The Sport League's Dilemma: Competitive Balance versus Incentives to Win
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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- 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?,"
2000-110, Tilburg University, Center for Economic Research.
- Frederic Palomino & Jozsef Sakovics, 2004. "Revenue sharing in professional sports leagues: for the sake of competitive balance or as a result of monopsony power?," ESE Discussion Papers 59, Edinburgh School of Economics, University of Edinburgh.
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- Scully, Gerald W., 1995. "The Market Structure of Sports," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226743950.
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- Rodney Fort & James Quirk, 1995. "Cross-subsidization, Incentives, and Outcomes in Professional Team Sports Leagues," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1265-1299, September.
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