Bill James Asks Old Questions in Sports Economics

Posted on October 8, 2007 by

15


Bill James wrote a column for in The Boston Globe this weekend that was intended to outline the “next” big questions in sports.  Specifically, James wants us to move beyond what is good for the team (i.e. studies of player performance) to the study of what is good for the league. 

Much of what James writes about actually relates to sports economics.  I am going to walk through this column – section by section – and try and briefly summarize what I think the literature on sports economics already tells us.  And as you will see, although James believes he is presenting “new” questions, much of his column focuses upon issues that are “old hat” to economists who have studied sports over the past few decades. 

Introductory Paragraph

Here is the first paragraph of the column:

In sports, mathematical analysis is old news as applied to baseball, basketball, and football. Statistical research of player performances has now been routinely applied to improve the results of individual teams. But it has not yet been applied to leagues. This unexplored area holds great promise for sports, and sports fans. Rather than beginning with the question “How does a team win?” – the query that has been the basis of all sports research to this point – what if we begin by asking “How does a league succeed?”

Comment: Sports economics draws upon three fields in economics. 

Public Finance is the study of how governments provide goods and services, and of the ways that governments pay for them.  When you see studies examining government financing of sports stadiums it’s the literature on public finance that is being drawn upon.

Labor economics is the study of how labor markets determine the level of employment and salaries.  Studies examining worker productivity, worker compensation, and racial discrimination are within this field.

And then there is industrial organization.  This field is the study of firms and markets as they relate to employees, consumers, government and each other.  When sports economists study leagues – and we have been doing this for decades – it’s the field of industrial organization that we are working within.

I bring all this up for a reason.  The questions James asks – especially about competitive balance — have indeed been asked by sports economists.  And in many cases, already answered.

Competitive Balance in the NBA

Here is James discussing competitive balance in the NBA:

Take the problem of what we could call NBA “sluggishness.” In the regular season, players simply don’t seem to be playing hard all the time. Some people attribute this to high salaries, but the other major sports are choking on money and don’t seem to have the problem to any comparable degree. Also, it’s illogical to argue that money is a disincentive to playing hard. If you doubled the prize money for a car race, would the drivers slow down and start coasting?

The NBA’s problem is that the underlying mathematics of the league are screwed up. In every sport, there is an element of predetermination and an element of randomness in the outcomes. Who will win the championship next year is not entirely a crapshoot. We know that Kentucky has a better chance of winning the NCAA basketball title than Nebraska does – next year, or in 2019. If we knew with certainty who was going to win the title next year, then we could say that the championship was 100 percent predetermined, 0 percent random.

In the NBA, the element of predetermination is simply too high. Simply stated, the best team wins too often. If the best team always wins, then the sequence of events leading to victory is meaningless. Who fights for the rebound, who sacrifices his body to keep the ball from rolling out of bounds doesn’t matter. The greater team is going to come out on top anyway.

A fan can look at the standings in December, pick the teams that will make the playoffs, and might get them all. This has a horrific effect on the game. Everybody knows who’s going to win. Why do the players seem to stand around on offense? Why is showboating tolerated? Because it doesn’t matter. Why don’t teams play as teams? Because they can win without doing so (although teams like these may crumble when they run up against the Pistons or Spurs).

So how should the NBA correct this? Lengthen the shot clock. Shorten the games. Move in the 3-point line. Shorten the playoffs.

If you reduce the number of possessions in a game by giving teams more time to hold the ball, you make it more likely that the underdog can win – for the same reason that Bubba Watson is a lot more likely to beat Tiger Woods at golf over three days than he is over four. It’s simple math. The longer the contest lasts, the more certain the better team is to win. If the NBA went back to shorter playoff series – for example from best-of-seven games to best-of-three – an upset in that series would become a much more realistic possibility. A three-game series would make the homecourt advantage much more important, which, in turn, would make the regular season games much more important. The importance of each game is inversely related to the frequency with which the best team wins.

Comment:  This section makes three arguments. 

1. The NBA has a problem with competitive balance. 

2. If competitive balance is not “fixed” this will be a problem for the league.

3. There is a way to fix the competitive balance problem.

The first point is consistent with the empirical evidence.  As we note in The Wages of Wins, if you look at something as simple as the Noll-Scully measure of competitive balance (the ratio of the standard deviation of winning percentage to the ideal standard deviation if the league perfectly balanced) the NBA is less competitive than Major League Baseball, the NFL, or the NHL.  And the same story is seen when you look at the distribution of championships. 

But although the NBA has a competitive balance “problem”, it’s not necessarily the case that fans care.  As I noted in July when the referee scandal broke, consumer demand in the NBA appears quite healthy.  More people are going to NBA games than ever before. 

And then there is the national television contract. As reported by Sports Illustrated.com, last June the NBA extended its deal with TNT, ABC, and ESPN. The extension calls for the NBA to be paid $7.44 billion over eight seasons (beginning in 2008-09 and ending in 2015-16).  That works out to $930 per season and for each team, $31,000,000 each year before a single ticket is sold.

Compare these numbers to what we saw ten years ago.  According to InsideHoops.com, in 1997-98 each NBA team earned a little more than $11 million per team from the national cable and network television contracts.  In a bit more than ten seasons, this payment has now about tripled.

To summarize, the NBA is not competitively balanced.  The same teams seem to win year after year.  And we already know in October – before a single game is played — that many teams in the Association have little chance of winning a title in 2008.  Still, the data on demand doesn’t seem to indicate that the competitive balance issues are very important or are in need of being “fixed.”  In fact, studies of baseball… okay, I get ahead of myself. Let’s continue with what James said.

Competitive Balance In General

Here is the rest of the James column:

On the other foot, no league could thrive, either, if every team had the same chance to win. The NFL is a well-managed league, but it runs a risk of pushing too hard in the other direction. If every team has the same chance to win, whatever you do is just as meaningless. Of course, the NFL has not approached that point, but it needs to be careful about parity.

What is the “perfect balance” point, at which leagues tend most to thrive? I don’t know, because it hasn’t been studied.

Do leagues thrive when the best teams are in the biggest cities? Or is it actually better for the league if the best teams are in smaller cities, like a Green Bay, which can “adopt” the team and make it its own?

Do leagues grow rapidly in periods of innovation and development, or do leagues prosper more in periods of stability? Is it better for a league if the player provides his own equipment, or is it better for the league if the league controls the equipment?

Nobody really knows.

We’ve spent a long time studying what is good for the Red Sox, the Patriots, the Celtics. The issue of what is good for leagues is virgin territory. It’s time to step back and look at the bigger picture. People ask me all the time: Where is baseball research going in the next generation? This is where it’s going.

Comments:  Here Bill James argues again that competitive balance is important for a league.  In fact, he argues that leagues must find the “optimal” level of balance and what this level is has not been studied.

As I hinted at before, the link between competitive balance and attendance has been extensively studied.  Marty and I have published work on this topic, and other economists such as Brad Humphreys, Rod Fort, Young Hoon Lee, etc… have all contributed to what has become an extensive literature.

And what does this literature indicate?  Competitive balance does impact demand, but it doesn’t appear to be very “important.”  At least, dramatic changes in balance do not seem to have a very dramatic impact on league attendance.  Given this result, I am not sure the “optimal level of balance” is something leagues should actively seek (and I would note that Stefan Szymanski did write a paper that I think looked at “optimal balance”).

I think it’s important to emphasize that what James refers to as “virgin territory” is not quite as pure as he believes.  There have been many, many studies on competitive balance.  These studies have used a host of competitive balance measures (I like the Noll-Scully, but I have used others and there are many more out there).  And the literature has looked at all the major sports.

Does this mean we have all the answers?  No, but I think James would find answers to some of his questions in the textbooks of both Rod Fort or by Mike Leeds/Peter Von Allmen. And when your questions are already covered in textbooks, you are hardly treading on new ground. 

– DJ

A Incomplete Reference List

To give you an idea of how much has been written on competitive balance, here is a list of papers on this subject we cite in The Wages of Wins.  It’s important to remember, this is an incomplete reference list.  There are many, many, many articles written on competitive balance and league organization.

Berri, David J., Stacey L. Brook, Aju Fenn, Bernd Frick, and Roberto Vicente-Mayoral. 2005. “The Short Supply of Tall People: Explaining Competitive Imbalance in the National Basketball Association.” Journal of Economic Issues, 39, no. 4 (December), 1029-1041.

Depken, Craig. 1999. “Free Agency and the Competitiveness of Major League Baseball.” Review of Industrial Organization, 14, 205-217.

Fizel, John. 1997. “Free Agency and Competitive Balance.” In STEE-RIKE FOUR! What’s Wrong with the Business of Baseball?, ed. Dan R. Marburger (pp. 61-72). Westport, Conn.: Praeger.

Humphreys, Brad. 2002. “Alternative Measures of Competitive Balance in Sports League.” Journal of Sports Economics, 3, no. 2 (May), 133-148.

Lee, Young Hoon, and Rodney Fort. 2005. “Structural Change in MLB Competitive Balance: The Depression, Team Location, and Integration.” Economic Inquiry, 43, no. 1 (January), 158-169.

Quirk, James, and Rodney Fort. 1992. Pay Dirt: The Business of Professional Team Sports. Princeton, N.J.: Princeton University Press.

Quirk, James, and Rodney Fort.. 1999. Hardball: The Abuse of Power in Pro Team Sports. Princeton, N.J.: Princeton University Press.

Schmidt, Martin B. 2001. “Competition in Major League Baseball: The Impact of Expansion.” Applied Economics Letters, 8, No. 1, 21-26.

Schmidt, Martin B.. 2006.  “On the Evolution of Talent: An Application of Nonlinear Tests.” Applied Economics, 38, No. 1, 1-12.

Schmidt, Martin B., and David J. Berri. 2001. “Competitive Balance and Attendance: The Case of Major League Baseball.” Journal of Sports Economics, 2, no. 2 (May), 145-167.

Schmidt, Martin B. and David J. Berri. 2002b. “Competitive Balance and Market Size in Major League Baseball: A Response to Baseball’s Blue Ribbon Panel.” Review of Industrial Organization, 21, no. 1 (August), 41-54.

Schmidt, Martin B., and David J. Berri. 2003. “On the Evolution of Competitive Balance: The Impact of an Increasing Global Search.” Economic Inquiry, 41, no. 4 (October), 692-704.

Schmidt, Martin and David Berri. 2002b. “Competitive Balance and Market Size in Major League Baseball: A Response to Baseball’s Blue Ribbon Panel.” Review of Industrial Organization, 21, no. 1 (August), 41-54.

Szymanski, Stefan. 2003. “The Economic Design of Sporting Contests.” Journal of Economic Literature, 41, no. 4 (December), 1137-1187.

Szymanski, Stefan. 2005. “Tilting the Playing Field: Why a Sports League Planner Would Choose Less, Not More, Competitive Balance.” Presented at the Western Economic Association, July 7, in San Francisco.

Advertisements
Posted in: Sports Econ