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Revenue Sharing in Sports Leagues: The Effects on Talent Distribution and Competitive Balance

Author

Listed:
  • Phillip Miller

    (Department of Economics, Minnesota State University)

Abstract

This 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.

Suggested Citation

  • Phillip Miller, 2006. "Revenue Sharing in Sports Leagues: The Effects on Talent Distribution and Competitive Balance," Working Papers 0627, International Association of Sports Economists;North American Association of Sports Economists.
    • Handle: RePEc:spe:wpaper:0627
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    File URL: http://web.holycross.edu/RePEc/spe/Miller_RevenueSharing.pdf
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    Cited by:

    1. Duane Rockerbie & Stephen Easton, 2018. "Revenue Sharing in Major League Baseball: The Moments That Meant so Much," IJFS, MDPI, vol. 6(3), pages 1-16, August.
    2. Rockerbie, Duane & Easton, Stephen, 2017. "Risk Diversification from Revenue Sharing in a Professional Sports League: Measuring Welfare Gains," MPRA Paper 77431, University Library of Munich, Germany.
    3. 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, revised Feb 2014.
    4. Rockerbie, Duane, 2007. "Free Agent Auctions and Revenue Sharing: A Simple Approach," MPRA Paper 2218, University Library of Munich, Germany.
    5. Martin Grossmann & Helmut M. Dietl & Urs Trinkner, 2008. "The Effect of Marginal Cost Elasticity on Competitive Balance," Journal of Sports Economics, , vol. 9(4), pages 339-350, August.

    More about this item

    Keywords

    competitive balance; revenue sharing; sports labor markets; free agency;
    All these keywords.

    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

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