Recently The Economist “In a league of its own” explored the reasons the NFL has been so successful. One of the reasons listed is the institutions that exist in the NFL, such as revenue sharing or a cap on team payrolls. Given these institutions the article argues that “… teams are far more evenly matched competitively than those in other leagues.” Let’s take a second and see if this holds up.
The article contrasts the NFL with the English Premier League. While the article is correct that the Premier League does not share revenues or cap payrolls like the NFL, and that the market value of the NFL teams is higher than the Premier League, the article is incorrect to go on and say that those internal incentives — revenue sharing and payroll caps –lead to greater competitive balance. In our book, The Wages of Wins, we look at competitive balance with the Noll-Scully measure; which is simply the ratio of the actual standard deviation of wins or standing points to the standard deviation that would exist if a league consisted of equally competitive teams. In simple words, the Noll-Scully compares reality to a world of perfect competitive balance.
From 1976 to 2005, we find that the Noll-Scully ratio of competitive balance in the NFL averaged 1.49. The English Premier League was a bit worse, with an average of 1.61. If we expand our attention to the other soccer leagues, though, we see little difference between competitive balance in American football and World Football. The average Noll-Scully in the German Bundesliga 1, Italian Serie A, Spanish Primera Division, and the French Ligue 1 from 1976 to 2005 was respectively: 1.45, 1.58, 1.42, 1.40. In sum, all football leagues, regardless of whether revenue is shared or payrolls capped, have very similar levels of competitive balance.
To put these results in further perspective, consider the NFL before and after the cap on payrolls was instituted in 1992. From 1992 to 2005, the Noll-Scully measure in the NFL was 1.483. From 1976 to 1991 the Noll-Scully was 1.487. In simple words, competitive balance did not improve in the NFL with the institution of the cap on payrolls.
How about a bit more perspective? The NBA shares television revenue, like the NFL, and also has a cap on payrolls. The NBA even adds a cap on individual salaries. But relative to both versions of football, the NBA is not competitively balanced. The average Noll-Scully from the 1976-77 season to 2005-06 in the NBA was 2.70.
What does all this mean? League policies like revenue sharing and caps on payroll are not shown to improve competitive balance. These policies, though, do lower player salaries. Perhaps the players should ask: Why again are the players being asked to take less in the name of competitive balance?