Revenue Sharing in Sports Leagues: The Effects on Talent Distribution and Competitive Balance
AbstractThis paper uses a three-stage model of non-cooperative and cooperative bargaining in a free agent market to analyze the effect of revenue sharing on the decision of teams to sign a free agent. We argue that in all subgame perfect Nash equilibria, the team with the highest reservation price will get the player. We argue that revenue sharing will not alter the outcome of the game unless the proportion taken from high revenue teams is sufficiently high. We also argue that a revenue sharing system that rewards quality low-revenue teams can alter the outcome of the game while requiring a lower proportion to be taken from high revenue teams. We also argue that the revenue sharing systems can improve competitive balance by redistributing pivotal marginal players among teams.
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Bibliographic InfoPaper provided by International Association of Sports Economists & North American Association of Sports Economists in its series Working Papers with number 0627.
Length: 38 pages
Date of creation: Nov 2006
Date of revision:
competitive balance; revenue sharing; sports labor markets; free agency;
Find related papers by JEL classification:
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- J4 - Labor and Demographic Economics - - Particular Labor Markets
- L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-11-18 (All new papers)
- NEP-GTH-2006-11-18 (Game Theory)
- NEP-SPO-2006-11-18 (Sports & Economics)
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- Rockerbie, Duane, 2007. "Free Agent Auctions and Revenue Sharing: A Simple Approach," MPRA Paper 2218, University Library of Munich, Germany.
- Daniel H. Weinberg, 2013. "Talent Recruitment and Firm Performance: The Business of Major League Sports," Working Papers 13-54, Center for Economic Studies, U.S. Census Bureau.
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