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The theoretical premise of this research can be traced back to seminal studies of economist0́9s Simon Rottenberg (1956) and Walter Neale (1964), who both noted the importance of uncertainty of outcome in attracting spectators to live sporting events. In examining the economics of sport leagues, both researchers came upon this 0́the uncertainty of outcome hypothesis0́+ (UOH), which is the general premise that fans would rather see a contest in which teams are evenly paired with one another in terms of talent and strength. Stemming from the UOH, came the idea of competitive balance, the concept that there is a relative level of equality in on-field strength between teams in a league (Forrest & Simmons, 2002). Key questions which arise from this literature include: 0́In what manner can competitive balance be measured?0́+ and 0́Is competitive balance a significant factor in determining fan attendance at sporting events?0́+ In order to tackle these issues, along with the prior stated research questions, this dissertation research uses a two-fold approach to investigating competitive balance. Within the literature on competitive balance, there are a great number of metrics which have been developed, however researchers remain divided among which metric(s) are the best. With this in mind, this dissertation approaches this problem by the creation of a new competitive balance metric, the Dynamic Competitive Balance Ratio (DCBR). This metric, which is evolved from prior metrics (Humphreys, 2002), is special in that it allows for a different measure for each team in every time period, and its length can be adjusted for any time period larger than a single season. Thus, through the creation of this metric, this dissertation research attempts to further the competitive balance research through the creation of a new metric in order to correct for several existing issues among current competitive balance metrics. In the second part of this dissertation, the DCBR is included as part of an economic demand model to estimate fan demand for attending MLB games from 1980 till the present. In order to do this, a regression model is utilized to estimate results from the panel data set, with proper econometric corrections made to take into account a variety of issues which may arise such as: heteroskedasticity, autocorrelation, the use of fixed or random effects, and so forth. Because of the lack of demand studies in sport which have employed a competitive balance metric as part of the model, through construction and estimation of results, this dissertation provides an important extension of the theoretical understanding of competitive balance by giving further evidence of what effect competitive balance has on a consumer0́9s choice to attend sporting events. Analysis of the estimated results also provide a more robust picture of the factors which attract (or deter) consumers from choosing to attend MLB games in person, which in turn presents better information for sport managers to understand why fans come to sporting events. Such findings can be directly translated into better decision making in sport management, by informing administrators, owners, and managers as to what factors attract fans to sporting events, as well as the importance of having competitive balance in these sport leagues. It is thus, that this research examines the significance of competitive balance from a variety of levels. From this, it is evidenced that this dissertation research presents a number of contributions, in terms of theoretical knowledge, empirical understanding, as well as practical application of competitive balance and the demand for attendance at sporting events, and thus providing an overall improvement of sport for fans, owners, managers, and other related stakeholders.
A new measure of competitive balance in sport leagues is proposed, based on a vector approach to measuring similarity. The standard measures, such as, the win percentage standard deviation ratio, consider the inequality per season only. Analyzing the inequality of a competition over time requires a different approach. The measure proposed here is well suited to determining the dynamic competitive balance of a league. As the application on the German Bundesliga indicates, the new measure is a useful complement to the existing measures of competitive balance and should enhance the analysis of outcome uncertainty in sports leagues.
Sports competitions attract millions of spectators each year, hereby generating large revenue for organisers, team owners and competing athletes. Yet, researchers, league organisers and team managers fear for the sustainability of the revenue streams due to the uncertainty of outcome hypothesis. This hypothesis is saying that fans tend to lose interest in unbalanced sports competitions. Therefore, new regulations to promote competitive balance are being discussed. In order to contribute to this discussion and analyse the need for such regulations an attendance demand model for the English Premier League is formed and run, testing the specific uncertainty of outcome hypothesis: "Match attendance in the English Premier League depends positively on competitive balance". The outcome using both OLS and Tobit estimation indicates that fans are keener on seeing the home team win than on having a close competition.
What keeps fans watching sports night after night, season after season? Competitive balance. Part of the fun for the average fan watching sports is not knowing what is going to happen or what team will win. If the best team won its respective championship every single year, sports would not be worth watching. Competitive balance is what keeps fans engaged even when the odds are stacked against a particular team. Now, the NHL, NFL, NBA, and MLB have utilized their own policies to increase competitive balance, and none is more popular than implementing a salary cap. This effectively acts as a price ceiling for teams to spend on their payrolls, ensuring that teams in small markets can compete with teams in big markets that have more resources, like New York or Los Angeles, for example. But, it is not a given that salary caps automatically improve competitive balance. This thesis develops on prior research to assess whether salary caps influence competitive balance in the NHL, NFL, NBA, and MLB by using Brad R. Humphreys' Competitive Balance Ratio as the primary method to measure parity in each league.
This revised and updated edition of The Economic Theory of Professional Team Sports elaborates on the themes of the successful first edition of this book.
This paper presents a dynamic model of talent investments in a team sports league with an infinite time horizon. We show that the clubs' investment decisions and the effects of revenue sharing on competitive balance depend on the following three factors: (i) the cost function of talent investments, (ii) the clubs' market sizes, and (iii) the initial endowments of talent stock. We analyze how these factors interact in the transition to the steady state as well as in the steady state itself.
Following consistent and rapid general economic growth, Pacific Rim countries have grown as a major force in sports. Australia, China, Japan and Korea populated the top ten medals list at the 2012 London Olympics. Pacific Rim countries are major consumers of international sports and domestic professional sports have expanded continuously over time. Nippon Professional Baseball and the Korean Baseball Organization are the second and third largest baseball leagues measured by attendance and revenue following Major League Baseball in the U.S. This book also includes event studies of team ownership, assessment of human capital markets, analysis of the relationship between attendance and competitive balance, the components of fan demand in common the world over, and business decisions concerning attendance and pricing. There is already demand for comprehensive study of the sports business in the Pacific Rim as witnessed by this growth. This book will be of interest of researchers studying and/or teaching in the fields of sports economics and sports management as well as a general audience interested in business governance around the world.
Competitive balance (the level of equality of playing talent across teams) is presumed to be a necessary element for league success due to the unique inter-dependent economic nature of professional sports which requires teams to have financially healthy rivals in order to field games (Rottenberg 1956). Underlying this notion is the uncertainty of outcome hypothesis, which suggests that a fan's interest in professional sports is dependent on various levels of uncertainty of outcome: individual game uncertainty (who will win the game), individual season uncertainty (who will win the championship), and consecutive season uncertainty (does the same team win the championship every year) (Cairns 1987). Although there is an expanding body of literature that empirically tests the uncertainty of outcome hypothesis, most of it focuses on attendance responses to within-game or within-season measures of competitive balance. In addition, nearly all previous studies focus on regular season outcomes only and completely ignore the playoffs (Longley and Lacey 2012). Filling in a notable gap in the literature, this dissertation thus uses a new metric of competitive balance that relies on inter-seasonal measures of qualification for and advancement in the playoffs. In addition to measuring fan response to this new measure of competitive balance that incorporates both playoff outcomes and consecutive season effects in a novel way, this dissertation also investigates the effects of league playoff rules on competitive balance. No previous study has analyzed how the number of teams that qualify for the playoffs affects fan interest in a league through competitive balance concerns. On the one hand, increasing the number of teams that qualify for the playoffs should increase fan interest by increasing the overall pool of teams that are competitive for a playoff spot. On the other hand, increasing the number of teams that qualify for the playoffs shifts the importance from the regular season to the playoffs, reducing fan interest in the regular season. This dissertation empirically investigates the issue of fan response (as measured by league-wide regular season attendance figures) to varying levels of inter-seasonal competitive balance as measured by the churn of playoff qualifying/advancing teams and as affected by league playoff structures that dictate the number of teams making the playoffs. The results show that small changes in league playoff structure can significantly affect attendance. It is predicted that if Major League Baseball were to further increase the number of teams that make the playoffs from 10 to 12, the average attendance per game would increase by over 4,300 (about 14% of the current average). In the National Hockey League, a reduction in the number of teams that make the playoffs from 16 to 14 is expected to increase the average attendance per game by over 700 (about 4% of the current average). These results highlight the importance of including playoff considerations when investigating the uncertainty of outcome hypothesis as well as the value of competitive balance to sport league success.