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David Berri

David Berri

Posted: June 3, 2010 05:32 PM

What the Lakers and Celtics Tell Us About Labor Relations in Professional Sports

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Once upon a time a major professional sports league issued 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."

This quote sounds very much like something a professional sports league would say today. But 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 rising salaries of professional athletes.

And for more than 130 years, an effort has been made to limit salaries. Leagues have employed a reserve clause (which prevents a player from selling his services on an open market), amateur player drafts, and salary and payroll caps. Each of these methods reduce player salaries, and therefore, increase the returns to owners. But sports leagues often ignore how these institutions re-distribute income and focus entirely on how these measures are necessary to promote competitive balance.

Here is the basic story leagues have told: The outcome of sporting events must be uncertain. If some teams have greater access to talent, though, then sports fans will know that these teams will tend to win. And therefore, fans of sporting events will be less inclined to watch.

Such an argument certainly seems plausible. The NBA, though, seems to defy the story. There are currently 29 cities who are hosting a team in the Association. Of these cities, 15 have never witnessed an NBA champion. Meanwhile, Boston and Los Angeles -- the host cities of the teams playing for the title this year -- have combined to win 27 titles.

To put this in perspective, of the 27 cities that host a Major League Baseball team, 21 have seen a World Series champion since the NBA came into existence. In the NFL, 20 of the 29 cities hosting a team has seen their franchise win a championship in the past 60 years. And if we focus on the past 30 seasons, the disparity between the leagues seems even more pronounced. As Darren Rovell notes, only eight NBA teams have won a title since 1980. That's it. Three decades have gone by and more than two-thirds of the NBA has gone without an NBA title.

So why is basketball different? One explanation is the "Short Supply of Tall People." Essentially, very tall people have an advantage in the game of basketball. But these people are relatively scarce, and immensely skilled tall people -- like LeBron James, Kevin Garnett, or Shaquille O'Neal -- are even less common. As a consequence, teams that employ the few tall players with a high level of skill tend to win. And those that don't have these players tend to lose.

Given that basketball teams must employ tall people, there doesn't appear to be any solution to the NBA's competitive balance problem. And if the story told by professional sports leagues since the 19th century is to be believed, the NBA is doomed.

Despite the impact of the recent economic downturn, though, no one seriously believes that the NBA is doomed. In 1985-86 the average NBA team attracted fewer than 12,000 fans per game. Today the average team's attendance is more than 17,000 per contest. And one can expect many NBA fans will tune in to see yet another championship contest between the Lakers and Celtics.

Once again, the competitive balance argument says that if fans know the outcome of the game they won't watch. If we look at the very low television ratings for ESPN Classic -- a network devoted to showing re-runs of the greatest contests in sports history -- it certainly seems clear that knowing the outcome greatly diminishes fan interest. But although outcomes in the NBA are more certain than outcomes in other sports, no one really "knows" the outcome of each NBA contest before it happens. In other words, even in the NBA we still have uncertainty of outcomes.

And this teaches us a clear lesson about consumer demand in sports. Owners constantly want to limit player salaries in the name of competitive balance. But the NBA experience teaches that even relatively low levels of competitive balance do not appear to reduce fan interest. Consequently, it seems unlikely that players in other sports -- where competitive balance is much better -- need to accept lower salaries to "save" the sport. And as fans of all sports watch another series between the Lakers and Celtics, this point should be remembered.

More on "The Short Supply of Tall People" and other details on this story can be seen at The Wages of Wins Journal.