The case for competitive imbalance

The suits upstairs hail competitive balance in baseball. After all, one only need glance at the postseason protagonists to realize that only the New York Yankees qualified for October ball in both 2006 and 2007 and in both years they failed to progress past the division series. So is competitive balance a good thing? Why not roll the dice to see who qualifies for the postseason?

A quintessential American irony

Competitive balance is a stated goal of all American sports. Hockey, football, baseball and basketball all pay serious attention to equality on the field of play rather than the pursuit of extreme excellence. Salary caps, revenue sharing, the CBA and the draft are all weapons employed in the competitive balance battle to distribute revenue and talent from the haves to the have-nots.

There is a definite irony that one of the central tenets of American sports is wealth and talent redistribution yet the country is perhaps the most capitalist on earth. Shoot across the pond to Europe, or any other part of the world, and competitive balance is anathema; in fact, standard procedure, if anything, is to encourage more competitive imbalance! Herein lies a second irony: more redistributive societies do not apply the same rules to sports.

That raises the question of who is right? Does increasing competitive balance help sports to attract more talent and money? Or is the contrarian premise that more imbalance is desirable actually correct?

The case for

The principle is that unlike in business, where obliterating the competition is the path to riches, in sport collaboration is required to produce a desirable and sellable product. After all, if the outcome of an event is largely predetermined then there is little point in watching. Come on, who watches re-runs?

The logic is simple: The more uncertainty that there is in the outcome of a sport then the more interest there is in watching the outcome. Let’s take baseball and see what competitive balance has done to our national pastime. (We are a baseball publication after all.)

The roots of competitive balance in baseball have been around for a long time and date back to the reserve clause, although in recent times competitive balance is based on rules around sharing local income, which are codified in the CBA. The idea was that teams pool together a proportion of local revenue in a central pot and then the pot is divvied up among all the teams.

This has the advantage that the big-market teams still get to keep the majority of local revenue, but at least some of the spoils are shared. There are a slew of other obtuse mechanisms for distributing money among teams such as the Central Fund and the Competitive Balance Tax (aka Luxury Tax), but the details aren’t important.

The other two mechanisms of redistribution are the national TV contract, which gets split equally among all 30 teams, and the draft, which gives the worst teams the best shot at young talent.

So, has revenue sharing had any impact on the competitive balance in baseball?

Measuring competitive balance

First we have to work out a suitable measure for competitive balance. David Berri in Wages of the Wins proposes the rather scientifically sounding Noll-Scully ratio. It isn’t as complicated, as to derive the ratio you divide the standard deviation of wins in the league by the expected standard deviation if talent in the league was equal (taken from the binomial).

For instance, take the 2006 season. The observed standard deviation was 0.067 and the expected standard deviation was 0.039 for a N-S of 1.72. The lower the N-S the more competitive the league was. Here are the N-S scores in baseball (as calculated by David Berri of the Wages of Wins):

          AL      NL
1910      2.35    3.02
1920      2.51    2.18
1930      2.24    2.16
1940      2.61    2.21
1950      2.15    2.34
1960      2.35    1.93
1970      1.91    2.06
1980      1.87    1.76
1990      1.66    1.58
2005      1.83    1.72

That implies that competitive balance has come down over time (anecdotally we know this is true as the Yankees used to completely dominate whereas now they dominate but not quite as much).

An aside: N-S can’t be used to compare different sports because as teams play more games the N-S ratio should naturally fall. Why? Well, fewer games imply a greater random standard deviation so the disparity between teams has to be higher for the same N-S score. Take a 162-game league and an 81-game league. A N-S score of 2.00 in the 162-game league implies an observed standard deviation of about 12 games. In an 81-game league it implies a standard deviation of nine. In other words we have halved the number of games and only cut the standard deviation of wins by a quarter. A neater way to look at competitive balance is to look at the standard deviation of win % as that gets around the issue above.

However, the baseball schedule has been either 154 or 162 games since time immemorial so this doesn’t explain the change in competitive balance. A combination of expansion and changes to the rules have accounted for the increase in competitive balance. Expansion means that talent is likely to be diluted across many clubs while the advent of the draft and the death of the reserve clause have contributed to increased equality.

During this period attendance has risen, TV money has exploded and the game has never been more popular. Each of the last seven years has seen a different World Series winner and the proponents of competitive balance believe that the any-team-can-win mentality has dramatically increased the popularity of the game. I mean in soccer how likely would it be for the Detroit Tigers to go from worst to first in a couple of years? It’s impossible. Without the CBA and its multifarious redistribution the Yankees would have romped to another bushel of titles and that would have driven fans away from the game. Case closed.

The case against

But hang on a cotton-picking minute. In this so-called era of balance we have seen one of the greatest streaks in the modern game (the Braves) and the re-rise of the Yankee empire that has only been prevented from dominating by a more demanding (and random) playoff schedule. The Royals, Pirates, Reds, Rangers, Rockies, Nationals (Expos), Devil Rays, Orioles, among others have been so bad for so long that the any-team-can-win brouhaha is unsound.

Let’s hop across the pond to soccer to see what competitive imbalance has done to that sport.

In the English Premier League (EPL) the clubs that finished in the top four positions (Liverpool, Arsenal, Chelsea and Manchester United) have won the championship every year but two back to 1987! North of the border in Scotland one city (Glasgow) and two clubs (Rangers and Celtics) have claimed every league since 1986! In 2004 Arsenal didn’t lose a single game in a 38-match EPL season. Similar situations play out on the continent. For instance, Barcelona and Madrid in Spain; Lyon and PSG in France; Milan, Inter and Juventus in Italy; Ajax, Feyenoord and PSV in Holland—the list goes on.

We can actually quantify the imbalance in football using similar methods to those we used above for baseball. The standard deviation of wins (W/(W+T+L)) in the major European leagues in 2006 was:

England st dev: .147 
Italy st dev: .161 
Spain st dev: .137

If we take .15 as an average standard deviation then over a typical 38-game season that is six games. Pro-rating to a 162-game baseball season it works out at 24 games! Of course soccer is a different beast to baseball, but the point holds that it is far easier to predict the outcome a game of soccer than a game of baseball.

Conventional American wisdom would dictate that fans would desert soccer in droves. And many may point to the failure of the MLS to bolster their case. They’d be wrong. For a start MLS is actually a lot more balanced than the traditional American sports. David Berri has estimated the N-S as 1.3. More importantly European soccer has increased in popularity at a relentless pace. Money has continued to flood into the sport, stadia are full and TV audiences continue to grow. The sport (particularly EPL) is becoming increasingly popular internationally, far more so than baseball, NFL or NBA, with significant followings in Africa, East Asia and the Middle East.

This happens in a league that is, in American eyes, unhealthily unbalanced and with no redistribution mechanisms. How does that equation work?

Soccer takes the opposite tack to baseball and almost encourages the emergence of national super-clubs that have the most money and control the majority of the talent. The structure of the game is such that these teams dominate national competition and qualify for the European Champions League, a tournament for Europe’s elite clubs. The further a team gets in this competition the more money it makes (TV revenue is not shared equally but on how far it gets) and the more likely it is to dominate its national league. So it goes.

The biggest, most successful teams have dramatically superior earning power to the rest. This means that they can attract and retain the best players and put the best product on to the pitch. This attracts more fans and TV money and reinforces the positive economic circle.

But doesn’t the fact that only a few clubs (say three per country) can ever win a national championship dampen the spectacle? No, far from it. The game has never been richer or more popular. The opportunity to see the best players play for the best teams keeps fans glued. Just because Chelsea dominate doesn’t mean that they are unbeatable. Every fan can dream that his or her team can fell one of the giants. Last year Manchester United dominated and won the EPL and were lauded for their skill and flair. Many a casual fan would rather see the extreme excellence of Manchester United than the mediocrity of their local team.

There are also other mechanisms to keep interest up. The European Champions league has four qualification slots per league so teams battle for those; there is a secondary European competition for the mid-tier teams; and relegation is used to replace the worst clubs with clubs from a lower division. Indeed games between well-matched soccer teams are often intrepid tactical affairs that make for dull viewing. In European soccer imbalance rules.

That isn’t a thesis that just holds in soccer, the same is true of other sports. Look at Tiger Woods and golf; Sampras, Agassi and tennis; Michael Schumacher and F1. Each dramatically increased the popularity of his chosen sport bringing it more money and a higher profile. The same is true of basketball where the game has never really been the same since Michael Jordan retired for the final time.

Why? The opportunity to witness a great individual or team to push the boundaries of greatness—that is the essence of what makes sport so great.

As a case in point what are your top five sporting moments ever? My list includes Tiger winning the slam, Michael Johnson smashing the 200m world record, and Carl Lewis and Mike Powell pounding the long jump world record in Tokyo in 1991. Sport is about redefining the art of the possible, and competition, led by imbalance drives that cause.

Final thoughts

So, if we were to throw revenue sharing and CBA out of the window what would happen to baseball? Wouldn’t it become a predictable snooze fest?

It might do. For a start we’d see fewer teams having a shot of World Series glory and although that may be a bad thing for some franchises it may not be to the detriment of the game as the postseason is more likely to contain the best teams in the parts of the country with the most money. However, the bald facts are that would leave 20 or so teams with nothing to play for and unlike, say European soccer, or golf (where Tiger Woods doesn’t win every week), there are few other mechanisms to retain excitement.

A wholesale overhaul of the sport would be needed (say, following a European multi-division model with promotion and relegation) but that creates problems for the lower echelons.

The magic formula is to make the playing field level enough to ensure that fan interest is retained, brilliance can be pursued and the best, richest and most storied franchises have the best odds of success. I believe that it is in the interests of the sport for a healthy number of super-franchises to slug it out in the postseason.

Baseball mostly has it spot on. Teams, these days are making reasonable money. The power resides with the larger ballclubs, as it should, and these teams have greater odds of success. Also it is possible for smaller market teams to diligently build competitive ballclubs that can challenge the bloated mega-clubs. Moneyball has made it apparent that small teams can innovate to win and teams such as the Twins and Athletics do just that.

This is different to the situation a few decades ago when the Yankees used to dominate and small clubs had no chance to break out and contend. Part of this is due to the six-team league and wild card. Fans may rail against those particular innovations but they drive a perception of balance while still tipping the odds in favour of the big-market teams.

There is one aspect of baseball that partly negates the need for competitive balance and this is the prominence of the individual over the team. Home run chases, pitcher wins and batting averages are all individual agendas and partly distract from wider team goals. This helps players redefine the art of the possible more than in other sports. And that is what great sport is all about.

Baseball does represent raw, cut-throat American capitalism at its finest after all. Phew.

References & Resources
Thanks to Wages of Wins and also Phil Birnbaum for their work on this issue.

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