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Wednesday, October 27, 2010

The Search for Parity in Professional Sports and the U.S. Economy

-The Texas Rangers and the San Francisco Giants are currently facing off in the World Series. -The #1 ranked team in college football has lost in three consecutive weeks. -The Kansas City Chiefs and the Seattle Seahawks are currently division leaders in the NFL.

And this is exactly what each of these parent organizations is striving for. The idea that any team can win, in any given year, and in any given week. Why? For the money. These organizations all have a vested financial interest in parity.

Because it's not fun seeing the Yankees in the World Series every year. And not only that, but when the division winner each year is a certainty, the teams destined for failure don't exactly sell out their home games. And they don't get great TV deals. And they don't sell as much merchandise. And Major League Baseball doesn't get as big of a cut. So, they tweak the system. Salary caps. Trade rules. Drafting equality. In order to create parity that creates more competition.

Now, here's the problem. Many people think that's more or less how the U.S. economy works. If we create more parity, then the sum total of every individual's revenue will be higher, right? We'll all have more fun, and the Fed will get a bigger cut. But, we're not Major League Baseball. We don't have a monopoly on an industry. We're competing against 191 other countries in an infinite amount of professions. Leveling the playing field only works when you control the whole field. And we don't.

So, while the rules are very very different, there's one economic takeaway to learn from both situations. Major League Baseball as a whole makes more money by having more competitive teams. And the U.S. economy as a whole makes more money by having more competitive individuals.

By: Eric Olsen, Regular Columnist
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