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The Effect of Gate Revenue-Sharing on Social Welfare

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  • Helmut Dietl

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

  • Markus Lang

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

Abstract

This paper provides a theoretical model of a team sports league based on contest theory and studies the welfare effect of gate revenue-sharing. It derives two counter-intuitive results. First, it challenges the "invariance proposition" by showing that revenue-sharing reduces competitive balance and thus produces a more unbalanced league. Second, the paper concludes that a lower degree of competitive balance compared with the non-cooperative league equilibrium yields a higher level of social welfare and club profits. Combining both results, we conclude that gate revenue-sharing increases social welfare and club profits in our model.

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File URL: http://repec.business.uzh.ch/RePEc/rsd/CRSA_WPS/12_CRSA_full.pdf
File Function: First version, 2006
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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 0012.

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Length: 27 pages
Date of creation: 2006
Date of revision: 2007
Handle: RePEc:rsd:wpaper:0012

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Keywords: Revenue sharing; competitive balance; social welfare; team sports leagues;

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References

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  1. Daniel R. Marburger, 1997. "Gate Revenue Sharing And Luxury Taxes In Professional Sports," Contemporary Economic Policy, Western Economic Association International, vol. 15(2), pages 114-123, 04.
  2. Thomas Hoehn & Stefan Szymanski, 1999. "The Americanization of European football," Economic Policy, CEPR & CES & MSH, vol. 14(28), pages 203-240, 04.
  3. Cyrenne, Philippe, 2001. "A Quality of Play Model of a Professional Sports League," MPRA Paper 29060, University Library of Munich, Germany.
  4. 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.
  5. Sloane, Peter J, 1971. "The Economics of Professional Football: The Football Club as a Utility Maximiser," Scottish Journal of Political Economy, Scottish Economic Society, vol. 18(2), pages 121-46, June.
  6. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
  7. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
  8. 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.
  9. Christian Riis & Derek J. Clark, 1997. "Contest success functions: an extension," Economic Theory, Springer, vol. 11(1), pages 201-204.
  10. 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.
  11. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer, vol. 7(2), pages 283-290.
  12. Rodney Fort & James Quirk, 1995. "Cross-subsidization, Incentives, and Outcomes in Professional Team Sports Leagues," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1265-1299, September.
  13. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
  14. 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.
  15. 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..
  16. Stefan Szymanski & Stefan KÈsenne, 2004. "Competitive balance and gate revenue sharing in team sports," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 165-177, 03.
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