COMPETITIVE BALANCE IN SPORTS: "PECULIAR ECONOMICS" OVER THE LAST THIRTY YEARS¹

By Daniel A. Rascher, Ph.D. and Andrew D. Schwarz²

In 1984, with its ruling in Nat’l Collegiate Athletic Ass’n ("NCAA") v. Board of Regents of University of Oklahoma,³ the Supreme Court recognized that benefits can accrue to society when potential competitors limit their competition in the interest of competitive balance. In the thirty years that have followed, a period in which professional sports have increasingly become partnerships between owners on the one hand and strong players associations on the other (notwithstanding the recent cultural clashes between owners and players), courts and collective bargaining have mapped out boundaries of acceptable collective action geared around creating competitive balance, all in the name of increasing consumer demand for each sport’s product. Similarly, college sports (though not in a bargaining-based partnership with its players) have relied on the same competitive-balance justification for its collective refusal to pay athletes at market-based rates (in addition to claims that the existence of college sports requires that "athletes must not be paid"⁴).

However, while the last thirty years have seen competitive balance put forth as a pro-competitive justification, the economic basis for this claim is not quite so clear. In fact, in many cases rules that have been adopted with the express aim of achieving competitive balance have been shown not to do so, while others that do achieve balance may only do so at the expense of consumer preferences. Figuring out which rules truly grow consumer demand is an empirical exercise—there is no one-size-fits-all theoretical answer.

At the professional level, the logic of competitive balance has received a fairly non-critical view, with players associations generally accepting that salary caps, revenue-sharing, and individual player maximums grow the total value of the sport via improved competitive balance, even though many of the mechanisms in question are not based on firm economic theory. In contrast, on the collegiate side, where in the absence of collective bargaining such rules have been challenged in antitrust litigation, courts have been more inclined to look for evidence that the team and individual-player pay caps implicit in "amateurism" actually help competitive balance before simply accepting this economic nostrum as fact. Put to that test, the argument that caps on compensation improve competitive balance has tended to fall flat.