the other NALs correspond in interesting ways with break points that enhance competitive balance. But not all mergers correspond with break points. There is no correspondence between the break points and the imposition of the salary caps in the NBA and the NFL. Finally, we can find no correspondence between break points and any labor issues in any of these leagues except for enhanced balance that followed after the 1998 NBA lockout. Explanations for the negative trend in NBA are consistent with the idea that there is a "short supply of tall people," that is, a truly physical limit on talent inputs in the NBA, originally proposed by Berri et al. (2005). And an explanation for the second break point in the NHL may have to do with the influx of European players.

The paper proceeds as follows. In Section II, we specify the empirical approach and handle the important details of stationary series and detrending. The results are shown and discussed within the context of the limits of the break point technique in Section III. Conclusions round out the paper in Section IV.

II. …

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