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The Sport League's Dilemma: Competitive Balance versus Incentives to Win

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Author Info
Frederic Palomino (Tilburg University and CEPR)
Luca Rigotti (University of California, Berkeley)

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Abstract

We analyze a dynamic model of strategic interaction between a professional sport league that organizes a tournament, the teams competing to win it, and the broadcasters paying for the rights to televise it. Teams and broadcasters maximize expected profits, while the league's objective may be either to maximize the demand for the sport or to maximize the teams' joint profits. Demand depends positively on symmetry among teams (competitive balance) and how aggressively teams try to win (incentives to win). Revenue sharing increases competitive balance but decreases incentives to win. Under demand maximization, a performance-based reward scheme (used by European sport leagues) may be optimal. Under joint profit maximization, full revenue sharing (used by many US leagues) is always optimal. These results reflect institutional differences among European and American sports leagues.

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File URL: http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1021&context=iber/econ
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Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number 1021.

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Date of creation: 01 Nov 2000
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Handle: RePEc:cdl:econwp:1021

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Related research
Keywords: Sport league; Revenue sharing; competitive balance; incentives to win;

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References listed on IDEAS
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  1. Scott E. Atkinson & Linda R. Stanley & John Tschirhart, 1988. "Revenue Sharing as an Incentive in an Agency Problem: An example from the National Football League," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 27-43, Spring. [Downloadable!] (restricted)
  2. Bird, Peter J W N, 1982. "The Demand for League Football," Applied Economics, Taylor and Francis Journals, vol. 14(6), pages 637-49, December.
  3. Szymanski, Stefan & Smith, Ron, 1997. "The English Football Industry: Profit, Performance and Industrial Structure," International Review of Applied Economics, Taylor and Francis Journals, vol. 11(1), pages 135-53, January.
  4. Frederic Palomino & Jozsef Sakovics, 2004. "Revenue sharing in professional sports leagues: for the sake of competitive balance or as a result of monopsony power?," ESE Discussion Papers 59, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stephen Easton & Duane Rockerbie, 2003. "Revenue Sharing, Conjectures, and Scarce Talent in a Model of a Professional Sports League," Industrial Organization 0303010, EconWPA. [Downloadable!]
  2. Giorgo Sertsios, 2007. "¿Puede el Diseño de un Torneo Deportivo Afectar su Asistencia?," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 44(129), pages 59-89. [Downloadable!]
  3. Falconieri, S. & Palomino, F. & Sakovics, J., 2002. "Collective vs. individual sale of tv rights in league sports," Discussion Paper 106, Tilburg University, Center for Economic Research. [Downloadable!]
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