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A Contest Model of a Professional Sports League with Two-Sided Markets

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  • Helmut Dietl

    ()
    (University of Zurich)

  • Tobias Duschl

    ()
    (University of Zurich)

  • Egon Franck

    ()
    (University of Zurich)

  • Markus Lang

    ()
    (University of Zurich)

Abstract

This paper develops a model of a professional sports league with network externalities by integrating the theory of two-sided markets into a two-stage contest model. In professional team sports, the competition of the clubs functions as a platform that enables sponsors to interact with fans. In these club-mediated interactions, positive network effects operate from the fan market to the sponsor market, while positive or negative network effects operate from the sponsor market to the fan market. We show that the size of these network effects determines the level of competitive balance within the league. If the market potential of the sponsors is small (large), competitive balance increases (decreases) with stronger combined network effects. We further deduce that clubs benefit from stronger combined network effects through higher profits and that network externalities can mitigate the negative effect of revenue sharing on competitive balance. Finally, we derive implications for improving competitive balance by taking advantage of network externalities. For example, our model suggests that an increase in the market potential of sponsors produces a more balanced league.

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Bibliographic Info

Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 232 (2012)
Issue (Month): 3 (May)
Pages: 336-359

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Handle: RePEc:jns:jbstat:v:232:y:2012:i:3:p:336-359

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Keywords: Competitive balance; contest; multisided market; network externalities; team sports league;

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References

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Cited by:
  1. Christoph Breuer & Helmut Dietl & Christian WeingŠrtner & Pamela Wicker, 2011. "The effect of a sports institutionÕs legal structure on sponsorship income: The case of amateur equestrian sports in Germany," Working Papers 0146, University of Zurich, Institute for Strategy and Business Economics (ISU).
  2. Oliver Budzinski & Janina Satzer, 2011. "Sports Business and Multisided Markets: Towards a New Analytical Framework? (Long Version)," Working Papers 1104, International Association of Sports Economists;North American Association of Sports Economists.

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