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Salary Caps and Competitive Balance in Professional Sports Leagues

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  • Evan S. Totty
  • Mark F. Owens

Abstract

This paper examines the effects of salary caps on competitive balance in professional sports leagues in the United States. We find no evidence to suggest that salary caps improve competitive balance, as measured by the variation in wins between the best and worst teams in a league in a given year, in any of the major sports leagues. Further, depending on the measure of competitive balance, it appears that salary caps decreased competitive balance in the NBA, which has specific components that differ from those of the NHL and NFL. The results also suggest that revenue sharing arrangements promote competitive balance in a manner that is consistent with economic theory.

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File URL: http://frank.mtsu.edu/~jee/2011/fall/5_MS1011-pp45to56.pdf
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Bibliographic Info

Article provided by Middle Tennessee State University, Business and Economic Research Center in its journal Journal for Economic Educators.

Volume (Year): 11 (2011)
Issue (Month): 2 (Fall)
Pages: 46-56

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Handle: RePEc:mts:jrnlee:v:11:y:2011:i:2:p:46-56

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Keywords: salary caps; competitive balance; free agency; standard deviation; Herfindahl- Hirschman Index;

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  1. Craig Depken, 1999. "Free-Agency and the Competitiveness of Major League Baseball," Review of Industrial Organization, Springer, vol. 14(3), pages 205-217, May.
  2. Dietl Helmut M & Lang Markus & Rathke Alexander, 2009. "The Effect of Salary Caps in Professional Team Sports on Social Welfare," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-23, April.
  3. Martin Schmidt & David Berri, 2002. "Competitive Balance and Market Size in Major League Baseball: A Response to Baseball's Blue Ribbon Panel," Review of Industrial Organization, Springer, vol. 21(1), pages 41-54, August.
  4. Brad R. Humphreys, 2002. "Alternative Measures of Competitive Balance in Sports Leagues," Journal of Sports Economics, , vol. 3(2), pages 133-148, May.
  5. Martin B. Schmidt & David J. Berri, 2001. "Competitive Balance and Attendance: The Case of Major League Baseball," Journal of Sports Economics, , vol. 2(2), pages 145-167, May.
  6. Martin Schmidt, 2001. "Competition in Major League Baseball: the impact expansion," Applied Economics Letters, Taylor & Francis Journals, vol. 8(1), pages 21-26.
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