Understanding the Concept of Competitive Balance - Research Paper Example

Introduction: The basic purpose of this purpose is to understand the concept of competitive balance in our test study: The English Premier League. We will look at the factors which are adjudged to most prominently affect the competitive balance and we will also look at theoretical as well as test case applicable measures for determining competitive balance amongst a group of players. The basic data for this paper comes from the Premier League results for the 2005 season, the difference in wage and the performance of the players in the 2004 season; for which data on wage expenditure was most easily available and the game attendances for the 2005 season. Now, our initial analysis displays the rather gloomy fact that competitive balance has consistently been on the decline and has reached its lowest point in 2005. This decline is associated with: Increase in the gap of wage expenditure between the top four teams in the league and the remaining cast; including a more than two hundred percent increase in the wage expenditure of Chelsea, due to the take-over of the club by Russian billionaire Roman Abrahmovic The great and somewhat unjust disparity in revenue streams available to the top clubs e.g. broadcast revenue distribution dissimilarities; especially those qualifying for the Champions League A steady deterioration in the affectivity of the system that promotes teams from the lower leagues into the top ones and relegates teams in the vice versa conditions largely due to the immense gap in income between the teams from the Premier League and those from the Coca-Cola Championship There has also been a further slight decline in the number of people attending Premier League matches for the second season running, though part of this may be because of changes in ability associated with differences in the stadiums size of promoted and relegated clubs. [2] Competitive balance: Most authors who do research in economics of team sports include the idea of competitive balance and its importance but use different terms for it. The following short literature review gives some of those alternate naming. We also show the idea can include several dimensions. So before empirical research can start, a description of what encompasses the intrinsic interest of the study is necessary. Topkis did not name the idea of competitive balance but he includes the idea as follows: “Baseball magnates are not fools. If anyone got together a group of perfect players, who would pay to see them play the other teams in the league?” [1] According to the founder of Sports Economics research, Rottenberg: The nature of the industry (of baseball) is competitors must be of estimated equal ‘size’ if any are to be successful. [6] Neale talks about the “League standing effect” to underline the importance of the perception of the differences in standings of the teams over several years. Jones mentions the “importance of competitive equality” [12]. El-Hodiri and Quirk discuss “equalization of competitive playing strengths” as an important objective for a sports league. Janssens and Kesenne are great advocates of the notion of “sporting equality” [9]. Quirk and Fort and others include “doubt of outcome” [3] in their research whereas Palomino and Rigotti makes use of the term “Symmetry among teams” in describing this matter. Sloane [7] stresses the multidimensionality of competitive balance by distinguishing short-run doubt from long-run doubt of outcome. In addition to this, the writer also says that greater importance is attached to the domination of one or two clubs as opposed to the opposite. Cairns, Jennett and Sloane in 1986 came up with four different interpretations of the doubt of outcomes. The first topic that is tackled is match doubt. The second and third interpretations are less clear: they distinguish between seasonal doubt with an uncertain winner that influences utility and seasonal doubt with the likelihood the own team wins the championship that influences utility. Finally, a complete absence of dominion in the long-run is witnessed. Vrooman [11] points out there are three possible interpretations of competitive balance, all connected to each other but now the last is less clear for us. First there is interpreting closeness of league competition within seasons. Secondly, this points out the absence of dominance of a large market club. Last competitive balance can also mean continuity of performance from season to season. He lays greater emphasis on the later point in his paper in 1996. Szymanski provides the clearest division. He highlights there are three kinds of misgiving. Firstly, there is a possibility of match confusion. Secondly there is season doubt which looks at the confusion within one season. The third kind is a few dominating teams over seasons called championship doubt. Because the idea can have several dimensions and a widely used definition does not exist, it is advisable to explain the meaning behind the idea used now. A major goal in this research in addition to those already highlighted is to show the importance and necessity of distinction in these circumstances where evolutions differ. Our model is based on the findings of Szymanski and consists of the following three kinds of competitive balance: 1. Match doubt 2. Seasonal Doubt 3. Championship Doubt We focus on season doubt and championship doubt in this paper. We interpret seasonal balance as the closeness of winning percentages in one season and championship doubt as the absence of dominant teams over seasons. To impose policy decisions, we should settle the mechanism that will allow us to reach the ideal competitive balance and act so. A certain competitive balance seems reasonable to hold the interest of spectators and sponsors for all teams but deciding the ideal level is complex. Market research on the goals and aims of football agents is also of great importance. These objectives decide the ideal level but there is a growing need of wealth measurement and this is complex. Because of the unsolved issues about ideal competitive balance, the use of an ideal level is a frequent practice. Two alternatives are in common usage in the literature of sports economics to describe a league in perfect balance. Quirk and Fort introduced the use of a win likelihood of fifty per cent for each team. This means the ideal level is present when the real number of wins is close to the one a computer would produce if it randomly picks a number out of a binomial distribution. The alternative is the use of a win percentage of 50% for all teams in the league, which is equal to stating that all teams win half of their matches a loose the other half or that all games end in a tie. The two alternatives are not equal because the standard deviation differs: for the first it equals 0.5/sqrt (N), while for the second it is zero. Neither is proven to be ideal and both are obviously disputable. The notion that it is more fitting to use another basis of comparison has already convinced us. The prevention of comprehensive disproportion is a necessity which cannot be negated. Knowing the winner of a contest is known before the commencement of the contest, without exception, basically leads to the destruction of the very foundation of sports and it will stop to exist. A suitable expression like ‘you never know in sports, anything can happen’ captures the need of absence of complete imbalance. So we believe that it makes more sense to consider the worst case instead of the ideal case to look at the levels of European football countries. A league diverges from an ideal league does not mean that intervention is necessary. However when a league is close to complete imbalance, reaction seems reasonable. So a measure that includes this complete imbalance needs to escort policy decisions is a notion that seems justified. [5] Competitive balance for our paper: Therefore, we can say that competitive balance refers to balance between the sporting abilities of teams. The more evenly balanced the competitive strengths of the teams that make up a league, the more uncertain the outcome of each match. Similarly, the more evenly balanced the teams, the more uncertain the outcome of the championship race. In a balanced league each team would have an equal chance of winning each match and each team would therefore have an equal chance of winning the league title. Competitive balance is important because, other being equal, doubt of outcome creates interest from supporters and increases demand for watching matches both at the ground and on television (including by subscription and pay-per-view). Anon-competitively balanced league is therefore not enlarging potential income from spectators and viewers. Preserving and promoting competitive balance is therefore important to enlarge demand for a club’s, and the league’s, product. This is part of the business logic behind sports leagues adopting regulatory rules to redistribute income and promote competitive balance. Ensuring league stability is favorably affected by maintaining the competitive status quo. Unbalanced league face increased risks of bankruptcy of lagging clubs and threats of league break-up from new or rival leagues. [8] Data used in the study: The work of Michie and Oughton (2004) provide a detailed description of indices of competitive balance that we are using in this paper: 1. The C5 ratio which measures the share of points of the top 5 clubs: C5 = Total points won by the top five clubs Total number of points won by all clubs In a balanced league of 20 clubs this ratio would take a value of 0.25 or 25 per cent, that is, the top five clubs that represent 25 per cent of the league would have a points share of 0.25 or 25 per cent. Competitive imbalance is indicated whenever this threshold is exceeded. Amplification in the proportion is representative of a decline in competitive balance. [10] 2. The C5 Index of Competitive Balance which adjusts the C5 Ratio to control for changes in the number of clubs in the league. The C5 Index of Competitive Balance takes a value of 100 in a balanced league of any size. If this ratio increases, it implies a decline in competitive balance. [10] 3. The weighted average of each club’s points share forms the basis of the H-Index of Competitive Balance, given by: Source: Mitchie and the rest, 2005 where Si is club i’s share of points in a season, and i = 1, 2 …N, where N is the number of clubs in the league. This measure sees further adjustments made to it in line with the changes in the number of clubs in a league to give the H-Index of Competitive Balance: For a balanced league the index takes a value of 100 for a league of any size. If this ratio increases, it implies a decline in competitive balance. [2] 4. In addition to all that has been done, we will also study an index based on the point spread of the teams newly promoted to the Premier League. Construction of this measure is based on the comparison of the share of points won by the 3 newly promoted clubs in any season to the share that they would win in a balanced league. This index takes a value of 100 in a balanced league where the newly promoted clubs would compete on equal terms. Any value fewer than 100 shows the newly promoted clubs are winning less than an equal share of points and are struggling to compete. A decline in the index represents a decline in the effectiveness of the promotion and relegation as a means of promoting competitive balance. [10] Research Findings: Our previous paper showed there has been a trend decline in competitive balance in the Premier League and that this decline became much steeper in the 1990s. Updating our analysis for 2005 shows that competitive balance has continued to decline and has hit an all-time low (represented by a few the indices reaching their highest ever levels). Figure 1 shows the share of points held by the top 5 clubs in the Premier League and the 5-year moving average of this index which smoothes out year-on-year differences. The 5-year moving average hit it’s highest ever level in 2005; a finding clearly displayed in our data, representing a further decline in competitive balance. [4] Our data focus on inequalities between clubs without looking at the identities of the clubs, so even though Chelsea won the Premiership for the first time, the balance of the Premier League with inequalities between the big clubs and the rest is more disturbed than ever. Also, given Chelsea’s wage expenses (see Figure 5) there is a danger that this will lead to a further weakening in competitive balance. Figure 1 Figure 2 shows the C5 Index of Competitive Balance, which adjustments to control for changes in the number of clubs that make up the league. Again, we can clearly see the changes in the five year moving average data that is including the data for 2005 takes the 5-year moving average to its highest ever level, representing an all-time low in competitive balance. [4] Figure 2 Figure 3 provides data on the H-Index of Competitive Balance which has the advantage of looking at inequalities between all clubs that make up the league. Here the decline in competitive balance is even more marked with both the index value for 2005 and the 5-year moving average reaching all time highs (reflecting the lowest levels of competitive balance recorded since 1947). [4] Figure 3 Sources of the Decline Two causes associated with the decline in competitive balance are: The declining effectiveness of the of promotion and relegation as a to promote balance; and The widening gap in wage expenses between the top 4 or 5 clubs and the rest. Figure 4 and 5 show the data on these matters. Figure 4 shows the share of points won by newly promoted clubs compared with what they would win in a balanced league. The fall in the share is clearly obvious and has reached an all-time low in 2005 as measured by the index (dotted line). In short, the newly promoted clubs are finding it increasingly difficult to compete in the Premier League, largely because of the widening income gap between the Premier League and the Coca-Cola Championship. [4] Figure 4 Figure 5 shows the wage expenses of Premier League clubs for the 2004 season plotted against their performance in 2004 (as measured by each club’s percentage share of points). It is clear to see the top 4 clubs have broken away from the rest of the pack and are spending between around £20 million to £70 million more than the other clubs. The exception is Leeds which had wage expenses of almost £60 million but was one of the three clubs which saw the ignominy of relegation in 2004. Chelsea stands out, having overtaken Manchester United as the highest wage spender by some £40 million. [4] Figure 5 Conclusion: Therefore, we can see that revenue disparities have led to the creation of a huge disproportion between the clubs in the English Premier League and strong steps e.g. spending regulation, revenue distribution ratio amongst clubs in the same city in the instance of a footballing event in the city e.g. Champions League Final etc have to be taken in order to return to and maintain the competitive status amongst the league teams. Bibliography: 1. Jay H. Topkis. (1949). “Monopoly in Professional Sports” The Yale Law Journal, Vol. 58, No. 5, pp. 691-712. The Yale Law Journal Company, Inc. Massachusetts\ 2. Michie, J. and C. Oughton (2004) “Competitive Balance in Football: Trends and Effects”, London: The Sports Nexus. 3. Quirk J. & Fort R. (1992), “Pay Dirt: The Business of Professional Team Sports”, Princeton: Princeton University Press. 4. Michie, J. and C. Oughton (2005) “Competitive Balance in Football: An Update”, London: The Sports Nexus. 5. Goossens, Kelly (2006) “Competitive Balance in European Football” RDES Vol. II, Fasc. 2, ISSN 1825-6678 6. Rottenberg. S (1956) “The baseball players’ labour market” Journal of Political Economics, vol. 64, n. 3. 7. R. Sandy., P. Sloane & M. Rosentraub, (2004) “The Economics of Sport, an International Perspective”, Palgrave Macmillan, New York. 8. Sanderson A.R. & Siegfried J.J. (2003), “Thinking about competitive balance”, Journal of Sports Economics, 4 (4), 255-279. 9. El-Hodiri M. & Quirk J. (1971), “An economic model of a professional sports league”, Journal of Political Economy, 79 (6), 1302-1319. 10. Giocoli, Nicola (2006). “Competitive Balance when Teams have Different Goals” University of Pisa - Department of Economics 11. Vrooman, John (2007), “Theory of the Beautiful Game: The Unification of European Football” Vanderbilt University, Tennessee 12. Neale W.C. (1964), “The peculiar economics of professional sports”, Quarterly Journal of Economics, 78 (1), 1-14. Read More