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? Turnover among champions?

Turnover in Champions?

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

The Hirfindahl-Hirschman Index

HHI quantifies turnover in championsAsks: How concentrated is winning?

How much do a few teams dominate?Also used to measure monopoly power

Let fi=#championships by team IT=#teams; N=#Years

T

i

i

N

fHHI

1

2

Applying HHI to Baseball in 1950s

1950s American League ChampionsYankees (8); Indians; White SoxHHI=6.6

1950s National League ChampionsDodgers (5); Giants (2); Braves (2); PhilliesHHI=3.4

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

Nostalgia Ain’t What it Used To Be

From 1949 through 1966Yankees, 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 SeriesNothing new under the sun

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

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?

Ratio of actual to ideal

T= # teams

N = # Games

WPi = Winning Percentage of team i

N

PWWPT

R

T

ii

5.011

2

1

Interpreting the Ratio

Why take ratio?More games => larger standard deviationCan now compare across leagues/years

As a rule: R > 1R=1: Absolutely balancedOutcomes randomly determined

As R rises Imbalance worsens

Is Baseball Worst?

NoIn general MLB in the middleNFL by far the most balancedNBA by far the least balancedExtra 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

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