Do Salary Caps Promote Competition?

One way to compare competitiveness is to look at how many different franchises have wond championships since the adoption of a salary cap vs. before. This metric does not take into account playoff appearances, only championships. Most profesional sports are stratified. What I mean by that is there are 3 strata of teams. The highest strata (or tier) of teams consists of franchises that consistently compete in the postseason. The middle strata is made up of teams that year-in and year-out seem to have a shot to unseat a top tier team and sneak into the playoffs. Then there's the lowest strata of teams which never seem to contend for postseason play. The metric I am using here does not account for the parity between the middle and upper strata of teams and the franchises that dwell in the lowest tier of their respective sport.

In 2005, the NHL adopted a salary cap. In the six seasons since then, six different teams won the Stanley Cup. In the 6 seasons before the salary cap, 5 teams won the Stanley Cup. So in the NHL, the cap has done relatively little to promote competition as measured by championships.

The NFL’s salary cap was instituted in 1994. Since then, 12 different teams have won the Super Bowl out of 18 Super Bowls. In the 18 years before the cap, 7 different teams won the Super Bowl. The NFL's salary cap has clearly promoted competition for Super Bowls.

The NBA’s salary cap went into effect in 1984. Since then, only 7 different teams have won the championship (out of 27 years). In the 27 years before the salary cap, 10 different teams won the championship, showing that the salary cap has done little to promote competition.

While the New York Yankees (who almost always have the highest payroll) have 40 World Series appearances and 27 wins, MLB has been surprisingly competitive for a league without a salary cap. Over the last 10 years, 9 different teams have won the World Series. It is important to note here that the metric of competition is "Different teams winning titles," which does not illustrate the entire picture. Several franchises consistently make the playoffs, while there exists a strata of baseball teams which rarely ever make the playoffs.

The English Premier League has been heavily criticized for what is called the “Big Four Dominance.” Finishing in the top 4 of the EPL qualifies the team to play in the Champions League “and all the riches that come with it.” Since the start of the Premier League in 1992, the Big Four teams (Arsenal, Chelsea, Liverpool, and Manchester United) have dominated the top four spots in the Premier League. Since the league’s inception, the big four have won 18 of 19 championships and have finished in the top four spots 16, 11, 12, and 19 times respectively.

So, does a salary cap guarantee better competition? By the “championship metric,” the results are mixed. There are other ways of measuring competition, but I do not have the tools to assess them. Parity—the gap between the best teams and the worst, and playoff appearances—how many different teams have competed in the playoffs over a given period of time, with weights given to each round, are also good methods for analyzing competition.