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Legal Restrictions on Buyout Fees: Theory and Evidence from German Soccer

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  • Eberhard Feess
  • Bernd Frick
  • Gerd Muehlheusser

Abstract

We perform a theoretical and empirical analysis of the impact of transfer fee regulations on professional soccer in Europe. Based on a model on the interaction of moral hazard and heterogeneity, we show (i) how the regulations effect contract durations and wages, (ii) that contracting parties have an incentive to agree upon inefficiently long contracts, (iii) how these incentives vary with the legal system, and (iv) how the relationship between contract duration and performance also depends on the legal system. With one exception, all theoretical results are empirically confirmed using a comprehensive data set from the top German Soccer League ("Bundesliga").

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Bibliographic Info

Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0411.

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Date of creation: Jun 2004
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Handle: RePEc:ube:dpvwib:dp0411

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Keywords: regulation of labor markets; long-term contracts; sports economics; breach of contract; empirical contract theory;

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References

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  1. Burguet, Roberto & Caminal, Ramón & Matutes, Carmen, 1999. "Golden Cages for Showy Birds: Optimal Switching Costs in Labour Markets," CEPR Discussion Papers 2070, C.E.P.R. Discussion Papers.
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  3. Pierre André Chiappori & Bernard Salanié, 2002. "Testing Contract Theory: A Survey of Some Recent Work," CESifo Working Paper Series 738, CESifo Group Munich.
  4. Ackerberg, D.A. & Botticini, M., 1999. "Endogenous Matching and the Empirical Determinants of Contract Form," Papers 96, Boston University - Department of Economics.
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  6. Claudio Lucifora & Rob Simmons, 2003. "Superstar Effects in Sport: Evidence From Italian Soccer," Journal of Sports Economics, , vol. 4(1), pages 35-55, February.
  7. Eberhard Feess & Gerd Muehlheusser, 2003. "The Impact of Transfer Fees on Professional Sports: An Analysis of the New Transfer System for European Football," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(1), pages 139-154, 03.
  8. Jaap H. Abbring & James J. Heckman & Pierre-André Chiappori & Jean Pinquet, 2003. "Adverse Selection and Moral Hazard In Insurance: Can Dynamic Data Help to Distinguish?," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 512-521, 04/05.
  9. Kahn, Lawrence M, 1993. "Free Agency, Long-Term Contracts and Compensation in Major League Baseball: Estimates from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 157-64, February.
  10. Carmichael, Fiona & Forrest, David & Simmons, Robert, 1999. "The Labour Market in Association Football: Who Gets Transferred and For How Much?," Bulletin of Economic Research, Wiley Blackwell, vol. 51(2), pages 125-50, April.
  11. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  12. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
  13. Abhijit V. Banerjee & Paul J. Gertler & Maitreesh Ghatak, 2002. "Empowerment and Efficiency: Tenancy Reform in West Bengal," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 239-280, April.
  14. Peter Antonioni & John Cubbin, 2000. "The Bosman Ruling and the Emergence of a Single Market in Soccer Talent," European Journal of Law and Economics, Springer, vol. 9(2), pages 157-173, March.
  15. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
  16. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
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Cited by:
  1. Helmut Dietl & Egon Franck & Markus Lang, 2008. "Why football players may benefit from the ‘shadow of the transfer system’," European Journal of Law and Economics, Springer, vol. 26(2), pages 129-151, October.
  2. Bernd Frick & Gunnar Pietzner & Joachim Prinz, 2007. "Career Duration a Competitive Environment: The Labor Market for Soccer Players in Germany," Eastern Economic Journal, Eastern Economic Association, vol. 33(3), pages 429-442, Summer.
  3. Frick, Bernd, 2012. "Die Entlohnung von Fußball-Profis: Ist die vielfach kritisierte 'Gehaltsexplosion' ökonomisch erklärbar?," Edition HWWI: Chapters, in: Sport und Sportgroßveranstaltungen in Europa - zwischen Zentralstaat und Regionen, pages 79-110 Hamburg Institute of International Economics (HWWI).

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