Thesis advisor: Richard, S.J. McGowan / At the very core of the National Basketball Association’s labor negotiations between the owners and the players during the 2011 lockout was the league’s argument that its economic structure was broken. Owners contended that the NBA’s soft salary cap system, and the resulting payroll disparity, has put small-market franchises at a talent disadvantage and produced a league of haves and have-nots. To remedy this purported competitive balance problem, the owners demanded severe policy measures to decrease the pay dispersion among teams. However, the players union cautioned that these hardline provisions were merely an attempt to transfer wealth from players to owners. This charge warranted further analysis. Existing literature on this topic is either outdated or insufficient in scope. As such, using regression analysis, this thesis evaluated the league’s argument and determined to what extent the league’s soft salary cap system has contributed to its competitive imbalance.The empirical analysis of this thesis produced several meaningful conclusions. While the NBA has relative imbalance, it does not affect consumer demand for the regular season product. Moreover, while pay dispersion exists, additional salary expenditures only marginally add to a team’s winning percentage. There is no significant relationship between payroll disparity and competitive balance. Finally, with the escalating importance of media rights contracts and the historical appreciation of franchise valuation, the league overstated the financial distress of most of its small-market owners. Overall, the NBA and its owners used deceptive rhetoric and misleading economic policies to decrease player salaries, not to increase competitive balance, in a collusive effort to maximize profits and reassert its diminishing monopsony power in an increasingly star-driven league. / Thesis (BS) — Boston College, 2012. / Submitted to: Boston College. Carroll School of Management. / Discipline: Carroll School of Management Honors Program. / Discipline: Economics.