The following was lifted from Hawkonomics, the blog maintained by Stacey Brook (co-author of The Wages of Wins). Although everyone is encouraged to read and enjoy Hawkonomics, Stacey’s blog is primarily written for his students at the University of Iowa.
In today’s USA Today, there is an article stating that a salary cap leads to greater competitive balance. In fact the article quotes David Poile, GM of the Nashville Predators as saying, “[t]he salary cap has brought competitive balance to the league.”
We will tackle this issue formally later in the Sports Economics course, but for now let’s test this hypothesis informally. Since we only have four years of results with a salary cap, the results must be taken with a grain of salt – in other words I cannot make a conclusive statement either way, but will offer some conjectures below. So has the salary cap (payroll cap) brought competitive balance to the NHL?
Let’s see what is happening to competitive balance in the NHL from a few different angles. One way of looking at this is to compare the level of competitive balance – as measured by the Noll-Scully metric – for the four years before the payroll cap and the four years after the payroll cap. Here are the results:
|
Season |
Noll-Scully |
| 2000-01 |
1.858 |
| 2001-02 |
1.581 |
| 2002-03 |
1.592 |
| 2003-04 |
1.633 |
| 2005-06 |
1.637 |
| 2006-07 |
1.600 |
| 2007-08 |
1.037 |
| 2008-09 |
1.369 |
As evident in the table above, the Noll-Scully metric of competitive balance decreased during the four years before the payroll cap, and decreased during the four years after the payroll cap (in bold). Remember that as the Noll-Scully gets closer to zero, competitive balance is improving in the league; so smaller numbers are increases in competitive balance.
But this is really not anything new. Since the 1970’s, the average measure of the Noll-Scully metric has been declining; as shown in the table below. (Note the 2000’s doesn’t include the 2009-10 season, since it hasn’t occurred yet).
|
Decade |
Average Noll-Scully |
|
1970’s |
2.557 |
|
1980’s |
1.969 |
|
1990’s |
1.796 |
|
2000’s |
1.538 |
Hence, only focusing on the decline in Noll-Scully measure of competitive balance in the four years since the introduction of the payroll cap ignores the decades of decline in the Noll-Scully measure of competitive balance WITHOUT a payroll cap.
As we argue in The Wages of Wins (and as detailed in our paper – The Short Supply of Tall People) competitive balance is declining not because of changes in league institutional rules – such as payroll caps – but rather due to the increasing pool of talent to play sports, such as hockey. So I am skeptical that the payroll cap really has anything to do with the observed improvements in competitive balance.
- Stacey
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6 responses so far ↓
TRad // September 30, 2009 at 5:01 am
Dave, suppose NFL will have an uncapped season. How conclusive would be inferences from such season?
dberri // September 30, 2009 at 8:13 am
TRad,
In terms of competitive balance, I don’t think an uncapped season makes any difference. Competitive balance in the NFL did not really improve with the salary cap. One of the problems in football is that performance is very hard to predict. Cap or no cap, that will still be the case.
A.S. // September 30, 2009 at 8:28 am
I don’t find this persuasive at all.
Yes, N-S was decreasing before the cap, and it is decreasing after the cap. But what is the rate of decrease before and after? What other factors could affect the rate of decrease (you mention one – increasing availability of talent). Why isn’t there any attempt to isolate the effects of the cap from the effects of the other factors?
It could be the case that absent the cap, the decrease in N-S would be less (or it would even increase) as a result of the other factors.
Here is what I would like to see done (and I don’t remember any discussion of it in WoW, although my copy is at home so I can’t check):
1. Find out whether a salary cap decreases the disparity between the the big spending and small spending teams. Perhaps through the use of a gini coefficient, or the like. Has the NHL cap decreased the salary inequalities?
2. Find out how many wins are explained by team salary, through regression or some other mathematical technique. That is, if every baseball team spent exactly the same salary, we would expect them all to average 81 wins. But if one team spent twice the average salary and one team half the average salary, how many wins do we expect each team to win?
3. With the combination of (1) and (2) above, we should be able to estimate the improvement (if any) in competitive balance resulting from a salary cap.
Tball // September 30, 2009 at 8:44 am
I’d agree, the time frame is too small to reach a useful conclusion regarding competitive balance, but I do believe that anything that puts all teams on similar financial footing with regards to their ability to capture talent works toward competitive balance.
Major league sports also has various vehicles in place to counter the competitive balance fostered by a salary cap. For instance, in baseball, Tampa Bay had one of the smallest payrolls in baseball last year. They succeeded because draft rules limit players they drafted to sign with them or hold out a year. And, once signed, MLB teams get to keep exclusive rights to players for period of years. After drafting first for a number of years, and making some good picks, the Rays were able to sequester enough cheap talent to field one of the most talented teams in baseball despite the lack of a salary cap. Other sports feature similar drafts, although the length of the servitude varies. The NFL has franchise tags. The NBA gives more leeway to teams to sign their own free agents than other teams. These mechanisms counteract the goal of competitive balance through a cap. The more a free market is restricted, the less equal financial footing is productive.
To TRad – it would be one season, so I don’t think we’ll learn anything that is conclusive (not that you were asking me/other readers). I would point out, though, that the NFL will be featuring other free market restrictions (as I understand it) that will counteract the uncapped season and restrict player mobility. Similar to baseball, I believe the restricted free agent period is being extended (I believe players that became free agents within 4 years of signing previously and that period is being extended to 6 years) and that franchise tags and transition tags will grow in number (maximum allowed, not just usage patterns). How many players/team are greatly productive after their 6th NFL season? How many of those players are free agents each year? If a team can tag a couple of them (and tagged players don’t get moved without a trade in the NFL), how much player movement can we expect under ‘free’ agency?
I want to say a read about these new free agency restrictions in Peter King’s MMQB during the preseason, but I don’t have any other sources on this and I don’t recall what I had for lunch on Monday, so take it all with a few grains of salt.
Here’s the real question, when the roof doesn’t cave in, does the next CBA have a salary cap? Salary floor? Will the media impute the fact the roof doesn’t cave in to mean that competitive balance does not require a cap? Interesting times.
Italian Stallion // September 30, 2009 at 6:50 pm
I don’t know much about either football or hockey, but I find it hard to believe that a salary cap doesn’t contribute to balance either sport.
I understand the relevance of pro football performance being hard to predict. But over the long haul there must be some correlation between past performance and future performance that is then correlated to salary.
If not, then paying up for almost anyone would be a economic mistake. You might as well build a team of the cheapest players possible.
Now of course there may be WAY MORE mistakes made in football (and other unpredictable sports) than in predictable sports like basketball. And perhaps because of the resultant volatility we need a longer time frame or different techniques to capture the contribution of a salary cap.
I intuitively suspect that if you gave me an unlimited bankroll I would have a much higher probability of putting together a great football or hockey team than if you tied my hands.
Italian Stallion // September 30, 2009 at 6:54 pm
Tball,
Excellent insights.