Deck 5: Competitive Balance

Question 1

Which move would be more effective for increasing the level of competitive balance in baseball, a hard salary cap or a 50-50 gate revenue-sharing plan?

Answer 1

First of all, gate revenues are only a small portion of total revenues collected in professional sports, so even complete sharing of gate revenues will leave some teams with significantly higher revenues. Even if all revenues are shared equally, however, players still flow to the same teams they would have gone to if there were no revenue- sharing. When teams evenly split revenue they effectively put all their revenue in a pile in the middle of the room and then divide the pile equally among themselves. If teams maximize profits, they want to make the pile as large as possible. If a star player is more valuable in Los Angeles than in Cleveland, then the pile in the middle of the room is larger-and the revenue for Los Angeles and Cleveland-will be greater if the player moves to Los Angeles. Thus, even a 50-50 revenue split may have little impact on the distribution of talent or competitive balance. A hard salary cap limits what a team can pay its players. Even if a player is worth more in Los Angeles then in Cleveland, Los Angeles may not be able to lure him away if it is already spending close to its limit on its other players. This limit evens out what teams can spend for players and has the potential for evening out the distribution of talent.

Question 2

What is the uncertainty of outcome hypothesis?

Answer 2

The uncertainty of outcome hypothesis loosely states that fans are more excited about a game (and therefore more likely to attend) if the outcome of the game is uncertain. It is not the case that one team is very likely to win. Recent research shows that fans are most interested in games when the home team has a 60 to 70 percent chance of winning.

Question 3

What is competitive balance?

Answer 3

Competitive balance is loosely defined as two teams having a roughly equal chance of winning a game that they play against each other.

Question 4

SEQ CHAPTER \h \r 1The standard deviation of win percentage for the 32 teams in the NBA in 2005-2006 was 0.134. The NBA plays an 82 game season. The standard deviation of win percentage for the 20 teams in the English Premier League in 2005-2006 was 0.158. The EPL plays a 38 game season. The idealized win percentages for the NBA and EPL are

A) 0.055 NBA) and 0.081 EPL)
B) 0.078 NBA) and 0.115 EPL)
C) 1.672 NBA) and 1.580 EPL)
D) 2.427 NBA) and 1.948 EPL)

Question 5

Go to the official MLB website (http://www.mlb.com) and check the order of finish in the American League East for the 1998-2003 seasons. What is the between-season variation for this league over this time span?

Question 6

Which of the following is/are ways in which sports leagues have attempted to promote competitive balance?

A) The reverse-order draft.
B) Revenue sharing.
C) Salary caps.
D) All of the above.

Question 7

Is free agency without a salary cap good or bad for competitive balance?

Question 8

Given the following winning percentages of the teams in a league (for a single year) compute the within-season standard deviation for the league.

Question 9

Given the winning percentages of the teams from Problem 11 in a league (for a single year) compute the within-season ratio R for the league if the league plays 20 games per season.

Question 10

Just before the 2007 Daytona 500, NASCAR heavily fined several racing teams for using fuel additives that make cars go slightly faster. Why would NASCAR want to take steps to lower the speed of their race cars?

A) Like MLB with steroids, NASCAR fears that if they don't act to prevent the use of illegal substances, the federal government will step in instead to regulate their league.
B) NASCAR fans prefer relative quality over absolute quality.
C) Slower cars provide for significantly better track safety.
D) All of the above

Question 11

Over the past 12 years in Patriot League Women's Volleyball, American has won five titles, Colgate has won three league titles, Bucknell has won two titles, and Lehigh and Army have each won one title. In the NBA over the past 12 years, the L.A. Lakers, San Antonio Spurs, and Chicago Bulls have each won three titles, the Houston Rockets, Detroit Pistons, and Miami Heat have each won one title. The HHI for championships in Patriot League Volleyball and the NBA are

A) 2.5 NBA) and 3.3 PL)
B) 12.0 NBA) and 12.0 PL)
C) 30 NBA) and 40 PL)
D) 7.0 NBA) and 4.0 PL)

Question 12

Why do leagues care about competitive balance?

Question 13

Based on the information in Question 1, which league exhibits more competitive balance?

A) The NBA exhibits more within-season competitive balance, but between-season competitive balance cannot be determined from the information given.
B) The EPL exhibits more within-season competitive balance, but between-season competitive balance cannot be determined from the information given.
C) The NBA exhibits more between-season competitive balance, but within-season competitive balance cannot be determined from the information given.
D) The EPL exhibits more between-season competitive balance, but within-season competitive balance cannot be determined from the information given.
E) Because the leagues have a different number of teams and/or play a different number of games each season, neither between-season nor within-season competitive balance can be determined from the information given.

Question 14

Based on the information in Question 3, which league exhibits more competitive balance?

A) The NBA exhibits more intra-season competitive balance, but inter-season competitive balance cannot be determined from the information given.
B) The PL exhibits more intra-season competitive balance, but inter-season competitive balance cannot be determined from the information given.
C) The NBA exhibits more inter-season competitive balance, but intra-season competitive balance cannot be determined from the information given.
D) The PL exhibits more inter-season competitive balance, but intra-season competitive balance cannot be determined from the information given.
E) Because the leagues have a different number of teams and/or play a different number of games each season, neither inter-season nor intra-season competitive balance can be determined from the information given.

Question 15

What does the standard deviation statistic tell you?

Question 16

What is a shortcoming of using the standard deviation of winning percentage (within a season) to study competitive balance?

Question 17

Why is standard deviation useful in studying competitive balance?

Question 18

The minimum possible value of the "Frequency of Championships" Herfindahl-Hirschman Index Index is:

A) 0
B) 1
C) 1/n (where n = number of teams in the league).
D) Number of championships won by the "winningest team" times n.

Question 19

SEQ CHAPTER \h \r 1All of the major sports leagues in the United States use a reverse order draft to promote competitive balance. The NBA is unique in that it utilizes a "draft lottery" such that the worst team in the league is not guaranteed the top pick in the draft but instead only receives the highest probability in the lottery to receive the top pick. Why does the NBA use a draft lottery? Why might it be the case that only the NBA uses a lottery while the other leagues use a straight reverse order draft?

Question 20

What is a shortcoming of the HHI measure?

Question 21

The invariance principle breaks down when:

A) Those in the market have significant monopoly power.
B) Property rights belong to the government.
C) Property rights belong to citizens (the people).
D) There are significant transactions costs.

Question 22

An actual-to-ideal ratio of standard deviations of winning percentages of 5 in a league means:

A) The standard deviation of winning percentages is 1/5 (20%) more than it would be in a world with absolutely balanced teams.
B) The standard deviation of winning percentages is 5 times more than it would be in a world with absolutely balanced teams.
C) The standard deviation of winning percentages in this league represents perfect competitive balance.
D) There is not enough information to determine.

Question 23

The marginal benefit of winning:

A) Is greatest for teams in small markets.
B) Is greatest for teams in medium-sized markets.
C) Is greatest for teams in large markets.
D) Does not vary based on market size.

Question 24

What does "The Moneyball Hypothesis" imply about the traditional ways scouting has been done in major league baseball and the efficiency of markets to process all available information in the decision-making process?

Question 25

A larger HH Index indicates greater competitive balance within a league.