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Salary Cap Regulation In Professional Team Sports

Author

Listed:
  • HELMUT M. DIETL
  • EGON FRANCK
  • MARKUS LANG
  • ALEXANDER RATHKE

Abstract

This paper analyzes the effects of a percentage-of-revenue salary cap in a team sports league with win-maximizing clubs and flexible talent supply. It shows that a percentage-of-revenue cap produces a more balanced league and decreases aggregate salary payments. Taking into account the idiosyncrasies of European football, our paper further highlights the potential conflicts between the league and society. From the perspective of a league governing body, a percentage-of-revenue cap always enhances financial stability of win-maximizing clubs. A social planner, however, will not permit the introduction of such a cap if fans and players unduly suffer. This paper shows under which conditions the social planner accepts (rejects) a salary cap proposed by the league regulator.
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Suggested Citation

  • Helmut M. Dietl & Egon Franck & Markus Lang & Alexander Rathke, 2012. "Salary Cap Regulation In Professional Team Sports," Contemporary Economic Policy, Western Economic Association International, vol. 30(3), pages 307-319, July.
    • Handle: RePEc:bla:coecpo:v:30:y:2012:i:3:p:307-319
    DOI: j.1465-7287.2011.00265.x
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    File URL: http://hdl.handle.net/10.1111/j.1465-7287.2011.00265.x
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    Cited by:

    1. Oliver Gürtler & Markus Lang & Tim Pawlowski, 2015. "On the Release of Players to National Teams," Journal of Sports Economics, , vol. 16(7), pages 695-713, October.
    2. Helmut Dietl & Egon Franck & Markus Lang & Alexander Rathke, 2010. "Organizational Differences between U.S. Major Leagues and European Leagues: Implications for Salary Caps," Working Papers 0035, University of Zurich, Center for Research in Sports Administration (CRSA).
    3. Helmut Dietl & Rodney Fort & Markus Lang, 2011. "International Sports League Comparisons," Working Papers 0144, University of Zurich, Institute for Strategy and Business Economics (ISU).
    4. Budzinski, Oliver, 2024. "Financial regulation in sport championships as an anticompetitive institution," Ilmenau Economics Discussion Papers 187, Ilmenau University of Technology, Institute of Economics.
    5. Nikolaos, Chatzistamoulou & Theodoros, Antonakis & Konstantinos, Kounetas, 2020. "Salary cap and National Basketball Association teams' productive performance. A two stage Data Envelopment Analysis approach under a metatechnology framework," MPRA Paper 98811, University Library of Munich, Germany.
    6. Daniel Nicolae MAITA & Alexandra-Irina PADUREAN (BADEA) & Claudiu CRETU & Vasile APOSTOL, 2021. "Salary Cap Model €“ Influence Of Sports Leagues Competitiveness €“ National Basketball Association Vs National Hockey League In North America," Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 15(1), pages 185-194, November.
    7. Nikos Chatzistamoulou & Kounetas Kostas & Antonakis Theodor, 2022. "Salary Cap, Organizational Gap, and Catch-up in the Performance of NBA Teams: A Two-Stage DEA Model Under Heterogeneity," Journal of Sports Economics, , vol. 23(2), pages 123-155, February.
    8. Andrews, Matt & Harrington, Peter, 2016. "Off Pitch: Football's Financial Integrity Weaknesses, and How to Strengthen Them," Working Paper Series 16-009, Harvard University, John F. Kennedy School of Government.
    9. Duane W. Rockerbie, 2024. "Does the Dual Representation System of Player Agents in International Football Benefit Players? An Economic Analysis," Journal of Sports Economics, , vol. 25(7), pages 827-843, October.
    10. Brad R. Humphreys & Thomas J. Miceli, 2019. "The Peculiar Preferences of Sports Fans: Toward a Preference-Based Motivation for the Uncertainty of Outcome Hypothesis," Journal of Sports Economics, , vol. 20(6), pages 782-796, August.
    11. Budzinski, Oliver, 2017. "Market-internal financial regulation in sports as an anticompetitive institution," Ilmenau Economics Discussion Papers 110, Ilmenau University of Technology, Institute of Economics.
    12. Martin Grossmann & Andreas Hefti & Markus Lang, 2012. "Aggregative Contests and Ex-post Heterogeneity: the Case of the UEFA Champions League," Working Papers 0161, University of Zurich, Institute for Strategy and Business Economics (ISU).
    13. Budzinski, Oliver & Kunz-Kaltenhäuser, Philipp, 2025. "Decreasing financial imbalances or distorting competition? Examining the effects of the 50plus1-rule in German football," Ilmenau Economics Discussion Papers 197, Ilmenau University of Technology, Institute of Economics.
    14. Barth, Michael & Emrich, Eike & Daumann, Frank, 2017. "Evaluation of sporting success in Austria: An institutional economics analysis," Working Papers of the European Institute for Socioeconomics 20, European Institute for Socioeconomics (EIS), Saarbrücken.
    15. Egon Franck & Markus Lang, 2014. "A Theoretical Analysis of the Influence of Money Injections on Risk Taking in Football Clubs," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(4), pages 430-454, September.
    16. Liam J. A. Lenten, 2017. "A Formal Test for Asymmetry in the Uncertainty of Outcome Hypothesis," Journal of Sports Economics, , vol. 18(3), pages 253-270, April.
    17. Dietl, Helmut M. & Duschl, Tobias & Lang, Markus, 2011. "Executive Pay Regulation: What Regulators, Shareholders, and Managers Can Learn from Major Sports Leagues," Business and Politics, Cambridge University Press, vol. 13(2), pages 1-30, August.

    More about this item

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D60 - Microeconomics - - Welfare Economics - - - General
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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