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Salary Caps and Competitive Balance in Professional Sports Leagues

Author

Listed:
  • 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.

Suggested Citation

  • Evan S. Totty & Mark F. Owens, 2011. "Salary Caps and Competitive Balance in Professional Sports Leagues," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center, vol. 11(2), pages 46-56, Fall.
  • Handle: RePEc:mts:jrnlee:v:11:y:2011:i:2:p:46-56
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    File URL: http://frank.mtsu.edu/~jee/2011/fall/5_MS1011-pp45to56.pdf
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    References listed on IDEAS

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    1. Martin B. Schmidt & David J. Berri, 2001. "Competitive Balance and Attendance," Journal of Sports Economics, , vol. 2(2), pages 145-167, May.
    2. Craig Depken, 1999. "Free-Agency and the Competitiveness of Major League Baseball," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(3), pages 205-217, May.
    3. 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.
    4. 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;The Industrial Organization Society, vol. 21(1), pages 41-54, August.
    5. Martin Schmidt, 2001. "Competition in Major League Baseball: the impact expansion," Applied Economics Letters, Taylor & Francis Journals, vol. 8(1), pages 21-26.
    6. Brad R. Humphreys, 2002. "Alternative Measures of Competitive Balance in Sports Leagues," Journal of Sports Economics, , vol. 3(2), pages 133-148, May.
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    Citations

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    Cited by:

    1. Dorian Owen & Caitlin Owen, 2017. "Simulation Evidence on Herfindahl-Hirschman Indices as Measures of Competitive Balance," Working Papers 1715, University of Otago, Department of Economics, revised Dec 2017.

    More about this item

    Keywords

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

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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