Salary Caps and Competitive Balance in Professional Sports Leagues

Evan Totty and Mark Owens

Journal for Economic Educators, 2011, vol. 11, issue 2, 46-56

Abstract: This paper examines the effects of salary caps on competitive balance in professional sports leagues in the United States. We find no evidence to suggest that salary caps improve competitive balance, as measured by the variation in wins between the best and worst teams in a league in a given year, in any of the major sports leagues. Further, depending on the measure of competitive balance, it appears that salary caps decreased competitive balance in the NBA, which has specific components that differ from those of the NHL and NFL. The results also suggest that revenue sharing arrangements promote competitive balance in a manner that is consistent with economic theory.

Keywords: salary caps; competitive balance; free agency; standard deviation; Herfindahl- Hirschman Index (search for similar items in EconPapers)
JEL-codes: D63 L83 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (5)

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