The impacts of playoffs and division structure on the competitive balance of sports leagues

초록

Extending the literature on league interventions that aim at balancing talent distribution, we investigate the impacts of playoffs and division structure on the competitive balance of sports leagues. Focusing on competition within divisions, we consider teams with different market sizes and their talent investment strategies under different division structures. We show that the introduction of playoffs incentivizes small-market teams to invest more in talent, thus enhancing competitive balance. The empirical analysis of Major League Baseball's structural changes in 1969 and 1994 supports our theoretical predictions. We further show that the playoff effect is large for the division structure in which divisions consist of teams with similar market sizes. Our findings suggest that leagues can improve their competitive balance through playoffs and division structures.

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