ASSIGNMENT #17 –LUXURY TAXES AND COMPETITIVE BALANCE

ASSIGNMENT #17 –LUXURY TAXES AND COMPETITIVE BALANCE

Main Research Topic

Owners/management of sports leagues have often argued that a luxury tax is needed to improve competitive balance. Has competitive balance improved in leagues that have luxury taxes (e.g.MLB, NBAand CFL)?  Has competitive balance possibly changed due to other factors?

 

1. Procedure
2. The luxury taxes for the MLB, NBAand CFL were in place for the 2003, 2002-03 and 2007 seasons, respectively. Using winning percent data, produce a Microsoft Excel file with the team name and winning percent for each team for the 20-year time periods for each league. Produce separate worksheets within the Microsoft Excel file with the following columns:  team name and winning percent.  Cull out all teams that did not play during the 20 seasons in question (make sure you do not delete a team that only played some of the seasons!).

 

Note: the CFL’s ‘salary management system’ is commonly thought to be a salary cap.  However, the tax rates imposed past the maximum annual threshold implies this system works more like a luxury tax than a salary cap.

 

1. Within the worksheets in part A, calculate the Ratio of Standard Deviation (RSD) of winning percent for all 20 years in your spreadsheet for each league. Calculate the average of RSD for each 10-year period before and after luxury taxes were in place for each league. Create line charts for each league which show the RSDs for each league across the 20-year period.  Make sure to standardize the values on your axes for comparative purposes.  Insert a trend line in each chart.

 

1. In separate worksheets (within the same Excel file), collect all the championship winners and runners-up for the whole 20-year period for each league. Calculate the Hirfindahl-Hirschman Index (HHI) for each league for each 10-year period before and after the imposition of the luxury tax. Hint: the number of teams within the leagues may not remain constant during the time periods.

 

Note: NBA Championships and the Stanley Cup playoffs are played in the second year listed for the regular season.  Specifically, for the 1992-93 NBA and NHL seasons, the NBA championship and Stanley Cup were played in 1993.  For the NFL, the Super Bowl is played in the January/February of the year after the regular season (e.g. for the 1995 season, Super Bowl XXX was played in January 1996).  Make sure to align your champions and runners-up to the correct regular season.

 

1. In a separate Microsoft Excel worksheet, create a summary table of the 10-year average RSDs (calculated in Part B) and HHI’s (calculated in Part C) for all of the leagues pre-and-post the luxury tax being imposed. Calculate the percentage change in both the average RSDs and the HHI for all of the leagues pre-and-post the luxury tax being imposed.

 

 

2. Analysis

This section provides the structure of what work needs to be completed/questions to be answered in the Analysis section of the paper.  It also provides the structure of the section.

 

• Modern professional sports leagues in North America have experienced significant structural changes over the past several decades.  What does Rottenberg’s Invariance Principle predict for the trends in competitive balance with the introduction of a luxury tax?  Use Fort’s MR-Win% Model to support your analysis in this section.

 

• Data/Procedure. Briefly summarize the data collection process and the manipulation of the data (e.g. what variables were calculated) from the Procedure section for the reader. Make sure to identify the data sources used for the reader.

 

• Regular Season Competitive Balance. Describe the trends in theRSD of winning percentbefore and after the start of salary caps in the leagues.  Did regular season competitive balance increase, decrease or stay the same after the imposition of a luxury tax?  Are the results consistent across the leagues? Are the results consistent with the predictions of Rottenberg’s Invariance Principle?

 

• Championship Competitive Balance. Describe the trends in theHHI before and after the start of salary caps in the leagues.  Did championship competitive balance increase, decrease or stay the same after the imposition of a luxury tax?  Are the results consistent across the leagues?  Are the results consistent with the predictions of Rottenberg’s Invariance Principle?

 

• Other Factors Influencing Competitive Balance. What factors, other than a luxury, could have influenced changes in competitive balance during this period? Hint: think things like league expansion, the introduction of/changes to the amateur draft, free agency, revenue sharing, salary caps, new stadium development, etc.  Note: the hints are not intended to be a comprehensive list.  Research the factors that are relevant to this league during the time period in question.

 

 

Data Sources

The information you need can be found at Rodney Fort’s Sports Business Data website. You will find your information under the MLB folder under the following sub-folders:

 

• MLBWinPercIndex.xls in MLBWinning tab
• NBAWinPercIndex.xls in NBAWinning tab
• CFL Win % Data: 1980 to 2016 in the Assignment Materials section (on UR Courses)

 

The link to Fort’s website for regular season data is below:

https://drive.google.com/drive/folders/1Z-cGkgm8BDk-SguA0X51juI9yl_1xyBG

 

MLB (World Series) Data

http://mlb.mlb.com/mlb/history/postseason/mlb_ws.jsp?feature=recaps_index

 

NBA Championship Data

http://www.nbauniverse.com/championships/year_by_year.htm

 

CFL Championship (Grey Cup) Data

https://en.wikipedia.org/wiki/List_of_Grey_Cup_champions

 

 

Hand-In Material Required

• One Microsoft Word file using the paper assignment template provided. Name the Word file as follows: Assignment 17 – Last Name.docx.
• One Microsoft Excel file containing all spreadsheets, tables and charts created for the assignment.Name the Excel file as follows: Assignment 17 – Last Name.xlsx.

 

Note: the file names indicate they are Word/Excel 2010 format.  You may submit your assignment in earlier versions of that software (e.g. Word/Excel 2003 or 2007 formats).  However, it is preferable that you use the 2010 format if possible to eliminate potential compatibility issues.

 

 

File Upload to UR Courses ‘Drop Box’

• Upload the Word and Excel files to their respective drop boxes in the Paper Assignment tab on UR Courses.