Overinvestment in Team Sports Leagues: A Contest Theory Model
AbstractThis paper applies contest theory to provide an integrated framework of a team sports league and analyses the competitive interaction between clubs. We show that dissipation of the league revenue arises from `overinvestment' in playing talent as a direct consequence of the ruinous competitive interaction between clubs. This overinvestment problem increases if the discriminatory power of the contest function increases, revenue-sharing decreases, and the size of an additional exogenous prize increases. We further show that clubs invest more when they play in an open compared to a closed league. Moreover, the overinvestment problem within open leagues increases with the revenue differential between leagues.
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Bibliographic InfoPaper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0038.
Length: 22 pages
Date of creation: 2005
Date of revision: 2007
contests; sports league; overinvestment; revenue-sharing; promotion and relegation;
Other versions of this item:
- 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.
- Helmut Dietl & Egon Franck & Markus Lang, 2005. "Overinvestment in Team Sports Leagues: A Contest Theory Model," Working Papers 0002, University of Zurich, Center for Research in Sports Administration (CRSA), revised 2007.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-07 (All new papers)
- NEP-MIC-2006-10-07 (Microeconomics)
- NEP-SPO-2006-10-07 (Sports & Economics)
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.:
- Baye, M.R. & Kovenock, D., 1993.
"The Solution to the Tullock Rent-Seeking Game When R > 2: Mixed Strategy Equilibria and Mean Dissipation Rates,"
9368, Tilburg - Center for Economic Research.
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- Baye, M.R. & Kovenock, D. & De Vries, C.G., 1993. "The Solution to the Tullock Rent-Seeking Game when R > 2: Mixed Strategy Equilibria and Mean Dissipation Rates," Papers 10-93-9, Pennsylvania State - Department of Economics.
- Roger Noll, 2002. "The Economics of Promotion and Relegation in Sports Leagues: The Cases of English Football," Journal of Sports Economics, , vol. 3(2), pages 169-203, May.
- Helmut Dietl & Egon Franck & Patrick, 2003. "Überinvestitionsprobleme in einer Sportliga," Working Papers 0020, University of Zurich, Institute for Strategy and Business Economics (ISU).
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