Academic journal article International Journal of Sport Finance

The Hope Statistic as an Alternative Measure of Competitive Balance

Academic journal article International Journal of Sport Finance

The Hope Statistic as an Alternative Measure of Competitive Balance

Article excerpt

Abstract

We examine the need for and the presence of competitive balance in professional sports leagues. We argue that competitive balance helps to further fan welfare and we propose a new measure of competitive balance that hopefully better reflects the needs of fans-that is, compared with measures used both currently and in the past. More specifically, we model the hope of postseason play in a new way as a proxy for competitive balance, and, using a database from Major League Baseball, we provide descriptive statistics for our measure alongside a number of other measures currently extant in the literature. We conclude by discussing policy positions that may be derived from our findings.

Keywords: sport finance, competitive balance, major league baseball, hope, shareholder wealth, fan welfare

Introduction

Considerable research has been undertaken to address questions relating to competitive balance (CB) in professional team sports. More specifically, research has been aimed at:

1. Defining CB

2. Measuring CB at different points in time in different leagues

3. Investigating whether CB is a desirable characteristic of a professional sports league

4. Offering suggestions as to ways to promote or discourage CB.

We believe that these questions have been addressed due to a widely held belief that CB may have a meaningful impact on team revenues and profits, as well as having an influence on fan interest.

Fan Welfare and the Need for Competitive Balance

It is not axiomatic that CB promotes fan welfare; having said that, Rottenberg (1956; 2000) argued that competitors must be of approximately equal "size" (i.e., ability) to be successful. Contests between poorly matched teams would eventually lose fan interest. Zimbalist (2002) similarly suggests that the notion of CB being important derives from an assumption that fans have a strong preference for uncertainty of outcomes. The argument is that an increase in CB will increase the uncertainty of outcomes and stimulate fan interest. Many of the theoretical advances in CB theory have stemmed from this uncertainty of outcomes hypothesis (UOH), which often assumes that equal weight is placed on each game-from an expansion franchise's first game in the league to an established and competitive team's final game before postseason play.

A more recent definition proposed by the authors of The Commissioner's Blue Ribbon Report on Baseball Economics (Levin et. al., 2000) states that "proper CB will not exist until every well-run club has a regularly recurring hope of reaching postseason play" (p. 5). We argue that this definition of CB is not entirely consistent with the UOH; this difference is important when it comes to making prescriptive suggestions to enhance CB down the line. Lee and Fort (2008) make a similar statement.

Based on the statistics constructed to measure it, the UOH is often thought of as a continuous variable occupying a spectrum from low to high. In contrast, we think of the hope of reaching postseason play as a binary variable. Although baseball fans are not presumed to be homogeneous in their beliefs and expectations, we believe that, if a team falls out of contention, its fans will lose interest. Similarly, if a team is in contention, its fans will maintain their interest and their welfare will be increased. We argue that hope can be effectively modeled as a binary, rather than a continuous variable. In this respect, our work is distinct from other work in the field. While recognizing the value of the UOH definition, we believe that the hope of postseason play definition, at least as stated here, is reflective of a fan's perception of CB. O'Reilly et al. (2008) present empirical support for this argument. With that in mind, we developed a new metric of CB, one that captures the hope of postseason play.

Competitive Balance: Theory and Alternative Measures

Competitive Balance Theory

Previous empirical research has studied the level of CB in different leagues at different times, along with the relationship between these measures and some proxy for consumer welfare (usually attendance). …

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