Helmut Dietl Egon Franck Stephan Nüesch () (Institute for Strategy and Business Economics, University of Zurich, Institute for Strategy and Business Economics, University of Zurich)
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In 2002 the leading European football clubs reacted to the increasing player salaries by signing a voluntary agreement to limit player salaries to 70% of revenues. We analyze under which conditions a voluntary salary cap agreement is self-enforcing. Based on a simple model of a league with two profit-maximizing clubs, we show that the self-enforcing character of salary caps increases with the clubs’ valuation of future profits and the importance of competitive balance. In European football leagues salary cap agreements are not likely to be self-enforcing because (1) promotion and relegation as well as limited transfer windows reduce the clubs’ discount factor and (2) competitive balance is less important in order to activate fan interest than in US Major Leagues.
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Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number
0040.
Find related papers by JEL classification: L - Industrial Organization C - Mathematical and Quantitative Methods
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