The Impact of Free Agency and the Salary Cap on Competitive Balance in the National Football League

Abstract

This article examines the competitive balance of the National Football League (NFL) using Gini coefficients and the deviations of the Herfindahl-Hirschman Index. The authors present upper bounds for both measures that are constructed using actual playing schedules. They model competitive balance as a function of player talent, the incidence of strikes, the expansion of the NFL, change in the number of playoff teams, schedule length, team relocation, the number of new stadiums, and the introduction of free agency and the salary cap in the NFL using data from the 1970 to 2002 seasons. The authors find that free agency and salary cap restrictions tend to promote competitive balance, whereas a concentration of player talent reduces competitiveness among teams. Player strikes and the construction of new stadiums also affect competitive balance.