Evaluating the Competitive Balance of the Premier League

Abstract

In recent years, the Premier League has been the richest football league in the world due to its worldwide popularity and lucrative broadcasting deals. Simultaneously, the champion of the Premier League has been almost exclusively one of the richest clubs in the league. The disparity between the budgets of teams in the Premier League makes it difficult for smaller teams to challenge for the championship and the positions enabling the participation in different European competitions. In American sports leagues, this problem has been mitigated with the use of a salary cap system, which levels the spending of the teams. The aim of this thesis is to evaluate the current competitive balance of the Premier league and determine if implementing a salary cap system to the Premier League could improve the competitive balance of the league. A secondary objective for this thesis is to determine if the American sports leagues have been able to improve their competitive balance by implementing a salary cap system into the leagues.

This thesis consists of a literature review of the various theories in sports economics, such as competitive balance and uncertainty of outcome. The findings indicate that increasing the uncertainty of outcome is beneficial for the league, as fans are not interested in leagues with low championship uncertainty. The literature review also shows that the historical circumstances during the creation of different sports leagues in the 19th century affected the structures of the leagues and those structures are still prevalent in the leagues today.

In addition to this, a quantitative analysis was carried out to determine and compare the levels of competitive balance across the Premier League, the NBA, the NHL, and the NFL. For thise analysis, data was derived from the league tables of the last 14 seasons, and for the American leagues, from the 14 seasons prior to the implementation of salary cap systems in these leagues. The results point toward the Premier League having the worst competitive balance of these leagues, judged by the metrics used in this thesis. The results also show that the competitive balance of the NFL is on a higher level than prior to the implementation of its salary cap, and there are some indicators that the competitive balance of the NHL has improved as well. According to the data analysis of this thesis, the competitive balance of the NBA is currently on a worse level than it was prior to the implementation of its salary cap system.