Graduation Year

2026

Date of Submission

4-2026

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Joshua Rosett

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Abstract

This thesis looks at whether Major League Baseball’s two main competitive balance policies — revenue sharing, which started in 1997, and the Competitive Balance Tax (CBT), introduced in 2002 — have made the league more competitive. Using data on all 30 MLB franchises from 1997 through 2025, along with an extended league-level dataset going back to 1990, I run five regression models to test whether these policies improved competitive balance, whether the CBT changed the relationship between payroll and wins, whether team success became less persistent over time, whether winning drives franchise revenue, and whether payroll helps predict World Series outcomes. The results are consistently skeptical of the policy narrative. Using three different measures of competitive balance — the standard deviation of win percentages (SDWP), the Noll-Scully ratio, and a normalized Herfindahl-Hirschman Index (dHHI) — I find no lasting evidence of improvement. The payroll-wins relationship, around 9.6 additional wins per unit of log real payroll, remains essentially unchanged before and after the CBT was introduced. Within teams, payroll is the only variable that reliably predicts franchise revenue; win percentage doesn’t move the needle much. Payroll also predicts World Series probability, but again, the CBT didn’t seem to change that. Overall, the evidence suggests these policies have functioned more as cost structures that large-market teams absorb and move on from, rather than genuine tools for leveling the playing field.

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