Loss Aversion, Reference-Dependent Preferences, and Collective Bargaining Agreements in the National Basketball Association

Candon Johnson

The importance of competitive balance in sports leagues provides a negotiation tactic to leagues and owners when negotiating collective bargaining agreements. This paper provides evidence of loss aversion in National Basketball Association (NBA) game attendance across different collective bargaining agreements. Over time, NBA owners have negotiated policies such as salary caps, maximum salaries, and rookie scale salaries among other devices to increase competitive balance. Competitive balance is often a goal of sports leagues in order to increase demand for attendance, but should competitive balance be a bargaining tool used by commissioners and owners? Findings show the prevalence of loss aversion and reference-dependent preferences influencing attendance in the NBA across different collective bargaining agreements, illustrating that fans do not demand competitive balance. Instead, attendance is driven by expected home team wins and losses. Expected home team losses driving attendance demand reflects the desire of fans to witness upsets by home teams.

DOI: http://doi.org/10.32731/IJSF/162.052021.02