REVENUE DIVERGENCE AND COMPETITIVE BALANCE IN A DIVISIONAL SPORTS LEAGUE
| DOI | http://doi.org/10.1111/j.0036-9292.2004.00310.x |
| Author | John Goddard,Stephen Dobson |
| Published date | 01 August 2004 |
| Date | 01 August 2004 |
REVENUE DIVERGENCE AND
COMPETITIVE BALANCE IN A
DIVISIONAL SPORTS LEAGUE
Stephen Dobson
n
and John Goddard
nn
Abstract
The North American model of resource allocation in professional sports leagues is
adapted for English (association) football. Comparisons are drawn between the
equilibrium allocations of playing talent under objective functions of profit
maximisation and win percent maximisation subject to a financial constraint.
Empirical revenue functions are reported for 1926–1999. These indicate a shift in
the composition of demand favouring big-city teams and an increase in the
sensitivity of revenue to performance. An analysis of match results in the FA Cup
suggests an increase in competitive imbalance between teams at different levels of
the league’s divisional hierarchy, as the theory suggests.
I Intro ductio n
In the North American (NA) literature on resource allocation in professional
team sports leagues, relative market sizes are the final arbiter of the allocation of
playing talent between teams, and therefore of competitive balance (Rottenberg,
1956; El Hodiri and Quirk, 1971; Fort and Quirk, 1995; Vrooman, 1995).
Although the standard NA model is demand-driven, the empirical NA literature
tends to concentrate on the link between the supply side of the players’ labour
market and competitive balance. For example, Scully (1989), Fort and Quirk
(1995), Vrooman (1995) and Eckard (1998) present empirical tests of the
invariance proposition: that the efficient allocation of playing talent does not
depend on players’ contractual status, and is therefore unaffected by the
introduction of free agency. In a recent review of this literature, Eckard (2001)
finds that ‘‘(t)aken together, the results are consistent with the invariance
proposition, namely, balance did not change’’ (p.430).
The present article focuses primarily on demand-side determinants of
competitive balance. Specifically, it seeks to demonstrate and draw connections
between two empirical propositions concerning professional (association)
n
University of Otago, New Zealand
nn
University of Wales Swansea
Scottish Journal of Political Economy, Vol. 51, No. 3, August 2004
rScottish Economic Society 2004, Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK
and 350 Main Street, Malden, MA 02148, USA
359
football (or soccer) in England and Wales:
1
first, between the 1920s and 1990s
there was increasing divergence in the base levels of spectator demand enjoyed
by teams with distinct identifying characteristics; and second, over the same
period there was increasing competitive imbalance within the league as a whole.
According to the standard model, the second proposition should follow from the
first. Since long-term change in the composition of demand has been a major
influence on the historical development of English football, the latter should
provide a vehicle for empirical scrutiny of the theory, from a perspective that
differs from that of most of the NA literature.
The key distinguishing features of the NA and European models for the
organisation of professional team sports have been the subject of some
discussion in the recent literature (Hoehn and Szymanski, 1999; Fort, 2000).
In the present context, the following five features appear to be most relevant:
(i) English football’s hierarchical divisional structure
2
ensures that membership
at the highest level is open to any non-league team with sufficient talent to
achieve promotion; (ii) win percent, revenue or utility maximisation subject to a
financial constraint is widely assumed to describe the motivations of most
English football team owners more appropriately than profit maximisation;
(iii) full free agency rights for players over the age of 24 were only established
relatively recently, following the European Court of Justice’s 1995 Bosman
ruling; (iv) relaxation of the regulations restricting the employment of foreign
players, also due to the Bosman ruling, implies the market for playing talent
has recently become international rather than national; and (v) geographical
distances between team home towns are small, making segmentation between
spectator catchment areas low and travel to home and away fixtures a practical
proposition for many fans.
The content and structure of the paper are as follows. Section II discusses the
adaptation of the standard NA model of resource allocation into a form suitable
for the analysis of English football. Particular attention is paid to the
implications for competitive balance of a team objective function of win percent
maximisation subject to a financial constraint, rather than profit maximisation.
Consideration is also given to the effect of the shape of the revenue function on
the comparison between outcomes under these two objective functions. Section
III presents estimated revenue functions for English football teams, and draws
inferences about the phenomenon of revenue divergence. Section IV discusses
the measurement of competitive balance between teams operating at different
levels of a hierarchical, divisional league structure. A statistical analysis of win
1
Although the 92-strong membership of the Premier League and Football League currently
includes three Welsh teams, for convenience this paper refers to English football from this point
onward.
2
League competition in English professional football is currently organised into four
divisions: the Premier League (PL) comprising 20 teams; and Football League (FL) comprising
three divisions (FLD1–FLD3) of 24 teams each. Three or four teams per season are promoted
and relegated between adjacent FL divisions, and between FLD1 and PL. A four-division
structure, with total membership close to the current complement of 92 teams, has operated
since the 1921–2 season. Before the 1992–3 season, all teams were members of the FL and the
divisions were numbered 1 to 4.
STEPHEN DOBSON AND JOHN GODDARD360
rScottish Economic Society 2004
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