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Salary Cap Regulation In Professional Team Sports

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  • HELMUT M. DIETL
  • EGON FRANCK
  • MARKUS LANG
  • ALEXANDER RATHKE

Abstract

This paper analyzes the effects of a percentage-of-revenue salary cap in a team sports league with win-maximizing clubs and flexible talent supply. It shows that a percentage-of-revenue cap produces a more balanced league and decreases aggregate salary payments. Taking into account the idiosyncrasies of European football, our paper further highlights the potential conflicts between the league and society. From the perspective of a league governing body, a percentage-of-revenue cap always enhances financial stability of win-maximizing clubs. A social planner, however, will not permit the introduction of such a cap if fans and players unduly suffer. This paper shows under which conditions the social planner accepts (rejects) a salary cap proposed by the league regulator.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1111/j.1465-7287.2011.00265.x
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Bibliographic Info

Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 30 (2012)
Issue (Month): 3 (07)
Pages: 307-319

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Handle: RePEc:bla:coecpo:v:30:y:2012:i:3:p:307-319

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References

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  1. Helmut Dietl & Markus Lang & Stephan Werner, 2008. "Social Welfare in Sports Leagues with Profit-Maximizing and/or Win-Maximizing Clubs," Working Papers 0090, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Jul 2009.
  2. Sonia Falconieri & Frédéric Palomino & József Sákovics, 2004. "Collective Versus Individual Sale of Television Rights in League Sports," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 833-862, 09.
  3. Helmut M. Dietl & Egon Franck & Markus Lang, 2008. "Overinvestment In Team Sports Leagues: A Contest Theory Model," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(3), pages 353-368, 07.
  4. Helmut Dietl & Egon Franck & Markus Lang, 2006. "Why football players may benefit from the "shadow of the transfer system"," Working Papers 0062, University of Zurich, Institute for Strategy and Business Economics (ISU), revised 2007.
  5. Stefan Szymanski & Stefan KÈsenne, 2004. "Competitive balance and gate revenue sharing in team sports," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 165-177, 03.
  6. Rodney Fort & James Quirk, 1995. "Cross-subsidization, Incentives, and Outcomes in Professional Team Sports Leagues," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1265-1299, September.
  7. KÉSENNE, Stefan, . "Revenue sharing and competitive balance in professional team sports," Working Papers 1999019, University of Antwerp, Faculty of Applied Economics.
  8. KÉSENNE, Stefan, . "The impact of salary caps in professional team sports," Working Papers 1999026, University of Antwerp, Faculty of Applied Economics.
  9. Dietl, Helmut M. & Franck, Egon & Hasan, Tariq & Lang, Markus, 2009. "Governance of professional sports leagues--Cooperatives versus contracts," International Review of Law and Economics, Elsevier, vol. 29(2), pages 127-137, June.
  10. Helmut Dietl & Markus Lang, 2006. "The Effect of Gate Revenue-Sharing on Social Welfare," Working Papers 0012, University of Zurich, Center for Research in Sports Administration (CRSA), revised 2007.
  11. Dietl Helmut M & Lang Markus & Rathke Alexander, 2009. "The Effect of Salary Caps in Professional Team Sports on Social Welfare," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-23, April.
  12. KÉSENNE, Stefan, . "The salary cap proposal of the G-14 in European football," Working Papers 2003018, University of Antwerp, Faculty of Applied Economics.
  13. Thomas Hoehn & Stefan Szymanski, 1999. "The Americanization of European football," Economic Policy, CEPR & CES & MSH, vol. 14(28), pages 203-240, 04.
  14. Markus Lang & Martin Grossmann & Philipp Theiler, 2011. "The Sugar Daddy's Game: How Wealthy Investors Change Competition in Professional Team Sports," Working Papers 1107, International Association of Sports Economists & North American Association of Sports Economists, revised Mar 2011.
  15. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
  16. Sloane, Peter J, 1971. "The Economics of Professional Football: The Football Club as a Utility Maximiser," Scottish Journal of Political Economy, Scottish Economic Society, vol. 18(2), pages 121-46, June.
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Citations

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Cited by:
  1. Oliver Guertler & Markus Lang & Tim Pawlowski, 2011. "On the Release of Players to National Teams," Working Papers 0045, University of Zurich, Center for Research in Sports Administration (CRSA).
  2. Helmut Dietl & Egon Franck & Markus Lang & Alexander Rathke, 2011. "Organizational Differences between U.S. Major Leagues and European Leagues: Implications for Salary Caps," Working Papers 1105, International Association of Sports Economists & North American Association of Sports Economists.
  3. Helmut Dietl & Rodney Fort & Markus Lang, 2011. "International Sports League Comparisons," Working Papers 0144, University of Zurich, Institute for Strategy and Business Economics (ISU).
  4. Egon Franck & Markus Lang, 2013. "A Theoretical Analysis of the Influence of Money Injections on Risk Taking in Football Clubs," Working Papers 0160, University of Zurich, Institute for Strategy and Business Economics (ISU).
  5. Martin Grossmann & Andreas Hefti & Markus Lang, 2012. "Aggregative Contests and Ex-post Heterogeneity: the Case of the UEFA Champions League," Working Papers 0161, University of Zurich, Institute for Strategy and Business Economics (ISU).

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