Thinking about Competitive Balance

Simon Rottenberg long ago noted that the nature of sports is such that competitors must be of approximately equal ability if any are to be financially successful. In recent years, sports commentators and fans, Major League Baseball itself, and even some economists have expressed growing concern about the widening disparities between team expenditures and the growing concentrations of postseason contenders and championships. In this article, the authors compare different concepts of competitive balance, review the theoretical and empirical scholarship on competitive balance and the relationship between payrolls and performance, describe the natural forces and institutional rules and regulations that contribute to observed distributions of playing performances, and evaluate the likely effect of several popular proposals—payroll and salary caps, luxury taxes, and increased revenue sharing—on competitive balance. Although the focus is on baseball, frequent comparisons are made to other sports leagues including collegiate athletics and individual sports.