Fenn, Aju The Influential Structural Changes and International Players on Competitive Balance in the NHL.

The Influential Structural Changes and International Players on Competitive Balance in the NHL

Abstract

This article aims to “investigate competitive balance in the NHL”. It first discusses previous methods that economist used to calculate competitive balance, then goes on to introduce new methods that three very established economists have devised. The new models include important factors such as changes in league structure and size and the effect on imported rookie players and league expansion. They hypothesize that the confusion in labor negotiations may diminish competitive balance in the NHL.

Extended Abstract

Coase Theorem

The distribution of talent in a league will be independent of the initial property rights of players because through either bidding or bargaining, players will end up on the team that values their services most.

The Coase Theorem strives to make sure the import of great players(ex. from Europe), the draft, and free agency will not affect the competitive balance of the league.

Fenn et al. came up with two models to measure competitive balance in the league. Fenn et al.’s models are different from Standard Deviation in that they bring in the other important factors such as changes in league structure and size and the effect on imported rookie players.

dHHIp = HHIp – 1/N

where

HHIp= ∑(MSi)2

and

MSi = POINTS OF TEAMi _

TOTAL LEAGUE POINTS

N = number of teams in the league

MSi = market share of the ith league (points gained by team i divided by total league points)

(This model accounts for changes in league size)

The authors use this model to calculate competitive balance while including many different variables.

These variables are;

HHIgf = goals for

HHIga = goals against

FA = free agency

WHA = world hockey association (time period when it was NHL was no longer a monopoly)

EXPAN = expansion ( time period 1972-73 & 78-79)

AD = insititution of amateur draft

EURO2 = European presence

YEAR = time trend

D68 = doubled the size of the league (1968)

As dHHIp increases the competitiveness of the league decreases.

The results for Model I, reveal that changes in distribution are significant (more on defense than on offense).

MODEL 2

This model was developed to “make use of the cross-section variation over time, [they] used as a dependent variable the team standard deviation of winning percentages.”

TEAMSD = Team Standard Deviation

SEASONSD = Season Standard Deviation

RPTS = % of points recorded by rookies

IPTS = % of points recorded by international players

EURO = % players who played in Europe the year before

TEAMSD = σT,i = √ Σ(WPCTi,t– WPCTi,t)2

T

SEASONSD = σN,t = Σ(WPCTi,t – 0.500)2

√ N

The economists combined their results from both models to come up with various conclusions. They concluded that Coase Theorem is incorrect because changes in pool of rookies does not effect competitive balance, while changes in the pool of imported players does effect competitive balance.