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Competitive Balance and Revenue Sharing in Sports Leagues With Utility-Maximizing Teams

Author

Listed:
  • Helmut M. Dietl

    (Department of Business Administration, University of Zurich, Zurich, Switzerland)

  • Martin Grossmann

    (Department of Business Administration, University of Zurich, Zurich, Switzerland)

  • Markus Lang

    (Department of Business Administration, University of Zurich, Zurich, Switzerland, markus.lang@business.uzh.ch)

Abstract

This paper develops a contest model of a professional sports league in which clubs maximize a weighted sum of profits and wins (utility maximization). The model analyzes how more win-oriented behavior of certain clubs affects talent investments, competitive balance, and club profits. Moreover, in contrast to traditional models, the authors show that revenue sharing does not always reduce investment incentives due to the dulling effect. The authors identify a new effect of revenue sharing called the ‘‘sharpening effect.’’ In the presence of the sharpening effect (dulling effect), revenue sharing enhances (reduces) investment incentives and improves (deteriorates) competitive balance in the league.

Suggested Citation

  • Helmut M. Dietl & Martin Grossmann & Markus Lang, 2011. "Competitive Balance and Revenue Sharing in Sports Leagues With Utility-Maximizing Teams," Journal of Sports Economics, , vol. 12(3), pages 284-308, June.
    • Handle: RePEc:sae:jospec:v:12:y:2011:i:3:p:284-308
    DOI: 10.1177/1527002511404787
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    References listed on IDEAS

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    More about this item

    Keywords

    competitive balance; contest; invariance proposition; revenue sharing; team sports league; utility maximization;
    All these keywords.

    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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