What good is parity?

June, 21, 2011
Abbott By Henry Abbott
Parity. The league needs parity. It is taken as gospel that having weak teams start the season out of the running for a title, and having a few teams take home all the rings, is trouble for any league, especially the NBA.

It's even worse when you see the biggest-spending teams like the Lakers and Mavericks do well while the teams that spend little -- the Kings, Clippers and Timberwolves -- are predictably out of the running.

And it's not just idle fan chatter anymore. This idea has taken hold of the powers that be, because now it's supported by various kinds of research, and the reality that the NFL these days is as unpredictable as leagues get -- it's almost random who'll win any individual game, and TV ratings are insane.

That's why, today in New York City, there's a dogged collective bargaining fight going on between NBA owners and players.

The owners have spent much of their bargaining efforts moving toward a harder team-by-team salary cap (today proposing what they call a "Flex Cap.") They don't just want a harder cap to be scrooge-like, they insist. They want a harder cap to make the league more popular. I have even heard the suggestion that the players could make more money with a hard cap, because they get a percentage of revenue. And if every game on the NBA calendar were a closely fought battle, more people would watch on TV, the league would get a richer TV deal, and the league would have more money to share with players.

Imagine being David Stern trying to make this case to Billy Hunter. No, really, we want team-by-team hard caps to make you more money.

As Hunter cocks an eyebrow, however, Stern might say: But we've got studies. There's actual research.

And he's not lying.

There are whispers all over basketball. They've got studies from Europe! Increased parity increases TV viewership. That's the word on NBA geek street. And that's no small part of why the league has chosen this year to shift their position from, essentially, one of keeping players attached to their teams for the long-term, to, instead, forcing teams to make hard decisions to keep costs down, much like in the NFL.

The studies are the difference.

So I called up the author of one of those studies, to ask him to explain, and, surprisingly, he had little to say in support of the league's position. Instead, he takes a position much like the union's: That all this talk about competitive balance is really a smokescreen, and real issue is delivering increased profits to owners.

My conversation with David Forrest, a professor of economics and England's University of Salford:

The story coming from NBA owners these days is that increased parity has great potential to improve TV ratings, and there's research to show that. Is that true?

I doubt there's any research outside European soccer.

There's a great mass of literature on physical attendance at the stadium, which tends not to be very convincing on the idea that people are very obsessed with what economists always refer to as "competitive balance," and what you equally correctly call "parity."

People have done surveys in which they've shown that out of dozens and dozens of different countries, different sports, different time periods, you can explain an awful lot about the ups and downs of attendances between matches.

But you can't really get a measure of parity to be statistically significant. Only a handful of studies have ever indicated that that's a factor in the variation in attendance.

So I would say that if they were talking about stadium attendance -- I know they're not -- then I would say, well, they've precious little evidence to support their case.

That gets us off to a starting point, of course, because it suggests, at least, that the population is not absolutely clamoring for equal games, compared to likely-to-be-one-sided games.

If sports leagues try to get exemptions from accusations of illegal collusion and so on, by mentioning competitive balance, I think they would to very badly in the courts, because the evidence isn't there.

Now, of course, the only reason I mention stadium attendance is that we don't have much to go on as far as direct studies of television audience size are concerned.

But we have got something. We did something, and Stefan Szymanski at City University in London also did something.

Now what we did was we looked at the determinants of Premier League audience size. We modeled the determinance of attendance, and we found that the expected disparity in the match -- this is not across the season, but in the individual match, as measured by the difference in betting odds between the two teams' chances -- was a predictor of the size of the television audience.

But it wasn't a very powerful predictor.

It didn't move the audience very much, compared with the other things we had in as explanatory variables. The most powerful was a measure of the aggregate quality of the two teams, measured by the wage bill of all the people on the pitch.

Just salaries is a good measure of team quality?

The soccer market is very competitive and international, and generally, you get what you pay for in those markets. You do find that salary bill predicts league rankings very well.

We already had a measure of the disparity between the teams, but then we looked at the two teams collectively for quality, by wage bill ... it was that which was really pushing the variations in audience.

In conclusion, from that study, I'd say there is mild support for what the NBA is saying. But there are other, far more important things in the determination of TV audience size.

For instance?

The recent performances of the teams, being one of a couple of glamour teams -- the Manchester United/Liverpool effect, day of week, time of year mattered as well.

This is all very well, I think it's a decent study. It's the first, as far as I know, that looked at TV audience size for sports events.

What Stefan Szymanski did was potentially more valuable. Stefan managed to get minute-by-minute audience size.

We were looking at the prospective uncertainty of the match. When you have minute-by-minute data you're able to see whether people switch off. The big cause of switch off is when one team goes well into the lead. He measured the current, this-minute uncertainty in the match, I expect by looking at the probabilities of the two teams winning, according to some statistical model of how you get from a score after n minutes to a score at full time.

He found that as the score within the match fluctuated, same match, but the uncertainty is starting to be dispelled ... once people think that the match is decided, they switch off.

Now, in a sense that again is weak support for the NBA argument, because if you get greater parity, you then will get more matches which stay uncertain for longer. Less turnoff.

These are two studies, and I don't know of any others, and I did look last night, and I couldn't find anything other than those two studies.

Those glamour teams drive ratings ... how do you create glamour teams?

In soccer it seems to be extreme success at some point in the past. Liverpool haven't been successful in a long time, but the won the European cup several times, and as a result, they get the most national following.

We looked at data on who attended football matches, we got a sample of 50,000 people attending stadia. The catchment area for Liverpool was the biggest. You had to go 200 miles before you picked up three-quarters of the attendees.

Manchester United was the second-biggest. These are the only two clubs which have had regular success in Europe in some point in the past. And I guess they then pick up a generation who regard them as the ultimate in the sport, and they hold on to them. People sign up for life, as you know.

I think it's very difficult to achieve glamour team status. There doesn't seem to be anything else, in British football, other than being very successful indeed. Not just one national championship.

Very interesting. It's almost like an argument against controlling salaries.

I must tell you, of course, that whenever, any economist is asked this question, they will say well, the league in question, and I'm not getting at the NBA here, it's true of every league, including the European soccer governing body at the moment, every sports league when it proposes something to improve parity, says it is what the fans want.

But every such scheme also reduces the salary costs to the owners. It's a way of containing costs.

What about if the league were to guarantee the same income to players, for instance with revenue sharing? Right now the NBA guarantees players 57 percent of basketball-related income. They could hand out some percentage of revenues team by team, instead of league-wide, which would seem to not affect players, as a whole, at all.

Well, they might start out with the same costs now. But they may be trying to contain growth.

The way owners end up getting their fingers burnt in sports leagues is what you might call an arms race. It's in all their best interests not to go out and buy all the talent. But if things are calm, one club will see its chance, to get the special reward, financially and otherwise, of winning championships and so on.

If all the others can be relied on just to carry on spending normal amounts of money, it's in the interest of one to go out and try to buy the talent and finish top of the league.

Of course, when that's seen, someone else will say well we've got to go nuclear as well.

So a lot of agreements in sports leagues, to try to contain costs, break down.

Are you familiar with the prisoner's dilemma?

It's in the interest of everyone for them all to keep low wages. But one of them breaks ranks, and the war breaks out again, and the costs go through the roof.

So, sports leagues would like some permanent way of stopping an arms race. And in America, leagues seem to find that they get this through regulators and the law very readily compared with Europe.

As you know, American leagues are characterized by a socialist form of organization, and Europeans by a free market.

Well, we're famous for being a bunch of commies over here.

It seems that way in sport! It's a nice irony.

I'm suspecting this is mainly because they fear an arms race.

There is one big difference, though. When you said the total cost of the players accurately predicts winning ... we don't really have that in the NBA. We have a fairly hard salary cap. A long-term contract to someone who gets injured, or stops producing, is doom. Teams that spend a lot, some of them do very well, some of them do as poorly as can be done. We don't have that particular efficiency of market that you have in soccer.

Obviously, a big difference between America and Europe, is that Europe is a market that's very international. You can buy talent all over the world, and you can lose talent to other leagues.

I think that in English soccer there's hostility towards a new form of salary cap. What they're proposing here is a salary cap Europe-wide, as a condition of being eligible for the UEFA cross-country competitions. As a condition, you can't spend more than your current soccer revenue. Not your other revenue. Just soccer revenue.

All the English clubs are in violation. After the period of grace, it looks they'd not be eligible for the big European contests. They're very desperate here not to get this restriction, because the English have the highest quality league, because they pay the highest wages.

Very few teams ever win the league. And that has worsened over time. But the stadium and TV audiences have climbed over time. The best players have been bought from around the world. But they only get them because they're on a nice positive wave.

Henry Abbott | email

TrueHoop, NBA



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