The Sport League's Dilemma: Competitive Balance versus Incentives to Win
AbstractWe 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 InfoPaper provided by University of California at Berkeley in its series Economics Working Papers with number E00-292.
Date of creation: 01 Nov 2000
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Other versions of this item:
- Frederic Palomino & Luca Rigotti, 2001. "The Sport League's Dilemma: Competitive Balance versus Incentives to Win," Industrial Organization 0012003, EconWPA.
- Palomino, Frederic & Rigotti, Luca, 2000. "The Sport League's Dilemma: Competitive Balance versus Incentives to Win," Department of Economics, Working Paper Series qt2w3284jj, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Palomino, F.A. & Rigotti, L., 2000. "The Sport League's Dilemma: Competitive Balance versus Incentives to Win," Discussion Paper 2000-109, Tilburg University, Center for Economic Research.
- L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other
- L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
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