The NFL Lockout and Rottenberg’s Invariance Principle

The NFL in its opening brief argued that Judge Nelson’s ending of the lockout a few weeks back caused harm to the NFL, by making it so that better off (in the financial sense) teams could sign better players, and that would harm the league by causing a decline in competitive balance.  The argument follows that a decline in competitive balance of talent in the league, would lead to greater disparity between the teams on the field, and thus make the outcome of games easier to predict for fans.  If fans can predict the games then they are less likely to go, and this would mean less gate revenue for teams.  Back in 1956, University of Chicago economist Simon Rottenberg wrote what is to this day one of the seminal works of sports economics and the understanding of competitive balance and uncertainty of outcome in professional sports.  In this Rottenberg hypothesized that games with uncertain outcomes are more likely to be viewed by fans.  This hypothesis came to be known as the “Uncertainty of Outcome Hypothesis” (UOH) and was the first step towards research in competitive balance.

In additional to the UOH, Rottenberg also posited the “Invariance Principle.”  In simple terms, the Invariance Principle basically noted that player talent in a league would move to the team which valued them the most, invariant of team revenues.  That is, players will eventually end up on the team where they have the highest value of use to that franchise.  This is somewhat similar to the Coase Theorem, developed by fellow U of C economist Ronald Coase in 1960.  The NFL’s most recent argument states that player movement caused by the lifting of the lockout caused harm because of a decline in competitive balance because players go to teams that have the most revenue.  The Rottenberg Invariance Principle would note that these players would probably have ended up on teams that valued them the most, and that this ruling by Judge Nelson probably would not cause a change in competitive balance, and in turn cause a change in revenue distribution among teams in a league.

The longer legal brief can be found here.

2 Responses to The NFL Lockout and Rottenberg’s Invariance Principle

  1. Dan says:

    Of course the bigger factor is the salary cap. If that was/is changed/removed because of the ruling, then the assumptions of the invariance principle are violated and competitive balance would likely shift. Imagine how much Jerry Jones seems to want to win. He could double his payroll, which would most likely impact his teams success.

  2. nickwatanabe says:

    Good point, I’d still like to see whether the players do want to return to the status quo of before the lockout as some player reps have indicated, or if they go for getting rid of salary cap, the draft and other such things included in previous CBA’s. Though no salary cap would allow us to better identify which owners were win maximizers and which are profit maximizers.

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