Sports Leagues Aren’t As Competitive As You Might Think
Professional sports leagues are all about winning. Yet perhaps more importantly, they are about money (and the talent that can be bought with it). With Russian oligarchs and Emirs buying up teams in many sports leagues worldwide, a schism is being wedged between teams — those who are backed by the fat cats and are oozing with talent at the top of the table, and the have-nots at the bottom who find themselves barely able to stay in the league.
Competitive balance — considered a central requirement for maintaining spectator interest and therefore the success of leagues — is weakening in many leagues. Behavioral science and the results of experiments shed some light on how team ownership can erode competitive balance, and why leagues may not wish to push for reforms.
Team ownership and competitive balance
Professional team sports are classic examples of business cartels. However, while sports leagues face a host of incentive and enforcement problems discussed often in literature, they are different in one important and paradoxical respect: Sports leagues are in the business of selling competition. To be successful, a league has to ensure a competitive balance between the teams while keeping the spectators happy. Spectator preferences can be defined as being related to the performance of teams vis-à-vis each other. In other words, it is competitive balance, or the quality of contest between teams, that matters to viewers.1,2,3,4
Competitive balance is dependent on the motivations of team owners. While we cannot be certain what objectives (profit-maximization, win-maximization, or utility-maximization subject to minimum profits) team owners individually and jointly have, we can at least be sure that they all want to put together a team that will simultaneously maximize performance and improve attendance and revenues when they compete.5
References
1. Fort, R. Quirk, R (1995). Cross-Subsidization, Incentives, and Outcomes in Professional Team Sports Leagues. Journal of Economic Literature, Vol. 33, No. 3 (Sep., 1995), pp. 1265-1299
2. Cyrenne, P (2009). Modelling Professional Sports Leagues: An Industrial Organization Approach. Review of Industrial Organization, Vol. 34, No. 3, pp. 193-215
3. Vrooman, J (2009). Theory of the Perfect Game: Competitive Balance in Monopoly Sports Leagues. Review of Industrial Organization, Vol. 34, No. 1, Economic Issues in Sports, pp. 5-44
4. Brook, S (2005). What Do Sports Teams Produce? Journal of Economic Issues, Vol. 39, No. 3, pp. 792-797
5. Zimbalist, A (2003). Sport as Business. Oxford Review of Economic Policy. Vol. 19, No. 4, The Economics of Sport, pp. 503-511
6. Burdekin, R.C.K. Franklin, M (2015). Transfer spending in the English Premier League: The Haves and the Have nots. National Institute Economic Review. No. 232, pp. R4-R17
7. Lang, M. Grossmann, M. Theiler, P (2011). The Sugar Daddy Game: How Wealthy Investors Change Competition in Professional Team Sports. Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft. Vol. 167, No. 4, pp. 557- 577
8. Burdekin, R.C.K. Franklin, M (2015). Transfer spending in the English Premier League: The Haves and the Have nots. National Institute Economic Review. No. 232, pp. R4-R17
9. Borooah, V.K. Mangan, J. (2012), ‘Measuring competitive balance in sports using generalized entropy with an application to English premier league football’, Applied Economics, 44,9, pp 1093-102
10. Manchester City, Liverpool, Chelsea, Arsenal, Manchester United
11. Heren, K. (2019). The Premier League’s inequality diminishes English football, The Article. Retrieved from https://www.thearticle.com/
12. S, Nurmohamed (2019). The Underdog Effect: When Low Expectations Increase Performance. Academy of Management Journal
13. Brown, J (2011). Quitters Never Win: The (Adverse) Incentive Effects of Competing with Superstars. Journal of Political Economy, Vol. 119, No. 5, pp. 982-1013
14. Hargreaves Heap, S. Ramalingam, A. Ramalingam, S. Stoddard, B (2015), “‘Doggedness’ or ‘Disengagement’? An Experiment on the Effect of Inequality in Endowment on Behavior in Team Competitions,” Journal of Economic Behavior and Organization, 120, 80-93
15. Szymanski, S (2010). Teaching Competition in Professional Sports Leagues. The Journal of Economic Education, April-June 2010, Vol. 41, No. 2, pp. 150-168
16. Che, X. Humphreys, B (2015). Competition Between Sports Leagues: Theory and Evidence on Rival League Formation in North America. Review of Industrial Organization, Vol. 46, No. 2
About the Author
Siddharth Ramalingam
Siddharth’s diverse education and experience feed his interest in the applicability of behavioral science in understanding our world and solving big problems. His work encompasses international development, consulting, finance, and social innovation. Apart from an MPA from Harvard University, he also has graduate degrees in Political Theory, Human Rights Law, Management, and Economics.
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