The Sport League's Dilemma: Competitive Balance versus Incentives to Win
AbstractWe 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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Bibliographic InfoPaper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt2w3284jj.
Date of creation: 01 Nov 2000
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Sport league; Revenue sharing; competitive balance; incentives to win;
Other versions of this item:
- Palomino, F.A. & Rigotti, L., 2000. "The Sport League's Dilemma: Competitive Balance versus Incentives to Win," Discussion Paper 2000-109, Tilburg University, Center for Economic Research.
- Frederic Palomino and Luca Rigotti., 2000. "The Sport League's Dilemma: Competitive Balance versus Incentives to Win," Economics Working Papers E00-292, University of California at Berkeley.
- Frederic Palomino & Luca Rigotti, 2001. "The Sport League's Dilemma: Competitive Balance versus Incentives to Win," Industrial Organization 0012003, EconWPA.
- L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other
- L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
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2000-110, Tilburg University, Center for Economic Research.
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85, Edinburgh School of Economics, University of Edinburgh.
- Falconieri, S. & Palomino, F.A. & Sakovics, J., 2002. "Collective vs Individual Sale of TV Rights in League Sports," Discussion Paper 2002-106, Tilburg University, Center for Economic Research.
- Michel Cavagnac, 2009. "Revenue Sharing and Competitive Balance When Teams are not Wage Takers," Review of Industrial Organization, Springer, vol. 35(3), pages 299-313, November.
- Giorgo Sertsios, 2007. "¿Puede el Diseño de un Torneo Deportivo Afectar su Asistencia?," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 44(129), pages 59-89.
- Pelnar, Gregory, 2007. "Antitrust Analysis of Sports Leagues," MPRA Paper 5382, University Library of Munich, Germany.
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