THE ECONOMIC SIGNIFICANCE OF COMPETITIVE BALANCE IN THE NATIONAL BASKETBALL ASSOCIATION: AN EMPIRICAL ANALYSIS OF THE DETERMINANTS OF LOCAL DEMAND

Open Access
Author:
Kemp, Patrick James
Area of Honors:
Economics
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Edward Coulson, Thesis Supervisor
  • David Shapiro, Honors Advisor
Keywords:
  • sports economics
  • competitive balance
  • labor economics
  • salary cap
  • determinants of demand
  • national basketball association
  • NBA
  • econometrics
  • economics
Abstract:
In the study of sports economics the notion of competitive balance is well known. This thesis seeks to expand upon this well known notion and use it as part of an empirical analysis of the determinants of local demand for NBA franchises. This paper starts by focusing on the traditional notion of competitive balance, with specific regard to the sport basketball and the National Basketball Association specifically. It then quantifies the degree of competitive balance in the NBA since 1990 using metrics similar to those used by Quirk and Fort in their 1992 book Pay Dirt: The Business of Professional Team Sports. An extensive amount of linear regression analysis is then conducted, first looking at all teams and then teams belonging to certain market types. The empirical results indicate that competitive balance is not a significant determinant of local demand. The results also indicate key differences in the determinants between low-income market teams and high-income market teams. I make two recommendations as to how the NBA could beneficially alter its business model based upon these regression results: abolishing guaranteed contracts and changing the 100/0 home/away gate split.