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The Sugar Daddy's Game: How Wealthy Investors Change Competition in Professional Team Sports

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  • Martin Grossmann
  • Markus Lang

    ()
    (Institute for Strategy and Business Economics, University of Zurich
    Institute for Strategy and Business Economics, University of Zurich)

  • Philipp Theiler

    ()
    (Institute for Strategy and Business Economics, University of Zurich)

Abstract

Professional sports leagues have witnessed the appearance of so-called "sugar daddies" - people who invest enormous amounts of money into clubs and become their owners. This paper presents a contest model of a professional sports league that incorporates this phenomenon. We analyze how the appearance of a sugar daddy alters competitive balance and social welfare compared to a league with purely profit-maximizing club owners. We further show that the welfare effect of revenue sharing in a sugar daddy league is ambiguous and depends on the degree of redistribution and on whether the sugar daddy invests in a small or large club.

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Bibliographic Info

Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0128.

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Length: 24 pages
Date of creation: May 2010
Date of revision: Oct 2010
Handle: RePEc:iso:wpaper:0128

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Keywords: Competitive balance; contest model; social welfare; sports leagues; sugar daddy;

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References

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  1. Martin Grossmann & Helmut Dietl & Markus Lang, 2008. "Revenue Sharing and Competitive Balance in a Dynamic Contest Model," Working Papers 0822, International Association of Sports Economists;North American Association of Sports Economists, revised Nov 2009.
  2. 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.
  3. 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.
  4. Rodney Fort & Jason Winfree, 2009. "Sports Really are Different: The Contest Success Function and the Supply of Talent," Review of Industrial Organization, Springer, vol. 34(1), pages 69-80, February.
  5. Egon Franck, 2010. "Private Firm, Public Corporation or Member’s Association Governance Structures in European Football," International Journal of Sport Finance, Fitness Information Technology, vol. 5(2), pages 108-127, May.
  6. Helmut Dietl & Markus Lang, 2006. "The Effect of Gate Revenue-Sharing on Social Welfare," Working Papers 0012, University of Zurich, Center for Research in Sports Administration (CRSA), revised 2007.
  7. John Vrooman, 2007. "Theory Of The Beautiful Game: The Unification Of European Football," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(3), pages 314-354, 07.
  8. KÉSENNE, Stefan, . "Revenue sharing and competitive balance in professional team sports," Working Papers 1999019, University of Antwerp, Faculty of Applied Economics.
  9. Skaperdas, Stergios, 1996. "Contest Success Functions," Economic Theory, Springer, vol. 7(2), pages 283-90, February.
  10. Helmut Dietl & Markus Lang & Stephan Werner, 2008. "Social Welfare in Sports Leagues with Profit-Maximizing and/or Win-Maximizing Clubs," Working Papers 0022, University of Zurich, Center for Research in Sports Administration (CRSA), revised Jul 2009.
  11. Rodney Fort & James Quirk, 2007. "Rational Expectations And Pro Sports Leagues," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(3), pages 374-387, 07.
  12. Helmut Dietl & Markus Lang & Alexander Rathke, 2007. "The Effect of Salary Caps in Professional Team Sports on Social Welfare," Working Papers 0016, University of Zurich, Center for Research in Sports Administration (CRSA).
  13. Sonia Falconieri & Frédéric Palomino & József Sákovics, 2004. "Collective Versus Individual Sale of Television Rights in League Sports," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 833-862, 09.
  14. Martin Grossmann & Helmut M. Dietl, 2009. "Investment Behaviour in a Two-Period Contest Model," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(3), pages 401-417, September.
  15. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
  16. Egon Franck, 2010. "„Zombierennen“ und „Patenonkel“ - Warum deutsche Fussballklubs in der Champions League den Kürzeren ziehen," Working Papers 0124, University of Zurich, Institute for Strategy and Business Economics (ISU).
  17. Christian Riis & Derek J. Clark, 1997. "Contest success functions: an extension," Economic Theory, Springer, vol. 11(1), pages 201-204.
  18. Thomas Hoehn & Stefan Szymanski, 1999. "The Americanization of European football," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 203-240, 04.
  19. Pedro Garcia-del-Barrio & Stefan Szymanski, 2006. "Goal! Profit maximization and win maximization in football leagues," Working Papers 0621, International Association of Sports Economists;North American Association of Sports Economists.
  20. Andrew Zimbalist, 2003. "Sport as Business," Oxford Review of Economic Policy, Oxford University Press, vol. 19(4), pages 503-511, Winter.
  21. Flynn, Michael A & Gilbert, Richard J, 2001. "The Analysis of Professional Sports Leagues as Joint Ventures," Economic Journal, Royal Economic Society, vol. 111(469), pages F27-46, February.
  22. El-Hodiri, Mohamed & Quirk, James, 1971. "An Economic Model of a Professional Sports League," Journal of Political Economy, University of Chicago Press, vol. 79(6), pages 1302-19, Nov.-Dec..
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Citations

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Cited by:
  1. Oliver Guertler & Markus Lang & Tim Pawlowski, 2011. "On the Release of Players to National Teams," Working Papers 0046, University of Zurich, Center for Research in Sports Administration (CRSA).
  2. Martin Grossmann, 2011. "Evolutionarily Stable Strategies in Sports Contests," Working Papers 0044, University of Zurich, Center for Research in Sports Administration (CRSA).
  3. Helmut Dietl & Rodney Fort & Markus Lang, 2011. "International Sports League Comparisons," Working Papers 0042, University of Zurich, Center for Research in Sports Administration (CRSA).
  4. Helmut Dietl & Egon Franck & Markus Lang & Alexander Rathke, 2008. "Salary Cap Regulation in Professional Team Sports," Working Papers 0020, University of Zurich, Center for Research in Sports Administration (CRSA), revised Nov 2010.
  5. Martin Grossmann & Andreas Hefti & Markus Lang, 2012. "Aggregative Contests and Ex-post Heterogeneity: the Case of the UEFA Champions League," Working Papers 0161, University of Zurich, Institute for Strategy and Business Economics (ISU).
  6. Egon Franck & Markus Lang, 2014. "A Theoretical Analysis of the Influence of Money Injections on Risk Taking in Football Clubs," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(4), pages 430-454, 09.

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