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Overinvestment in Team Sports Leagues: A Contest Theory Model

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Author Info

  • Helmut Dietl

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

  • Egon Franck

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

  • Markus Lang

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

Abstract

This 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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File URL: http://repec.business.uzh.ch/RePEc/rsd/CRSA_WPS/02_CRSA_full.pdf
File Function: First version, 2005
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Bibliographic Info

Paper provided by University of Zurich, Center for Research in Sports Administration (CRSA) in its series Working Papers with number 0002.

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Length: 22 pages
Date of creation: 2005
Date of revision: 2007
Handle: RePEc:rsd:wpaper:0002

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Related research

Keywords: contests; sports league; overinvestment; revenue-sharing; promotion and relegation;

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References

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  1. 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," Purdue University Economics Working Papers 1039, Purdue University, Department of Economics.
  2. Helmut Dietl & Egon Franck & Patrick, 2003. "├ťberinvestitionsprobleme in einer Sportliga," Working Papers 0020, University of Zurich, Institute for Strategy and Business Economics (ISU).
  3. Baye, M.R. & Kovenock, D., 1993. "The Solution of the Tullock Rent-Seeking Game when R > 2 : Mixed-Strategy Equilibria and Mean Dissipation Rates," Discussion Paper 1993-68, Tilburg University, Center for Economic Research.
  4. 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.
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