Simon Rottenberg long ago noted that the nature of sports is such that competitors must be of approximately equal ability if any are to be financially successful. In recent years, sports commentators and fans, Major League Baseball itself, and even some economists have expressed growing concern about the widening disparities between team expenditures and the growing concentrations of postseason contenders and championships. In this article, the authors compare different concepts of competitive balance, review the theoretical and empirical scholarship on competitive balance and the relationship between payrolls and performance, describe the natural forces and institutional rules and regulations that contribute to observed distributions of playing performances, and evaluate the likely effect of several popular proposals—payroll and salary caps, luxury taxes, and increased revenue sharing—on competitive balance. Although the focus is on baseball, frequent comparisons are made to other sports leagues including collegiate athletics and individual sports.
Get full access to this article
View all access options for this article.
References
1.
Akerlof, G. (1976). The economics of caste and of the rat race and other woeful tales. Quarterly Journal of Economics, 90(4), 599-617.
2.
Baade, R. A., & Sanderson, A. R. (1997). Cities under siege. In W. Hendricks (Ed.), Advances in the economics of sport, Vol. 2 (pp. 77-114). Stamford, CT: JAI Press.
3.
Barra, A. (2002a). Clearing the bases. New York: St. Martin's Press.
4.
Barra, A. (2002b, August 30). Imbalanced logic. Wall Street Journal, p. W5.
5.
Becker, G. S. (1973). A theory of marriage. Journal of Political Economy, Part I, 81, 813-846.
6.
Bloom, M. (1999). The performance effects of pay dispersion on individuals and organizations. Academy of Management Journal, 42(1), 25-40.
7.
Brown, C. (1999, April 8). Winner of Masters must show toughness and keep his head. New York Times, p. D1.
8.
Chatterjee, S., & Wiseman, F. (2002). Team payroll and team performance in Major League Baseball: Are we headed for a suicide squeeze? Unpublished manuscript.
9.
Coase, R. H. (1960). The problem of social cost. Journal of Law and Economics, 3, 1-44.
10.
Costas, B. (2000). Fair ball: A fan's case for baseball. New York: Broadway Books.
11.
Daly, G., & Moore, W. J. (1981). Externalities, property rights, and the allocation of resources in Major League Baseball. Economic Inquiry, 19, 77-94.
12.
Depken, C. A., II. (1999). Free-agency and the competitiveness of Major League Baseball. Review of Industrial Organization, 14, 205-217.
13.
Dobson, S., & Goddard, J. (2001). The economics of football. New York: Cambridge University Press.
14.
Eckard, E. W. (1998). The NCAA cartel and competitive balance in college football. Review of Industrial Organization, 13(3), 347-369.
15.
Eckard, E. W. (2001a). Baseball's Blue Ribbon Report: Solutions in search of a problem. Journal of Sports Economics, 2(3), 213-227.
16.
Eckard, E. W. (2001b). Free agency, competitive balance, and diminishing returns to pennant contention. Economic Inquiry, 39(3), 430-443.
17.
Eckard, E. W. (2003). The ANOVA-based competitive balance measure: A defense. Journal of Sports Economics, 4(1), 74-80.
18.
El-Hodiri, M., & Quirk, J. (1971). An economic model of a professional sports league. Journal of Political Economy, 79, 1302-1319.
19.
Fort, R. (2003). Sports economics. Upper Saddle River, NJ: Prentice Hall.
20.
Fort, R., & Quirk, J. (1995). Cross-subsidization, incentives, and outcomes in professional team sports leagues. Journal of Economic Literature, 33, 1265-1299.
21.
Frank, R. H., & Cook, P. J. (1995). The winner-take-all society. New York: The Free Press.
22.
Guryan, J. (2001). Estimating peer effects in the workplace: Evidence from random pairings in professional golf tournaments. Manuscript in preparation.
23.
Hausman, J. A., & Leonard, G. K. (1997). Superstars in the National Basketball Association: Economic value and policy. Journal of Labor Economics, 15(4), 586-624.
24.
Horowitz, I. (1997). “The increasing competitive balance in Major League Baseball. Review of Industrial Organization, 12, 373-387.
25.
Humphreys, B. R. (2002). Alternative measures of competitive balance in sports leagues. Journal of Sports Economics, 3(2), 133-148.
26.
Humphreys, B. R. (2003). The ANOVA-based competitive balance measure: A reply. Journal of Sports Economics, 4(1), 81-82.
27.
Hunt, J. W., & Lewis, K. A. (1976). Dominance, recontracting, and the reserve clause: Major League Baseball. American Economic Review, 66, 936-943.
28.
Hylan, T. R., Lage, M. J., & Treglia, M. (1996). The Coase theorem, free agency, and Major League Baseball: A panel study of pitcher mobility from 1961 to 1992. Southern Economic Journal, 62, 1029-1042.
29.
Idson, T. L., & Kahane, L. H. (2000). Team effects on compensation: An application to salary determination in the National Hockey League. Economic Inquiry, 38(2), 345-357.
30.
Idson, T. L., & Kahane, L. H. (2002). Teammate effects on pay in professional sports. Manuscript in preparation.
31.
Kesenne, S. (2000). Revenue sharing and competitive balance in professional team sports. Journal of Sports Economics, 1(1), 56-65.
32.
Koopmans, T. C., & Beckman, M. (1957). Assignment problems and the location of economic activities. Econometrica, 25, 53-76.
33.
Krautmann, A. C., & Oppenheimer, M. (1994). Free agency and the allocation of labor in Major League Baseball. Managerial and Decision Economics, 15, 459-469.
34.
Kremer, M. (1993). The O-ring theory of economic development. Quarterly Journal of Economics, 108, 551-575.
35.
La Croix, S. J., & Kawaura, A. (1999). Rule changes and competitive balance in Japanese baseball. Economic Inquiry, 37(2), 353-368.
36.
Lazear, E., & Rosen, S. (1981). Rank-order tournaments as optimum labor contracts. Journal of Political Economy, 89, 841-864.
37.
Lee, Y. H., & Fort, R. (2002). Time series analysis of structural change: Competitive balance in Major League Baseball. Unpublished manuscript.
38.
Levin, R. C., Mitchell, G. J., Volcker, P. A., & Will, G. F. (2000). The report of the Independent Members of the Commissioner's Blue Ribbon Panel on baseball economics. New York: Major League Baseball.
39.
Marburger, D. (1997). Gate revenue sharing and luxury taxes in professional sports. Contemporary Economic Policy, XV(2), 114-123.
40.
Moores, J. (1999, April 5). Bring competition back to baseball. Wall Street Journal, p. A18.
41.
Neale, W. C. (1964). The peculiar economics of professional sports: A contribution to the theory of the firm in sporting competition. Quarterly Journal of Economics, 78, 1-14.
42.
Noll, R. G. (2002). The economics of promotion and relegation in sports leagues. Journal of Sports Economics, 3(2), 169-203.
43.
Pappas, D. (2001, April). Competitive balance better than ever. Boston Baseball.
44.
Porter, P. K. (1992). The role of the fan in professional baseball. In P. M. Sommers (Ed.), Diamonds are forever: The business of baseball (pp. 63-76). Washington, DC: The Brookings Institution Press.
45.
Quirk, J., & Fort, R. (1992). Pay dirt: The business of professional team sports. Princeton, NJ: Princeton University Press.
46.
Quirk, J., & Fort, R. (1999). Hard ball: The abuse of power in pro team sports. Princeton, NJ: Princeton University Press.
47.
Rogers, P. (2001, December 18). Baseball's flaw: Lack of competitive balance. Chicago Tribune, pp. 1, 6.
48.
Rogers, P. (2002, October 13). Wins don't translate to playoffs. Chicago Tribune, Sec. 3, p. 2.
49.
Rosen, S., & Sanderson, A. (2001). Labour markets in professional sports. The Economic Journal, 111(469), F47-F68.
50.
Ross, S. F. (1989). Monopoly sports leagues. Minnesota Law Review, 73(3), 643-761.
51.
Ross, S. F. (2002). Light, less-filling, it's blue-ribbon. Cardozo Law Review, 23(5), 1675-1704.
52.
Rottenberg, S. (1956). The baseball players' labor market. Journal of Political Economy, 64, 242-.cit
53.
Rottenberg, S. (2000). Resource allocation and income distribution in professional team sports. Journal of Sports Economics, 1(1), 11-20.
54.
Rovell, D. (2002, August 14). Owner's luxury tax no guarantee of competitive balance. Retrieved February 13, 2003, from www.ESPN.com
55.
Saint-Paul, G. (2001). On the distribution of income and worker assignment under intrafirm spillovers, with an application to ideals and networks. Journal of Political Economy, 109, 1-35.
56.
Sanderson, A. R. (2002). The many dimensions of competitive balance. Journal of Sports Economics, 3(2), 204-228.
57.
Sanderson, A. R., & Siegfried, J. J. (1997). The implications of athlete freedom to contract: Lessons from North America. Economic Affairs, 17, 7-12.
58.
Schmidt, M. B., & Berri, D. J. (2001). Competitive balance and attendance: The case of Major League Baseball. Journal of Sports Economics, 2(2), 145-167.
59.
Schmidt, M. B., & Berri, D. J. (2002). Competitive balance and market size in Major League Baseball: A response to baseball's Blue Ribbon Panel. Review of Industrial Organization, 21, 41-54.
60.
Scully, G. W. (1974). Pay and performance in Major League Baseball. American Economic Review, 64(5), 915-930.
61.
Scully, G. W. (1989). The business of Major League Baseball. Chicago: The University of Chicago Press.
62.
Scully, G. W. (1995). The market structure of sports. Chicago: The University of Chicago Press.
63.
Siegfried, J. J. (1995). Sports player drafts and reserve systems. Cato Journal, 14(3), 443-452.
64.
Siegfried, J. J., & Peterson, T. (2000). Who is sitting in the stands? The income levels of sports fans. In W. S. Kern (Ed.), The economics of sports (chap. 3, pp. 51-73). Kalamazoo, MI: UpJohn.
65.
Szymanski, S. (2001). Income inequality, competitive balance, and the attractiveness of team sports: Some evidence and a natural experiment from English soccer. The Economic Journal, 111(469), F69-F84.
66.
Szymanski, S. (in press). The economic design of sporting contests: A review. Journal of Economic Literature.
67.
Utt, J., & Fort, R. (2002). Pitfalls to measuring competitive balance with Gini coefficients. Journal of Sports Economics, 3(4), 367-373.
68.
Vrooman, J. (1995). A general theory of sports leagues. Southern Economic Journal, 61(4), 971-990.
69.
Vrooman, J. (2000). The economics of American sports leagues. Scottish Journal of Political Economy, 17, 364-398.
70.
Walker, S. (2002, November 1). Hockey's vision in lycra. Wall Street Journal, p. W4.
71.
Whitney, J. D. (1993). Bidding till bankrupt: Destructive competition in professional team sports. Economic Inquiry, XXXI, 100-115.
72.
Zimbalist, A. (1992a). Baseball and billions. New York: Basic Books.
73.
Zimbalist, A. (1992b). Salaries and performance: Beyond the Scully model. In P. M. Sommers (Ed.), Diamonds are forever (pp. 109-133). Washington, DC: The Brookings Institution.
74.
Zimbalist, A. (2001). Competitive balance in Major League Baseball. The Milken Institute Review, 3(1), 54-64.
75.
Zimbalist, A. (Guest Ed.). (2002). Symposium: Competitive balance in sports leagues. Journal of Sports Economics, 3(2), 111-228.
76.
Zimbalist, A. (2003). May the best team win. Washington, DC: The Brookings Institution Press.
