## Local Revenue Sharing and Competitive Balance Essay

Local Revenue Sharing and Competitive Balance Problem Statement Your textbook shows the conditions that lead to increased competitive balance with an increase in local revenue sharing. Data exist on competitive balance and local revenue sharing so you can examine this for yourself. New local revenue sharing plans were put in place in MLB for the 1995 season and another increase in revenue sharing was in place for the 2001 season. These changes create a “natural experiment” for analyzing the impact of changes  in local revenue sharing on competitive balance.

Procedure (Data File: Blackboard, Local Revenue Sharing_Competitive Balance_Project3Data. xslx) A. The prepared sheet shows winning percent data for MLB, from 1990 to date. 1. Calculate the standard deviation of winning percents for each year at the bottom of each column for the AL 2. Calculate the standard deviation of winning percents for each year at the bottom of each column for the NL. 3. A table of standard deviations is created from your calculations 4. A chart with year on the x-axis, in ascending order, and standard deviation of winning percents on the y-axis, also is produced for you.

B. Using the results of your calculations from Part A: 1. In the provided area at the bottom of the worksheet, calculate the average of these standard deviations for the three periods shown. 2. In the provided area at the bottom of the worksheet, calculate the percentage change in these averages for the three periods shown. Hand In Hard copy of all MSExcel files, tables and charts created, plus a paragraph for each of the following questions: 1. Explain how increased local revenue sharing will improve competitive balance.

What should happen to the standard deviation of wining percents over time if  increased revenue sharing improves competitive balance? 2. Why is it valid to use just the standard deviation of winning percent in this project, rather than the standard deviation ratio discussed in the textbook? Why is this statistic calculated separately for each league in MLB? Explain fully. 3. Just examining your scatter chart in Part A, do you see any evidence supporting or rejecting your answer in Question 1? Explain fully. [Present the relevant chart and refer to it directly in your answer. 4. Do the averages you calculated in Part B add anything to your conclusions about the impact of increased local revenue sharing on competitive balance. [Present the relevant table of averages and percentage changes and refer to it directly in your answer. ] 5. What kind of formal statistical test can you use to see if the standard deviations from 1990 – 1995 are significantly different from that of 2000-2005? Perform the test. 6. Summarize your findings in a clear, coherent paragraph. Local Revenue Sharing and Competitive Balance Answers Required Spreadsheet Hand-in . Explain how increased local revenue sharing will improve competitive balance. What should happen to the standard deviation of wining percents over time if  increased revenue sharing improves competitive balance? From the text, p. 185:  If the marginal revenue derived from local TV is larger than in another, the sharing local TV revenues can increase balance– forcing revenue sharing would change the marginal  value of talent for relatively more successful teams. If revenue sharing improves balance, the SD of winning percent should decrease. . Why is it valid to use just the standard deviation of winning percent in this project, rather than the standard deviation ratio discussed in the textbook? Why is this statistic calculated separately for each league in MLB? Explain fully. We don’t need the standard deviation ratio because the season length is constant over the period analyzed. One must remember how the winning percents are generated– in this case only by separate play in the AL and NL. So that’s the object of analysis for the calculation of the SD. 3.

Just examining your scatter chart in Part A, do you see any evidence supporting or rejecting your answer in Question 1? Explain fully. [Present the relevant chart and refer to it directly in your answer. ] The scatter chart looks like this: Look first at 1995. In the NL, the SD had been falling since before the new sharing arrangement. In the AL, the SD fell for a couple of years only. So, maybe sharing made the difference in the AL, but not for long. Now  look at 2000. Again, in the NL, the SD had been falling since before the new sharing arrangement. The same is true in the AL. But the SD jumped ramatically from there on in the AL. Most recently, it is true that the SD in  both leagues has fallen. So, there is a bit of evidence that sharing enhanced balance, but it isn’t an unmitigated success. 4. Do the averages you calculated in Part B add anything to your conclusions about the impact of increased local revenue sharing on competitive balance. [Present the relevant table of averages and percentage changes and refer to it directly in your answer. ] The averages help us to see a bit easier: | | Averages| | | | League| 1990-94| 1995-2000| %Change| 2001-05| %Change| AL| 0. 61| 0. 071| 17. 0%| 0. 092| 30. 1%| NL| 0. 070| 0. 068| -1. 8%| 0. 071| 4. 1%| It looks like the only real evidence of enhanced balance is in the NL and then it really is just a “flattening out” for the first period of local sharing (1995-2000). Balance worsened dramatically in the AL for this first revenue sharing experiment. For the altered arrangment in 2000, in both leagues, balance worsened on average for 2001-2005. 5. What kind of formal statistical test can you use to see if the standard deviations from 1990 – 1995 are significantly different from that of 2000-2005?

Perform the test. 6. Summarize your findings in a clear, coherent paragraph. It is OK to use the unadjusted standard deviation of winning percent, since the number games is constant over the entire period. Eyeballing the data suggests limited evidence of any improvement in competitive balance due to the introduction or extension of local revenue sharing in MLB. And calculating simple before and after averages, at best, the decline in balance over the entire period was just held constant by the introduction of sharing, but only in the NL.

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