Presentation on theme: "What is competitive balance? (revised 29 Oct. 2009)"— Presentation transcript:
1 What is competitive balance? (revised 29 Oct. 2009)
2 Blue Ribbon Panel report (2000): competitive balance exists when “there are no chronically weak clubs because of MLB’s financial structural features”a well-managed club has a reasonable hope of reaching postseason play and winning
4 The demand for MLB will tend to fall if-- too many teams cannot competefans perceive that the richest teams have an unfair advantage
5 Simple measures of competitive balance Standard deviation of team winning percentagesNumber of WS or pennant winners, compared with--number of teams in leagueprevious years or intervalsAverage number of games out of first place?
6 MLB’s competitive balance, then & now s: not much, but gradually improving: improved more; amateur draft helped1977-early 1990s: peak of competitive balance: competitive imbalance?strong correlation between payroll and W-L % and postseasonno teams outside top 25% of payrolls won WSonly 4 teams from bottom half of payrolls made postseason (and they won just 5 of 224 games)WS winners and payroll rank: Angels (15th-highest), Marlins (26th), Red Sox (2nd), White Sox (13th), Cardinals (11th), Red Sox (2nd), Phillies (13th)WS runners-up: Giants (10th), Yankees (1st), Cardinals (11th), Astros (12th), Tigers (14th), Rockies (25th), Rays (29th)
7 Does a higher payroll mean more wins? (2002-2009) Regressions of regular-season win. % on Opening Day payroll for all 30 teams find –In general, ~ 25% of the variation in wins was explained by variation in payroll.Effect was small but statistically significant.Actual variation in wins is much larger than payroll-predicted variation in wins:Payroll had a positive effect on wins, but smaller than one might think$7-8 M in payroll = 1 more winMarginal benefit of Yankees’ last $50 M in payroll = 0 wins?2008: exception: statistically insignificant relationship for AL and MLB overallPayroll explained only 10% of the variation in wins in MLBAL: < 3%; NL: 25%2009:AL: Payroll explained 48% of variation in winsNL: Payroll explained 7% “ (insignficant)
9 Market size is based on REVENUES (both actual and potential). Revenues are very dependent on the quality of the team’s product (wins, players, stadium, etc.), but also on local factors likearea populationarea per-capita incomearea level of interest in baseball (hard to measure)Hard to separate team factors from local factors, actual from potential market size
10 Two crude measures of market size TOTAL REVENUES, as compared with the other MLB teamsESTIMATED TEAM VALUE, as compared with the other MLB teamsmore forward-looking, e.g., higher if team is about to move into new stadiumTop third = “large market,” middle third = “mid-market,” bottom third = “small market”?Market size perhaps cannot be measured precisely
11 Can the small-market teams compete? MAYBE MAYBE NOT First 15 years of free agency ( ) saw unprecedented parity, several successful small-market teamsInsignificant correlation between payroll and W-L % through mid-1990s and in 2008Recent success of some small-market teamsMarket size is not staticYankees: 4 WS titles in 5 years ( ): statistically significant correlation between payroll, W-L %Only one small-market, low-payroll team has won WS since 1991Collapse of Montreal Expos (well-run small-market team)
12 Competitive balance in recent decades Recall:1977-early 1990s: peak of competitive balance: some pattern of competitive imbalanceExplanations:Free agency (post-1976) helped comp. balanceEasier for also-rans to improve themselves with new talentRising salaries --> harder to keep championship teams intactGrowing revenue and wealth imbalance in 1990sGrowing importance of local media and stadium revenuesValue of MLB’s national TV deal fell 60% in 1994Increasing corporate (esp. media) ownership of teams
13 Competitive balance in other pro sports (NFL) National Football League: highest comp. balancelowest concentration of championshipspolicies: ~70% of revenues are shared; hard salary cap; “unbalanced” schedulelowest correlation between payroll and performance(NHL) National Hockey League: ????Pre-2004: in the middle:low concentration of championships ( : 8 different teams)little revenue sharing, no luxury tax, no salary caplower payroll-performance correlation than MLB or NBA: season-long lockout by owners, who got a salary cap(NBA) National Basketball Association: least balancedhigh concentration of championships ( : just 4 teams)increasing standard deviation of win percentages since 1980
14 The English Premier League (PL; soccer) League membership not fixed (non-monopolistic)no territorial rightsLondon: 9 PL teams since 1990Within the league, a hierarchy of divisionsbad high-division teams are relegated (demoted)good low-division teams are promoted to higher onesComp. balance is mixedgood in terms of low standard deviation of win percentages, high upward mobility of teamshigh championship concentration (Manchester United)
15 How can be MLB’s competitive balance be increased? Payroll cap / luxury tax?Payroll cap might work, but is not feasible -- players’ union willing to strike to prevent oneMLB has a luxury tax on large payrolls, but threshold is too high to be binding for most teamsIncreased revenue sharing?Could work, but details are key:What if teams use accounting tricks to hide revenues?Incentive for low-revenue teams to improve themselves?Part of 2002 and 2006 Collective Bargaining Agreements (CBAs)2006 CBA keeps revenue sharing high, while supposedly providing better incentives for teams to improve themselves
16 Competitive balance in the 2000s, as measured by playoff appearances (Last revised 29 Oct. 2009)
17 How varied are the AL and NL playoffs in the 2000s? Is it pretty much the same teams in the playoffs each year? Not really.: Both leagues:No team made the playoffs in all 10 years.Most teams made the playoffs at least once.Only 4 AL teams and 3 NL teams failed to make the playoffs at all. 10 of the 14 AL teams, and 13 of the 16 NL teams made it at least once.So far, looks pretty good for competitive balance.
18 AL playoff appearances, 2000-2009,by team NYY – 9 times(Last WS championship was 2000, of course. A perfect Goliath. Since 2001, the WS winner has had to get past the Yankees somehow.)Boston, Minnesota – 6 times(Big-market team.)No other team made it to the playoffs more than half the time.
19 AL, cont’d LA Angels, Minnesota, Oakland – 5 times Chicago White Sox – 3Cleveland, Seattle – 2Detroit, Tampa Bay – 1Blue Jays, Orioles, Royals, Rangers – 0Of those, only the Royals are a true small-market team. Rangers are the ones who gave A-Rod that $252 M deal.
20 NL playoff appearances, 2000-2009,by team St. Louis – 7Atlanta – 6Only two NL teams to be in playoffs more than half the time.LA Dodgers – 4Philadelphia, Arizona, Chicago Cubs, Houston, San Francisco – 3Colorado, San Diego, NY Mets – 2Florida, Milwaukee – 1
21 NL, cont’d Pittsburgh, Montreal/Wash., Cincinnati – 0 Pirates and Reds are small-market teams, more or less, and new stadiums don’t seem to be helping much.Expos’ move to big city and new stadium hasn’t helped yet.
22 In sum Glass looks a lot more than half full. Vast majority (23/30) of MLB teams have been to playoffs at least once in 2000s.Except for Expos, teams that didn’t make it look like victims of bad management.Only one team (NYY) has been in more than 2/3 of the playoffs, and they have only one WS championship to show for it.(Knock on wood!)Even the two-time WS winner (Red Sox) has missed the playoffs almost half the time.
23 Questions for further research Has competitive balance changed much during the decade (especially after the 2002 or 2006 CBA)?Did the distribution of playoff appearances change much?Did the standard deviation of payrolls change much?