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The Sport League's Dilemma: Competitive Balance versus Incentives to Win

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  • Frederic Palomino and Luca Rigotti.

Abstract

We analyze a dynamic model of strategic interaction between a professional sport league that organizes a tournament, the teams competing to win it, and the broadcasters paying for the rights to televise it. Teams and broadcasters maximize expected profits, while the league's objective may be either to maximize the demand for the sport or to maximize the teams' joint profits. Demand depends positively on symmetry among teams (competitive balance) and how aggressively teams try to win (incentives to win). Revenue sharing increases competitive balance but decreases incentives to win. Under demand maximization, a performance-based reward scheme (used by European sport leagues) may be optimal. Under joint profit maximization, full revenue sharing (used by many US leagues) is always optimal. These results reflect institutional differences among European and American sports leagues.

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Bibliographic Info

Paper provided by University of California at Berkeley in its series Economics Working Papers with number E00-292.

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Date of creation: 01 Nov 2000
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Handle: RePEc:ucb:calbwp:e00-292

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  1. Scully, Gerald W., 1995. "The Market Structure of Sports," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226743950, March.
  2. Stefan Szymanski & Ron Smith, 1997. "The English Football Industry: profit, performance and industrial structure," International Review of Applied Economics, Taylor & Francis Journals, vol. 11(1), pages 135-153.
  3. 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.
  4. Palomino, F.A. & Sakovics, J., 2000. "Revenue Sharing in Professional Sports Leagues: For the Sake of Competitive Balance or as a Result of Monopsony Power?," Discussion Paper 2000-110, Tilburg University, Center for Economic Research.
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Cited by:
  1. Falconieri, S. & Palomino, F.A. & Sakovics, J., 2002. "Collective vs Individual Sale of TV Rights in League Sports," Discussion Paper 2002-106, Tilburg University, Center for Economic Research.
  2. Stephen Easton & Duane Rockerbie, 2003. "Revenue Sharing, Conjectures, and Scarce Talent in a Model of a Professional Sports League," Industrial Organization 0303010, EconWPA.
  3. Giorgo Sertsios, 2007. "¿Puede el Diseño de un Torneo Deportivo Afectar su Asistencia?," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 44(129), pages 59-89.
  4. Nicola Giocoli, 2007. "Competitive balance in football leagues when teams have different goals," International Review of Economics, Springer, vol. 54(3), pages 345-370, September.
  5. Michel Cavagnac, 2009. "Revenue Sharing and Competitive Balance When Teams are not Wage Takers," Review of Industrial Organization, Springer, vol. 35(3), pages 299-313, November.
  6. Pelnar, Gregory, 2007. "Antitrust Analysis of Sports Leagues," MPRA Paper 5382, University Library of Munich, Germany.

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