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Competitive Balance

Competitive Balance. What it is What it means. Leagues Want It. Stimulates interest Attendance TV Ratings Baseball owners particularly complain Are Yankees bad for baseball? Should New York win more often? What is competitive balance? Even competition in each game?

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Competitive Balance

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  1. Competitive Balance What it is What it means

  2. Leagues Want It • Stimulates interest • Attendance • TV Ratings • Baseball owners particularly complain • Are Yankees bad for baseball? • Should New York win more often? • What is competitive balance? • Even competition in each game? • Turnover among champions?

  3. 1949 Yankees beat Dodgers 1950 Yankees beat Phils 1951 Yankees beat Giants 1952 Yankees beat Dodgers 1953 Yankees beat Dodgers 1954 Giants beat Indians 1955 Dodgers beat Yankees 1956 Yankees beat Dodgers 1957 Braves beat Yankees 1958 Yankees beat Braves 1959 Dodgers beat White Sox Turnover in Champions?

  4. The Hirfindahl-Hirschman Index • HHI quantifies turnover in champions • Asks: How concentrated is winning? • How much do a few teams dominate? • Also used to measure monopoly power • Let fi=#championships by team I • T=#teams; N=#Years

  5. Applying HHI to Baseball in 1950s • 1950s American League Champions • Yankees (8); Indians; White Sox • HHI=6.6 • 1950s National League Champions • Dodgers (5); Giants (2); Braves (2); Phillies • HHI=3.4

  6. Applying HHI to Baseball in 1990s • 1990s AL Champions • Yankees (3); Indians (2); Blue Jays (2); Twins; Athletics • HHI=2.1 • 1990s NL Champions • Braves (5); Reds; Phillies; Marlins; Padres • HHI=3.2 • Conclusion of HHI measure: • League Championships less concentrated in 1990s

  7. Nostalgia Ain’t What it Used To Be • From 1949 through 1966 • Yankees, Dodgers, or Giants played in every World Series • 2 of them played each other in 8 of 18 • Yankees in 14 of 18 • Yankees in over 25% of all World Series • Nothing new under the sun

  8. Is Baseball Unique? • In 1960s only 2 NBA champions • Celtics Champions 1960-66, 1968-69 • Since 1990 only 4 NBA champions • Bulls: 1990-1993 • Rockets: 1994-1995 • Bulls: 1996-1998 • Spurs: 1999 • Lakers 2000-2002 • Spurs 2003 • Similar results for hockey

  9. How about Evenness of Competition? • Use standard deviation of winning % • Problem • Cannot compare across league • Cannot compare across seasons • Why not? • Key innovation: compare to “ideal” • Teams evenly matched • Games decided by flip of coin • Why don’t all teams win half their games?

  10. Ratio of actual to ideal • T= # teams • N = # Games • WPi =Winning Percentage of team i

  11. Interpreting the Ratio • Why take ratio? • More games => larger standard deviation • Can now compare across leagues/years • As a rule: R > 1 • R=1: Absolutely balanced • Outcomes randomly determined • As R rises • Imbalance worsens

  12. Is Baseball Worst? • No • In general MLB in the middle • NFL by far the most balanced • NBA by far the least balanced • Extra Credit • Pick 2 years from MLB, NBA, NFL, or NHL • One from 1960 – 1975; one from 1980-2000 • Compute R – show work • Compare competitive balance in 2 years

  13. How to Promote Competitive Balance? • Owners promote restriction on players • Reverse order draft • Restrictions on free agency • Salary caps • “Luxury tax” on salaries • All promote monopsony power • Did it ever work? • Several punish success • An alternative • Tax based on exogenous advantage: city size

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