Structural Change in MLB Competitive Balance: The Depression, Team Location, and Integration

Abstract:

Written by Young Hoon Lee and Rodney Fort, this article encompasses three different subjects, the depression, team location, and integration and how they have influenced or have not influenced baseball from the 1901 to 1999. Using breakpoints over certain time periods, they are able to analyze certain trends in baseballs history. Their results show that the National League was much more balanced than the American League after the influence of the depression. Team expansion and movement altered competitive balance and, integration in larger revenue markets, such as big cities, was stronger than in smaller revenue markets.

Extended Abstract:

’ ’ Yt= x t + z tj + ut T= Tj-1+1,…,Tj,j=1,…,m+1 Dependent variable at time t is yt xt(p x 1) and zt(q x 1) P=0, breakpoint in 1926 then two separate time periods

Many suggestions including the entrance of the draft (1965), the end of the reserve clause (1975), and the increase in local TV broadcast rights (early 1980s) have all been thought to have influenced competitive balance among the league. Lee and Fort used break point detection techniques (Andrews 1993) to run a regression with a constant and a time period (1901 to 1999). If a break point is detected during a certain time period, then a dummy variable is added to test the significance of the break point. The results were calculated and there were no break points after 1937 for the National League and none after 1962 for the American League. Thus the draft in 1965, expansion, and local TV revenue growth has no relationship to competitive balance. However, the data shows a small increase in competitive balance since the breaking point in each league. Lee and Fort used two measures of within-season competitive balance. The first, which is RSD is the ratio of actual to idealized standard deviation. The second is related to excess tail percentages and the distribution of winning percentages. Using the Dickey- Fuller and the Phillips-Perron unit root tests they have compiled a list of data shown in their paper. Both of these tests reject the unit root hypothesis. Because of these results, they run a BP (Bai and Perron) procedure with only a constant as a regressor in both leagues, and then they run the same test with a constant and time trend as regressors. Lee and Fort cite factors utilized by MLB to advance competitive balance such as the luxury tax and local revenue sharing might have reduced the level of imbalance enough that there technique of RSD would not have detected a significant shift in data. Thus this trend shows that factors introduced gradually over periods of time such integration of international talent, more geographically dispersed population centers, and diffusion of games on TV have played an important role in defining competitive balance in Major League Baseball. Source: Lee, Young Hoon and Fort, Rodney. Structural Change in MLB Competitive Balance: The Depression, Team Location, and Integration. Economic Inquiry. Vol. 43, No. 1, January 2005, 158-169