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 champions Asks: How concentrated is winning? How much do a few teams dominate? Also used to measure monopoly power Let f i =#championships by team I T=#teams; N=#Years

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

Applying HHI to Baseball in 1990s 1990s AL Champions Yankees (3); Indians (2); Blue Jays (2); Twins; Athletics HHI= s 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 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

Is Baseball Unique? In 1960s only 2 NBA champions Celtics Champions , Since 1990 only 4 NBA champions Bulls: Rockets: Bulls: Spurs: 1999 Lakers 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 WP i = Winning Percentage of team i

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

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 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