Question

#3. Explain the different between within season competitive balance and between season competitive balance. Your answer should address the conceptual difference as well as difference in calculating the respective standard deviations.

Answer 1

The main objective of this article is to identify the optimal index of competitive balance in European football with respect to its impact in the number of spectators and (indirectly) in the revenues of professional team sports. According to Zimbalist (2003), any optimal measure has to be important from the fans’ perspective and their sensitivity should be used as a filter among potential indices. In that context, we construct an econometric model to identify which index better captures fans’ behaviour manifested by their demand to attend league games. Additionally, key assumptions may be derived concerning the relative importance of different aspects of competitive balance depending on the specific features of the optimal index.

Competitive balance is a widely used concept in team sports and often put forward and accepted as a justification of exemptions and interventions. We describe this concept and construct measures in order to compare European national highest league football. We believe that in a unified Europe an international comparison is requisite and precedes the empirical evaluation of theories and implications of policy decisions. We concentrate on two kinds of uncertainty: seasonal imbalance and dominance of teams over seasons and adapt three measures for them. We introduce the National Measure of Seasonal Imbalance (NAMSI): the standard deviation of the winning percentages divided by the standard deviation when there is complete certainty about all outcomes of the games. To include championship dominance we calculate the number of teams that entered the top 3 in a period of 3 years as well as constructing the Lorenz curves for the distribution of championship titles. We compare the highest leagues of 11 European football countries from the season 1963-1964 until 2004-2005 to determine whether there are diverging levels between countries and between measures. We add cluster analysis to show that European competitive balance differs among countries and that depending on the interpretation of the concept other groups exist. We show that the big5 are not necessarily one group and caution for evaluation of unified interventions is hence appropriate. Ranking of the countries learns that Portugal, the Netherlands and Greece are the least balanced countries independent of the chosen definition and hence measure.

Competitive balance matters acutely for any professional sport league through its effect on demand (Neale, 1964). Increasingly this is not just ticket sales at league games, but television rights, which can be sold globally, and associated merchandise. Due to this level of importance, competitive balance has become a prominent topic of study in sports economics; however, as with many economic concepts, it is a latent variable which cannot be measured directly, and as such its quantification still remains an issue. Many different approaches have been introduced; as Zimbalist (2002, p. 112) puts it:

Since Rottenberg described the baseball league in 1956, many authors have taken up the challenge to do research on the economics of professional team sports. It is a complex but appealing research area. Sandy, Sloane and Rosentraub (2004, p. 2) correctly described the two-folded reason of interest as follows: “The sports industry raises fascinating economic questions and … sports have been a highprofile component of all societies for more than 4,000 years.” In the early stages, theoretical research questions concerning American Leagues were tackled by major contributors as Neale (1964) , Jones (1969), El-hodiri and Quirk (1971) and Noll (1974). Neale (1964) discussed the peculiar economics of team sports and mentioned that restraints on competition are justifiable to prevent strong financial teams to acquire all the best players. Jones (1969, 1988a, 1988b, 1999) became a specialist in the National Hockey League. He showed among many other things that the NHL can be characterized to have monopolistic as well as monopsonistic features. El-hodiri and Quirk (1971, 1974) formalized the theory of Rottenberg (1956) and gave proof of the ‘invariance principle’ 2 . The first sports economics book was edited by Noll in 1974 and gathered the most influential articles. This book gave an extra boost to the new research area. Noll added to the literature by calling attention to attendance, price setting and policy alternatives in his book. Empirics were introduced by Scully (1974) and Canes (1974). Scully (1974) estimated a production function and a revenue function to compare marginal revenue product with the salary of Major League Baseball players. He found monopsonistic exploitation based upon data of the seasons 1968 and 1969. Canes (1974) showed that the player reservation system did not improve the distribution of players in the National League.

A certain degree of competitive balance instigates fans’ interest, and thus; leads to an increased demand for attending sporting events (El-Hodiri & Quirk, 1971; Rottenberg, 1956).This principle is of the utmost importance, since it implies that if fans were not responsive to competitive balance, its study would certainly be of no purpose. Given the fans’ responsiveness, both revenues and economic viability of a sports league are affected by the degree of competitive balance.

European research took a bit longer to jump the wagon with Sloane as pioneer in 1969. He looked at English football and introduced the importance of league objectives: winmaximizing versus profitmaximizing. Hart, Hutton and Sharot (1975) constructed and estimated a demand model for British Association football but the empirical testing was only limited to four teams over two seasons. Bird (1982) ameliorated the model by using time series for the whole league. Andreff (1986) focused attention on the economics of sport by his contribution in the collection “Que sais-je” and published the book Economie politique du Sport in 1989. At the end of the eighties and especially the nineties European research cleared its arrears concerning theoretical research and can now be equally valued to the US research. Some of the later influential authors are mentioned in the next chapter. The Journal of Economic Literature accepted 2 papers with sports economics as subject. One was written by Fort and Quirk in 1995 and the other by Szymanski in 2003.

Therefore, the attention of an economic analysis of competitive balance should be its effect on the fans’ behaviour, which is the longstanding “Uncertainty of Outcome Hypothesis” (UOH, Fort & Maxcy, 2003) also referred to as the empirical test of Neale’s (1964) “League Standing Effect” (Humphreys, 2002). Essentially, UOH analyses the relationship between competitive balance and fans’ interest which is exhibited by their demand for league products. In the present study we use attendance at league games, which is a conventional measure for the fans’ behaviour according to the most complete reviews for demand in professional team sports (Borland & MacDonald, 2003; Villar & Guerrero, 2003, Villar & Guerrero, 2009).

Any optimal measure or index of competitive balance may differ from one sport to another or even from one league to another (Zimbalist, 2003). This issue reflects the championship structure of a particular sport or league. Our focus is on European football, which, according to Gerrard (2004, p. 39) is the heartland of football, the only truly global team sport. However, European football leagues are complex in structure, in that domestic championships are multi-levelled tournaments offering multiple prizes as opposed to the common single prize offered by North American ones (Kringstad & Gerrard, 2007). A special attention is given to the three -levelled structure of European football identified by Manasis et al. (2013), which has so far not been considered in any related study.

The effect of competitive balance to attendance in European football is estimated via econometric study with data from several domestic leagues for an extended period of seasons. The use of data of adequate sample size enables the adoption of advanced methods strengthening the conclusions arising from the econometric analysis. After presenting a number of indices measuring competitive balance, the article proceeds with variables description and the methodology followed for the construction of the econometric model. The article proceeds with the empirical results, the discussion of the main findings and finally some concluding results derived from the analysis

In general economics, firms try to dominate and outperform competitors. In sports however we can talk about peculiar economic characteristics since this kind of competitive behaviour is absent. Teams do want to win but not all the time. One of the first to address this was Topkis (1949, p.708). He mentioned that teams want to come close to a perfect team but that they realize that it can not be too perfect since “there would not be any money in that”. Neale (1964, p. 2) captures this thought in one sentence: “pure monopoly is disaster”. When only one team survives no games could be played and so the sports branch ceases to exist.

The product in sports is a result of two firms and a certain level of competitive balance can be assumed to be necessary to hold people's interest. (Janssens and Kesenne, 1987) The leagues and team owners have used the concept of competitive balance to justify restrictions on behaviour of players and teams, as revenue sharing, transfer fees, salary caps and many other. In several cases, as with the Bosman-ruling, the courts did not agree with the restrictions.

Even though some restrictions are done away with, others appear or are adjusted. In this paper we will not address the influence of interventions on competitive balance; however our results could be used to empirically test the assumed justifications. Many managers feared the Bosman-case in 1995 in the football business because they all expected high inequalities in player talents acquisitions.

Even though at first glance no big changes in win equalities are noted, concerns still remain. In the Sunday Mirror of 3 September 2000, Andy Gray6 expressed his concerns about the possible creation of elite clubs because of the high wages in sports. Jan Peeters, now the president of the ‘Belgische voetbalbond’, mentioned in 2000 that he feared that with the construction of the new transfer system the big teams would be favoured and hence making it more difficult for the little teams to compete.

So they all fear that the playing equalities are threatened. These concerns underline the fact that the concept is important to managers. Most authors who do research in the field of economics of team sports mention competitive balance7 and its importance. The following short literature overview shows that the concept can include several dimensions and before empirical research can start a description of the dimension of interest is necessary.