Competitive Balance: Results of a Natural Experiment from Rugby Union

Abstract

We present evidence on the impact of revenue sharing and salary caps on both short-and long-run competitive balance based on a form of unique natural experiment— the abolition of Rugby Union's ban on professionalism and the different responses of the English (EPR) and French (T14) leagues to its removal. The EPR has operated revenue sharing and a binding salary cap for most of the professional era, but the T14 only introduced a non-binding salary cap much more recently. We use a dataset of net winning margins from 9,438 matches in both leagues over 27 seasons from 1987/88 to 2015/16 to measure short-run competitive balance. Our results indicate that short run competitive balance in both leagues declined following the move to professionalism, but subsequently improved in the EPR following the introduction of revenue-sharing and a binding salary cap. Play offs also improved short-run balance, as did reductions in the number of teams. We also find some evidence that long-run balance improved in the EPR at least initially following the move to professionalism and absent a binding salary cap professionalism reduced long-run balance in the T14.