Does a win bonus help to increase profit or wins in professional team sports?
AbstractIn this contribution, we try to investigate the impact of a win bonus on the winning percentage, the competitive balance, the owner profits and the overall quality in a professional sports league in a simple game theoretic approach. We starts from the well-known Quirk and Fort (1992) two-club model. In this model, we introduce a premium system consisting of a win bonus that is paid on top of a fixed salary. Assuming that players are motivated to increase effort if their salary depends on the winning percentage, we derive the Nash-Cournot equilibrium under both the profit and a win maximisation hypothesis. The impact of a premium system turns out to be rather complex, given the fact that clubs react to the strategies of other clubs in the league. The team that introduces a premium system can expect to increase its profits or its winning percentage by paying a bonus combined with a reduced fixed salary. A crucial factor, though, is the players’ response to the win bonus. If the team’s effort is not enhanced enough by the bonus, the team’s profits and wining percentage can go down. Also the effect that the winning percentage has on club revenue is an important factor.
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Bibliographic InfoPaper provided by International Association of Sports Economists in its series IASE Conference Papers with number 0713.
Date of creation: Jun 2007
Date of revision:
Publication status: Published in International Journal of Sport Finance
Other versions of this item:
- Késenne S., 2007. "Does a win bonus help to increase profit or wins in professional team sports?," Working Papers 2007002, University of Antwerp, Faculty of Applied Economics.
- L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
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