IDEAS home Printed from https://ideas.repec.org/p/iso/wpaper/0038.html
   My bibliography  Save this paper

Overinvestment in Team Sports Leagues: A Contest Theory Model

Author

Listed:
  • Helmut Dietl

    (Institute for Strategy and Business Economics, University of Zurich)

  • Egon Franck

    (Institute for Strategy and Business Economics, University of Zurich)

  • Markus Lang

    (Institute for Strategy and Business Economics, University of Zurich)

Abstract

This paper applies contest theory to provide an integrated framework of a team sports league and analyses the competitive interaction between clubs. We show that dissipation of the league revenue arises from `overinvestment' in playing talent as a direct consequence of the ruinous competitive interaction between clubs. This overinvestment problem increases if the discriminatory power of the contest function increases, revenue-sharing decreases, and the size of an additional exogenous prize increases. We further show that clubs invest more when they play in an open compared to a closed league. Moreover, the overinvestment problem within open leagues increases with the revenue differential between leagues.

Suggested Citation

  • Helmut Dietl & Egon Franck & Markus Lang, 2005. "Overinvestment in Team Sports Leagues: A Contest Theory Model," Working Papers 0038, University of Zurich, Institute for Strategy and Business Economics (ISU), revised 2007.
  • Handle: RePEc:iso:wpaper:0038
    as

    Download full text from publisher

    File URL: http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/38_ISU_full.pdf
    File Function: First version, 2005
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Baye, M.R. & Kovenock, D., 1993. "The Solution to the Tullock Rent-Seeking Game When R > 2: Mixed Strategy Equilibria and Mean Dissipation Rates," Papers 9368, Tilburg - Center for Economic Research.
    2. Helmut Dietl & Egon Franck & Patrick, 2003. "Überinvestitionsprobleme in einer Sportliga," Working Papers 0020, University of Zurich, Institute for Strategy and Business Economics (ISU).
    3. Stefan Szymanski, 2010. "The Economic Design of Sporting Contests," Palgrave Macmillan Books, in: The Comparative Economics of Sport, chapter 1, pages 1-78, Palgrave Macmillan.
    4. Roger G. Noll, 2002. "The Economics of Promotion and Relegation in Sports Leagues," Journal of Sports Economics, , vol. 3(2), pages 169-203, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stefan Szymanski & Tommaso M. Valletti, 2010. "Promotion and Relegation in Sporting Contests," Palgrave Macmillan Books, in: The Comparative Economics of Sport, chapter 6, pages 198-228, Palgrave Macmillan.
    2. Lief Brandes & Egon Franck, 2007. "Who Made Who – An Empirical Analysis of Competitive Balance in European Soccer Leagues," Eastern Economic Journal, Eastern Economic Association, vol. 33(3), pages 379-403, Summer.
    3. Wang Zhewei, 2010. "The Optimal Accuracy Level in Asymmetric Contests," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-18, April.
    4. Lief Brandes & Egon Franck, 2007. "Who Made Who – An Empirical Analysis of Competitive Balance in European Soccer Leagues," Eastern Economic Journal, Eastern Economic Association, vol. 33(3), pages 379-403, Summer.
    5. Gürtler Oliver, 2007. "A Rationale for the Coexistence of Central and Decentral Marketing in Team Sports," German Economic Review, De Gruyter, vol. 8(1), pages 89-106, February.
    6. Konrad, Kai A. & Kovenock, Dan, 2009. "Multi-battle contests," Games and Economic Behavior, Elsevier, vol. 66(1), pages 256-274, May.
    7. Allen R. Sanderson & John J. Siegfried, 2003. "Thinking about Competitive Balance," Journal of Sports Economics, , vol. 4(4), pages 255-279, November.
    8. Konrad, Kai A., 2007. "Strategy in contests: an introduction [Strategie in Turnieren – eine Einführung]," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, WZB Berlin Social Science Center.
    9. Stefan Szymanski & Stephen F. Ross, 2007. "Governance And Vertical Integration In Team Sports," Contemporary Economic Policy, Western Economic Association International, vol. 25(4), pages 616-626, October.
    10. Helmut M. Dietl & Markus Lang, 2008. "The Effect Of Gate Revenue Sharing On Social Welfare," Contemporary Economic Policy, Western Economic Association International, vol. 26(3), pages 448-459, July.
    11. Stefan Szymanski & Stephanie Leach, 2006. "Tilting the Playing Field (Why a sports league planner would choose less, not more, competitive balance): The case of English Football," Working Papers 0619, International Association of Sports Economists;North American Association of Sports Economists.
    12. Dmitry Ryvkin, 2007. "Tullock contests of weakly heterogeneous players," Public Choice, Springer, vol. 132(1), pages 49-64, July.
    13. Smith, Aaron C.T. & Stewart, Bob, 2010. "The special features of sport: A critical revisit," Sport Management Review, Elsevier, vol. 13(1), pages 1-13, February.
    14. Cohen, Chen & Sela, Aner, 2005. "Manipulations in contests," Economics Letters, Elsevier, vol. 86(1), pages 135-139, January.
    15. Wladimir Andreff, 2006. "New Perspectives in Sports Economics: A European View," Working Papers 0605, International Association of Sports Economists;North American Association of Sports Economists.
    16. Wladimir Andreff, 2006. "New Perspectives in Sports Economics: The European View," IASE Conference Papers 0601, International Association of Sports Economists.
    17. repec:pit:wpaper:323 is not listed on IDEAS
    18. Szymanski, Stefan & Valletti, Tommaso M., 2005. "Incentive effects of second prizes," European Journal of Political Economy, Elsevier, vol. 21(2), pages 467-481, June.
    19. Eckard, E. Woodrow, 2005. "Team promotion in early major league baseball and the origin of the closed sports league," Explorations in Economic History, Elsevier, vol. 42(1), pages 122-152, January.
    20. Christian Ewerhart, 2014. "Elastic contests and the robustness of the all-pay auctions," ECON - Working Papers 155, Department of Economics - University of Zurich.
    21. ISKAKOV, Mikhail & ISKAKOV, Alexey & ZAKHAROV, Alexey, 2014. "Equilibria in secure strategies in the Tullock contest," LIDAM Discussion Papers CORE 2014010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

    More about this item

    Keywords

    contests; sports league; overinvestment; revenue-sharing; promotion and relegation;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iso:wpaper:0038. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/isuzhch.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: IBW IT (email available below). General contact details of provider: https://edirc.repec.org/data/isuzhch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.