NFL players recently scored a significant victory in their labor dispute with the NFL owners when U.S. District Judge Susan Richard Nelson ordered an immediate end to the lockout. Although this decision has subsequently been blocked by a higher court, for a brief moment in time it looked like the NFL was in serious trouble in their fight with the players. Roger Goodell -- Commissioner of the NFL and chief representative of the NFL owners -- even began thinking about a world where the NFL players achieve complete victory in this dispute.
In the Wall Street Journal, Goodell has laid forth a vision of such a world; and in Goodell's view, it threatens the very existence of the NFL as we know it. Goodell imagines a victory for the players producing the following outcomes:
- No more NFL draft.
- No more minimum team payroll
- No more minimum player salary
- No more league-wide agreement on benefits
- No limits on free agency
- No league-wide rule limiting training camps or offseason workouts
- No league-wide testing program for drugs
Here is how Goodell summarizes the outcome of all these changes:
Is this the NFL that players want? A league where elite players attract enormous compensation and benefits while other players -- those lacking the glamour and bargaining power of the stars -- play for less money, fewer benefits and shorter careers than they have today? A league where the competitive ability of teams in smaller communities (Buffalo, New Orleans, Green Bay and others) is forever cast into doubt by blind adherence to free-market principles that favor teams in larger, better-situated markets?
Prior to filing their litigation, players and their representatives publicly praised the current system and argued for extending the status quo. Now they are singing a far different tune, attacking in the courts the very arrangements they said were working just fine.
Of course, owners are also attacking this very arrangement that Goodell -- at least momentarily in the Wall Street Journal -- seemed to suggest was working just fine.
Rather than quibble over that obvious point, let's offer a different summary of what the players would be getting. If the players get what Goodell says they want, the players would be allowed to sell their services in exactly the same free market enjoyed by every other worker in the U.S. economy.
- we do not see employers being able to dictate to college graduates where they will work and the financial terms of that employment.
- we do not see a market where workers who are not under contract are restricted in their ability to negotiate with future employers
NFL owners would argue that such a world -- which once again, prevails most everywhere else in the U.S. economy -- would destroy the league. It is important to remember that the NFL is primarily owned by a small collection of people who have benefited tremendously from the system of capitalism we employ in this country. So apparently these same rich owners -- who Goodell represents -- believe capitalism will destroy professional football in this country.
Now Goodell is not directly arguing against capitalism (although he appears to be doing so indirectly). His argument is that without all the anti-competitive labor practices put in place in the NFL, competitive balance in the league would be destroyed. But is that true?
For an answer let's turn to some basic lessons the academic research on competitive balance in sports teaches.
Lesson One: Owners of professional sports teams have been calling for salary controls in the name of competitive balance for a very long time.
Consider the following statement:
"The financial results of the past season prove that salaries must come down. We believe that players insisting on exorbitant prices are injuring their own interests by forcing out of existence clubs which cannot be run and pay large salaries except at a personal loss."
Although this quote sounds very similar to what Roger Goodell is saying today, it was actually part of a statement released by the National League in 1879. Yes, for more than 130 years sports leagues have bemoaned the high salaries of professional athletes and have sought -- in the name of competitive balance -- rules that limit the ability of athletes to secure higher wages on a free market.
Lesson Two: Competitive balance in sports is not primarily determined by the rules that limit the compensation of the athletes employed.
Martin Schmidt and I published a paper a few years ago looking at the factors that determine competitive balance in baseball. We found that the racial integration of baseball -- which greatly expanded the population of players teams could draw upon -- was the primary factor driving competitive balance in baseball. Free agency and the player draft (established in the 1960s in baseball) were not found to be important. This observation is related to Lesson Three.
Lesson Three: The NFL's hard salary cap -- instituted in 1993 -- did not dramatically alter competitive balance.
Economists Roger Noll and Gerald Scully have argued that competitive balance can be measured by comparing the actual level of balance we observe to the level of balance that would exist if teams were essentially equal in ability. The Noll-Scully ratio for the NFL since 1994 -- or the year the hard salary cap was instituted -- has been 1.51. In the seventeen years prior to 1994, this ratio was 1.46. To put that in perspective, the NBA across the last 34 regular seasons has had a ratio of 2.75 (a larger ratio means less competitive balance). And the American League and National League in baseball have had -- again, across the last 34 seasons -- ratios of 1.81 and 1.66 respectively.
These numbers tell us that the NFL is more competitively balanced than basketball. And even though balance has improved in Major League Baseball over time (the average Noll-Scully measure was around 2.4 in both the AL and NL before 1947), the NFL is still more competitively balanced than baseball. Furthermore -- as the above numbers illustrate -- the institution of the salary cap did not change this story.
Lesson Four: Fans have not been shown to care much about competitive balance.
Across time the NBA has been -- relative to the other major North American sports -- competitively imbalanced. Baseball was not very balanced in the early part of the 20th century, but after baseball integrated competitive balance improved in baseball. And once again, the NFL has generally been quite balanced.
How does all of this impact attendance? Economic theory says fans should care. But attendance data suggests that competitive balance doesn't seem to matter much. Changes in competitive balance have not been shown to have much impact on fan interest. The NBA -- despite having relatively poor balance -- has become more popular across time. And changes in balance in baseball haven't been shown to substantially impact attendance in that sport.
Lesson Five: Payrolls and market size in the NFL do not explain team wins, because player performance is very difficult to predict.
Imagine if competitive balance did matter. And imagine a world where large market teams were able to essentially choose first among incoming rookies and hire the "best" players in the free agent market. Would that cause problems in the NFL?
There is good reason that the problem wouldn't be that serious. Performance in the NFL is quite hard to predict. Brian Burke -- of Advanced NFL Stats -- and I have completed a paper on various performance measures in the NFL. Although we detail a number of different ways to measure a quarterback's performance, none of these metrics are able to explain the future very well. The explanatory power of a quarterback's performance last season (when looking at performance this season) is less than 30% for all the metrics we examined. In other words, quarterbacks are quite inconsistent across time.
- the NFL measured past performance perfectly
- the richest NFL teams hired the players who performed the best in the past
...we would still see the richest teams falter in the future because performance today does such a bad job of predicting tomorrow.
Lesson Six: A sports league has some control over the size of markets.
Let's say, though, that one still thought large markets had an advantage over small markets. There is a simple solution to such a problem. Place more teams in the large market. Currently the Giants and Jets divide a market in New York and New Jersey that the Census Bureau reports has more than 18 million people. In contrast, the Buffalo Bills and New Orleans Saints play in markets with fewer than 1.5 million people. If the NFL is concerned that these differences give the Giants and Jets too large of an advantage, the NFL can simply place more teams in the New York area. Such a move may reduce the value of the Giants and Jets (so they would be opposed). But it does address the issue the NFL claims they care about.
Of course, I am skeptical that the NFL really cares about competitive balance. Goodell's attack on capitalism wasn't about competitive balance in the league. The NFL draft and free agent restrictions are really about limiting the salaries paid to players and increasing the profits paid to owners.
As this dispute plays out in the courts and in the media, that point needs to be remembered. The NFL owners are behaving like capitalists, in the sense that they want higher profits. They just don't want the system of competition and capitalism interfering with their pursuit of higher profits.