Competitive Balance in Baseball: An Economic Analysis

Introduction: The Economics of Competitive Sport

"Thinking about Competitive Balance" by Allen R. Sanderson and John J. Siegfried, published in the Journal of Sports Economics (2003), is a timely reminder of the economic difficulties facing professional baseball just as the season begins to hit American airwaves in full swing. Although the famous football coach Vince Lombardi observed that in sports "winning isn't just everything, it's the only thing," this spirit of cutthroat competition is only of interest to spectators if the competitors are fairly equal in ability. Watching the sports equivalent of a bloodbath is dull — a point illustrated each year when one heroically overmatched team faces one heroically untested opponent, prompting viewers to change the channel with a yawn.

Why Competitive Balance Matters in Sports

The relative aspects of demand and quality of competition loom large in sports. In other words, the competitive edge or ability of one team cannot be understood in isolation (Sanderson & Siegfried, 2003, p. 256). As the authors explain: "In cases when consumer demand depends, to a large extent, on inter-team competition and rivalry, the necessary interactions across 'firms' (i.e., teams) define the special nature of sports. Contests between poorly matched competitors would eventually cause fan interest to wane and industry revenues to fall" (Sanderson & Siegfried, 2003, p. 256). Player autonomy, the absence of salary caps, and aggressive bidding for high-quality players have driven up the cost of doing business in baseball while simultaneously reducing the competitive field. This imbalance unfairly tilts the advantage toward major-market franchises like the Yankees in assembling winning teams.

The need to maintain competition in sports stands in contrast to other competitive, for-profit industries. Consumers, for example, do not buy more Pepsi because of the war between Coke and Pepsi. Baseball teams have an interest in keeping neck-and-neck competitive games alive, but competing product brands have no interest in fueling their rivals' success — they seek dominance alone. Consumers may appreciate price wars that drive costs down, but corporations typically do not. Sports, however, are unique: the hatred fans feel toward a rival team, or the star players of that rival, can actually boost attendance and ticket prices.

This dynamic explains why most sports incorporate structural controls to prevent any one individual or team from dominating too completely: "Boxing segments fighters into weight classes and employs rankings and ladders to create bouts with equally matched opponents. Auto racing, track competitions, and swimming use qualifying times to ensure competitive fields. Tennis produces seedings based on previous performances in the expectation that the strong will play the strong in later round matches. Claiming races in thoroughbred racing is a mechanism designed to have horses of approximately equal ability entered into the same event" (Sanderson & Siegfried, 2003, p. 258).

League Mechanisms for Leveling the Playing Field

Although Sanderson and Siegfried cite limitations on performance-enhancing drugs in their 2003 article as one method of preventing individuals from gaining a decisive advantage over others, this mechanism has clearly failed in baseball. The more effective controls are structural: splits between home and away games, and extended playoff series rather than single winner-take-all contests. "The more evenly matched two opponents are, the higher the probability that a random element — a poor call by an official, a bad bounce, a key injury, or pure luck — will determine the outcome. Thus, the premise that the demand for games is greater" (Sanderson & Siegfried, 2003, p. 260).

The authors note that leagues also create intentional imbalances to level the playing field, acknowledging that winning conditions tend to perpetuate themselves — that is, the most talented players gravitate toward the most popular, most successful teams. Corrective mechanisms include "reverse-order draft systems, various attempts to constrain players' salaries, revenue sharing" (Sanderson & Siegfried, 2003, p. 268). Some leagues also impose luxury taxes on payroll-heavy teams (Sanderson & Siegfried, 2003, pp. 268–269). As the authors observe: "Lengthening a series reduces the probability that the weaker opponent will win; increasing the number of playoff rounds and the percentage of teams eligible for a championship reduces the chances that the best team will capture the championship" (Sanderson & Siegfried, 2003, p. 272).

However, the authors do not include a meaningful counterbalance to these arguments. Longer seasons can produce viewer attrition, increased competition from other sports whose seasons begin while baseball sprawls on, and fan frustration when new rules are perceived as unfair to their team.

Conclusion: Toward a More Complete Model of Sports Competition

The authors overstate the need for competitive balance measured strictly through player salaries and win-loss records. Psychological ties to teams and the volatile nature of play can quickly create different competitive balances in swift, seismic shifts — or at least the perception of a competitive season. Fans persistently ask themselves nagging questions, regardless of the score: Who would have ever thought the Yankees could go home in ignominious defeat, or the Red Sox could capture a World Series? Hope springs eternal.

Thus Sanderson and Siegfried offer a trenchant economic analysis, but fail to take into consideration some critical, albeit anecdotal, points. Many teams — despite their lack of competitive sustainability over multiple seasons, including the Mets, Red Sox, and White Sox — have retained a core fan base. In baseball, love-hate relationships can sustain interest, and even a perverse affection for teams that rarely come out on top. Even the personal narrative of an individual athlete has sustained otherwise unwatchable sports for many Americans: consider Lance Armstrong's total domination of the Tour de France, which drew viewers despite cycling's limited cinematic appeal or genuine competitive tension during his years on the tour.

Unlike other economic products, the relationship of fans to baseball, to sports in general, and to individual athletes is often deeply emotional. Until the psychological factors of supply and demand in sports — encompassing different kinds of competition — are adequately addressed, the analysis of competitive balance as a self-contained unit of economic measurement will remain incomplete. Many sports have deep talent pools but little fan loyalty simply because of national tradition; simply increasing competitive balance is therefore not, by itself, a sufficient answer to generating a wider fan base for baseball.