Steroids vs. Gambling: Why Absolute and Relative Quality Matter

The demand for a sports event depends on the usual suspects: the price of watching the event (ticket prices, pay-per-view charges, etc), the average income of fans, the number of fans, the price of related froms of entertainment, etc. The quality of competition that fans expect to watch also matters. In sports economics we refer to two types of quality: absolute and relative quality

Absolute quality refers to the overall level of talent on display in the event. The average NFL game has more talent on display than the average Division 1A college football game. The average NFL game thus has more absolute quality. The average Wimbledon match has a higher absolute quality than the average high school tennis match and so on. Since fans would rather watch more talent on display, higher absolute quality translates to higher willingness to pay (all else equal). That’s one reason why attendance levels and/or prices are generally higher at events with more talent on display.

Relative quality refers to the comparative talent of the opponents in the event – competitive balance. A Duke-Murray State basketball game has a lower level of relative competition than a Duke-North Carolina basketball game. Non-conference Division 1A football games are loaded with low relative quality competitions while the conference games generally are more interesting because team playing strengths are more equal. All else equal, people have a higher willingness to pay for more-balanced competition: this translates into higher ticket prices and more people following the game.

Simon Rottenberg’s Uncertainty of Outcome Hypothesis (which, among other things important to us Sports Economists, is found in this seminal work is related to the relative quality of competition. Rottenberg hypothesized that fans would be more willing to pay to watch events where the outcome is in doubt, all else equal. This explains why the average live event is watched more than the same event shown on tape delay. Indeed, sporting events are the grandaddy of all reality shows, and just knowing an event has concluded takes some of its luster away even if the outcome is unknown. It also explains the old axiom that might be expressed by George Steinbrenner, owner of the New York Yankees: “Oh, Lord. Let us be good but not that good!”

Understanding that there are two types of quality in sports explains why sports team owners etc. look the other way when it comes to steroid use and the use of other “banned” performance-enhancing substances while these same people go whole-hog after gamblers and point shavers. If all players used steroids, then they would become bigger, stronger, faster – increasing the overall level of talent on display. But if each participant’s talent improved by the same proportion, the relative quality of competition would remain unchanged. The absolute quality increases without hurting competitive balance. When this happens, the demand for the event increases and the bottom line is improved.

Gambling, on the other hand, not only hurts the relative quality of competition, but it also hurts the absolute quality of competition b ecause players aren’t giving “full effort.” This necessarily lowers the amount of talent on display.

Leagues are collections of those who run the teams in the league – the team owners. To understand why leagues do the things that “they” do, one needs to understand the motives that the individuals who run the league face. The reason why steroids are tolerated in sports while gambling is fought tenaciously is because steroids help the bottom line of team owners while gambling hurts it.

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Author: Phil Miller

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