The Competitive Effects of Performance

Using estimates of Major League Baseball (MLB) financials from Forbes, we conduct a cost–benefit analysis of performance-enhancing drug (PED) testing. Player PED suspensions are shown to have lowered franchise values by statistically and economically significant margins through negative impacts on teams’ nongate revenues and expected future profit growth. Testing, however, also increased competitive balance through reductions in player costs which compressed the distribution of team wins per dollar. Finally, we estimate the number of PED suspensions per season which balances the costs and benefits of testing at the league and team levels and compare it to MLB’s current policy