Department of Economics

Parity amongst teams is often thought to be the ideal towards which a sports association should strive. Most leagues implement salary caps, reverse order drafts, and/or revenue sharing to promote competitive balance. However, in the 1999 collective bargaining agreement, the NBA adopted a max contract that limits the amount that an individual player can be paid. Theoretically this works against parity as high-end players can be obtained below market value, which in turn provides surplus wins to the teams that are able to acquire these players. Here we will show empirically that the max contract does in fact negatively affect competitive balance in the 2015- 2016 NBA microeconomy, though the benefits only significantly impact a small handful of teams.