Player Mobility and Competitive Balance Regulation in Professional Sports Leagues

Competitive balance regulation is more widespread in North American than in Europan sports leagues. The present paper addresses the question whether this observation can be explained with the help of differences in the degree of player mobility. Using an extended version of the workhorse contest model of sports leagues, the paper shows that the answer depends on the kind of competitive balance regulation. While player mobility may help to explain the difference with respect to salary regulation (e.g., salary caps), the choice of revenue sharing schemes turns out to be independent of player mobility.

Competitive Balance in the NBA Playoffs

The uncertainty-of-outcome hypothesis suggests that, subject to a rooting-interest constraint, fans prefer competitive sporting events with uncertain outcomes. In a logical extension of that preference, professional-sports leagues institute rules, such as reverse-order-of-finish drafts and salary caps, intended to help achieve competitive balance among their franchises. This article analyzes the results of the 34 National Basketball Association (NBA) playoffs held since 1984 to determine whether they reflect the competitive imbalance observed for regular-season play, relying on the entropy concept as a measure of uncertainty/information content to do so. It is shown that unlike regular-season competitive balance, playoff entropy has not systematically changed over time. JEL Classifications: D47, D84, Z20, Z21

The Beginnings (1946–48)

This chapter examines the origins of the BAA, which was fraught with disappointment and difficulties. The nascent BAA sought the two advantages of territorial rights and the reserve clause that other professional team sports league owners possessed, but the league faced competition from an incumbent league—the National Basketball League (NBL). The two basketball leagues contested just one or two cities and were largely able to avoid a ruinous bidding war for players, including graduating college talent. This low level of strife was unique to professional basketball and may have contributed to the eventual success of those teams that survived. The BAA owners also made crucial decisions regarding revenue sharing, team salary caps, and differentiating their product from the college game.

Book Reviews

Presents a model of a professional sports league that can display unsustainable runs—rapid improvements in a club's performance on the field, ice, or court that require implausibly large shifts in exogenous variables or parameters to fit traditional notions of profit-maximizing behavior—resulting from the presence of multiple equilibria. Discusses introducing unsustainable runs; casual evidence of unsustainable runs; a model of a professional sports league; a professional sports league model with unsustainable runs; unsustainable runs with revenue sharing the salary caps; and some empirical testing. Rockerbie is with the Department of Economics at the University of Lethbridge. Easton is with the Department of Economics at Simon Fraser University.

Salary Equalization for Baseball Free Agents Confronting Different State Tax Regimes

This paper derives equivalent gross salary for Major League Baseball free agents weighing offers from teams based in states with different income tax rates. After discussing tax law applicable to professional sports teams’ players, including “jock taxes” and the interrelationship of state and federal taxes, this paper builds several models to determine equivalent salary. A base-case derivation, oversimplified by ignoring nonsalary income and Medicare tax, demonstrates that salary adjustment from a more tax expensive state’s team requires solely a state (but not federal) tax gross-up. Subsequent derivations, introducing nonsalary income and Medicare tax, demonstrate full Medicare but small federal tax gross-ups are also required. This paper applies the model to equalize salary offers from two teams in different states in a highly stylized example approximating the 2010 free agency of pitcher Cliff Lee. Aspects of the models may also be used to inform other sports’ players of their after-tax income if salary caps limit the ability to receive adequately grossed-up salaries.