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Revenue Sharing in MLB: The Effect on Player Transfers

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  • Joel G. Maxcy

    ()
    (Department of Kinesiology, University of Georgia)

Abstract

The 1997 collective bargaining agreement between the Major League Baseball owners and players’ union considerably altered the system of revenue redistribution. This system, a convoluted cross-subsidization system, known as the “split pool plan”, was designed to progressively redistribute income from the highest revenue generating teams toward the lowest revenue-producing clubs. The 2003 agreement extended the basic system of revenue redistribution, but increased the tax rate to 34%, and modified the nature of the redistribution. The purpose of the revenue sharing system was to alleviate a growing disparity in revenue generation, which MLB claims is continuing to cause increased levels of competitive imbalance. The new scheme is examined theoretically within the principal-agent framework, which shows that the incentive to divest in talent is increased for low revenue clubs. Empirical results are supportive. Payroll disparity and competitive imbalance increased modestly from the period immediately preceding implementation. Most striking however is a significant increase in the rate that productive players have transferred away from low revenue teams. This strongly suggests that these teams were acting on the increased incentives to divest in talent.

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File URL: http://college.holycross.edu/RePEc/spe/Maxcy_Transfers.pdf
File Function: Paper presented at the 8th Annual IASE Conference in Bochum, Germany, May 2006
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Bibliographic Info

Paper provided by International Association of Sports Economists in its series IASE Conference Papers with number 0634.

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Length: 27 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:spe:cpaper:0634

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Web page: http://www.cdes.fr/index.php?id=fr69
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Keywords: Sport; revenue redistribution; collective bargaining;

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  1. 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..
  2. 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.
  3. Stephen Hall & Stefan Szymanski & Andrew S. Zimbalist, 2002. "Testing the Causality between Team Performance and Payroll: The Cases of Major League Baseball and English Soccer," Journal of Sports Economics, , vol. 3(2), pages 149-168, May.
  4. 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.
  5. KÉSENNE, Stefan, . "Revenue sharing and competitive balance in professional team sports," Working Papers 1999019, University of Antwerp, Faculty of Applied Economics.
  6. 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.
  7. Joel G. Maxcy, 2002. "Rethinking Restrictions On Player Mobility In Major League Baseball," Contemporary Economic Policy, Western Economic Association International, vol. 20(2), pages 145-159, 04.
  8. E. Woodrow Eckard, 2001. "Baseball’s Blue Ribbon Economic Report," Journal of Sports Economics, , vol. 2(3), pages 213-227, August.
  9. Daly, George & Moore, William J, 1981. "Externalities, Property Rights and the Allocation of Resources in Major League Baseball," Economic Inquiry, Western Economic Association International, vol. 19(1), pages 77-95, January.
  10. Brad R. Humphreys, 2002. "Alternative Measures of Competitive Balance in Sports Leagues," Journal of Sports Economics, , vol. 3(2), pages 133-148, May.
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