Three Stories about Competitive Balance
The MLB season is off and limping. It might be unfair, but starting the season with Stacy Abrams successfully lobbying MLB to remove the All-Star game from Atlanta is probably not the best way to build or maintain the MLB brand.
The start of the baseball season always brings to mind the topics of league design and competitive balance.
Baseball is the least “restricted” of all the major sports leagues in terms of salary caps and revenue sharing. The lack of spending restrictions makes baseball the sport where teams have the most opportunity to “buy” championships. The lack of significant revenue sharing means that teams in more populous and more affluent markets have a built-in competitive advantage.
At the start of each season, I try to look at the relationship between team payrolls and World Series betting odds. This year, like most years, there is a strong correlation between spending and projected success. The correlation between spending rank and betting odds rank is about .68.
The Figure below shows the betting and payroll ranks for each team. The smaller bars show higher ranks (1 is the highest payroll, and 30 is the lowest payroll).
The Dodgers lead the league in payroll at just short of $250 million, and the Yankees are second at $200 million. The Dodgers and Yankees are also the two betting favorites going into the season.
At the other end of the payrolls, the Cleveland Baseball Team is spending just short of $50 million, and the Pirates are ranked 29th with a payroll of about $53 million. The Pirates have the longest odds to get the World Series, while Cleveland is number 18 with 40 to 1 odds.
It’s a common situation in MLB; the big markets are playing for championships while the small markets struggle. It’s a perennial question in baseball: Is there enough competitive balance to keep the small market fans interested? Does the occasional run by Tampa or whoever sustain the fans.
Overall, baseball revenues have tended to increase over time. Consistent small market weakness may be an invisible factor that you can’t pick up in the data, but that degrades the MLB brand over time.
College basketball has a different kind of competitive imbalance. In general, the “Blue Blood” programs dominate college basketball. But, college basketball also has the most inclusive of all playoff systems.
However, in 2021 Baylor defeated Gonzaga to win the NCAA Tourney. Gonzaga was THE story of college basketball in 2021. Gonzaga started the season ranked number one and went undefeated. Baylor was the second-best story, and the Bears dominated the championship game.
Duke and Kentucky sat out the tournament. Duke started the season ranked 9th, while Kentucky was number 10 in the preseason poll.
College basketball is a talent-driven industry. For the most part, the best teams attract the best players. We could also say that the best teams have the best brands. And the best brands are created through NCAA tournament success.
Competitive balance is strange in college basketball. The sport is dominated by the so-called Blue Bloods like Duke, North Carolina, Kentucky, and Kansas. But the tournament with its one-and-done structure gives the illusion of parity. Unlike the College Football Playoff, the small schools get a shot.
There is no doubt that Gonzaga has built a strong program. But have they become elite? Has Baylor? What did the most recent season accomplish?
As a quick check, let’s look at recruiting data. Note – this is lousy analytics practice: too little data and failure to consider the dynamics of brand equity formation.
As of today (via 247 Sports), Michigan has the top-rated incoming recruiting class. It is skewed because Michigan has six players, but the class does have 2 five stars. Duke is at number 4 with a class of 3 five stars (numbers 3, 7, and 20). Kentucky comes in at 6 with the 11th, 27th, and 31st ranked recruits.
Baylor is at number 10. Baylor’s average recruit ranking is 97.83, while Kentucky’s is 99.09, and Duke’s is 99.67. Gonzaga’s class is ranked 32.
It’s hard to get over the hump. The power brands just reload while the Gonzaga’s and Baylor’s are still scrambling. Look at the last 20 years of NCAA champs – there aren’t a lot of Cinderella’s.
The previous two examples highlight how league regulations or structures tend to result in persistent competitive imbalances. It is hard for teams with fewer resources (population, conference affiliation, history, etc.) to make it to the elite level. But, once in a while, something happens that might change the system. Might. The changing environment related to NIL rights might be such an event.
The most interesting response so far to the coming expansion in NIL rights occurred in Central Florida. The UCF Knights garnered significant attention this week by unveiling Spring game jerseys that featured player’s social media handles rather than last names.
UCF’s move was obviously intended to attract publicity and to put UCF in the middle of the evolving Name, Image, and Likeness story (NIL). Gus Malzahn stated things about as directly as possible:
“This is the new age of personal branding and we’re going to embrace it, within the NCAA rules. That’s who we are and that’s who we’re going to be…
As a football program, UCF has always been an outsider. The Knights do have a 2017 National Championship while being simultaneously snubbed from the playoff. Despite this championship, UCF probably isn’t top of mind for most top-tier football recruits.
As an outsider, UCF is perfectly positioned to take chances with its brand. In 2021, it makes sense for UCF to embrace a partnership with its players fully. Whereas Alabama is tied to tradition, UCF can move to where the market MAY be heading. The Spring game is also an excellent place for a soft launch. If there is a negative reaction, the school can move back to the standard approach with little cost.
Where this is likely to get interesting is in the responses to come. NIL freedoms for players have the potential to change the competitive landscape. I’ve theorized that NIL will push things further in favor of elite schools.
But, the upcoming NIL freedoms are also a potential disruptor. I can imagine a situation where the elite schools and conferences move slowly (at first) based on a desire to protect their brands. This may create an opening for second-tier schools to change the nature of the competition.
Can a UCF become the destination for talent explicitly looking to build a brand from day 1? Very possible. But is there anything to prevent other schools from adopting UCF’s approach? I don’t see it. Maybe an arms race with non-power five schools going all out to become the school that best serves the athlete. If the elite schools start to lose out, we can expect to see a rapid shift towards top schools becoming brand-building partners to athletes.
In the medium term, the elite schools will win. Just too many advantages in terms of corporate partners, fan bases, and brand equity, but maybe there is an opportunity for someone to sneak into the party. Go, Knights!