Optimal competitive balance in a season ticket league.

There is no question the level of play has decreased. Now, do games become more exciting? Are teams more evenly matched? No question. Is that good for the game or not? I don't know. I really don't know. I ask that question all the time. --NFL Hall of Fame Quarterback Troy Aikman. quoted in Pedulla (2003). I think that margin of competition, that margin of the difference between winning and losing in this league is very small, and I think that is great for the fans because every team comes in with an opportunity to win. --NFL Commissioner Roger Goodell. quoted in Curran (2008). I. INTRODUCTION In this article, we lay out the basic welfare foundation of optimal competitive balance for regular season play in a "closed" sports league where season tickets dominate sales. This setting best describes the National Football League (NFL), economically the most important of the four major North American leagues (NALs). We handle the case of single-ticket leagues like baseball in Fort and Quirk (2010). Our chosen focus is on balance during the regular season and details of all our modeling choices are given in the next section. The quotes given above help to illuminate the policy issue addressed by the theory. Is the NFL too balanced as Hall of Fame Quarterback Troy Aikman's quote suggests? Or is the level of parity on the field somehow "optimal" as suggested in Commissioner Goodell's quote? Congressional hearings (U.S. Senate 2001) have even been convened on the subject in the remaining NALs. For the policy-oriented literature, it is implicitly taken that more balance would be an improvement over the result generated by the leagues themselves (comprehensive reviews are in Fort 2006a; Fort and Quirk 1995; Szymanski 2003). This debate--among fans, reporters, and economists--lacks anything remotely resembling any competitive balance target, for example, an optimal level of competitive balance. From the perspective of optimality constructs, this intuitive belief that enhancing competitive balance would on net enhance general fan welfare may simply be Pareto noncomparable advocacy. Rottenberg (1956) was the first to detail the problems associated with a lack of competitive balance. If outcomes on the field, court, or ice become too predictable, as when there are only a few very dominant teams, fans of perennially unsuccessful teams may stay away in droves and some teams in the league may actually go under. Also, even the teams that survive will have lower revenues if these disillusioned fans forsake the sport altogether. Thus, leagues have a vested interest in managing the level of competitive balance. The point of departure for this article is how the league's profit-maximizing choice of competitive balance deviates from one specification of the social welfare-maximizing level of balance. We address the question of optimal competitive balance comparing decentralized league outcomes to the level of competitive balance that maximizes the sum of consumers' and producers' surpluses. We realize that other possible Pareto optimal outcomes might be developed, but the surplus maximizing approach does have the virtue of utilizing theoretical tools that are conceptually amenable to relatively straightforward measurement and comparison in actual leagues. In particular, our main result is that whether the decentralized league result is too much or too little balance, relative to the surplus-maximizing level, is an empirical matter. If the marginal impacts of talent rearrangements are larger in smaller-revenue markets than in larger-revenue markets, then welfare is enhanced by rearranging talent to create more balance. But if the reverse is true, then less balance enhances social welfare. The elements required to actually assess this relationship, namely available data and careful empirical analysis, can settle the issue. We also are not blind to the fact that some advocacy of particular mechanisms to enhance balance actually may be thinly veiled attempts to redistribute wealth from players to owners and among owners. …