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The Combined Effect of Salary Restrictions and Revenue Sharing in Sports Leagues

Author

Listed:
  • Helmut Dietl

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

  • Markus Lang

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

  • Alexander Rathke

    () (Institute for Empirical Research in Economics, University of Zurich)

Abstract

Many major sports leagues are characterized by a combination of cross-subsidization mechanisms like revenue-sharing arrangements and payroll restrictions. Up to now, the effects of these policy tools have only been analyzed separately. This article provides a theoretical model of a team sports league and analyzes the combined effect of salary restrictions (caps and floors) and revenue sharing. It shows that the effect on club profits, player salaries, and competitive balance crucially depends on the mix of these policy tools. Moreover, the invariance proposition does not hold even under Walrasian-conjectures if revenue sharing is combined with a salary cap or floor.

Suggested Citation

  • Helmut Dietl & Markus Lang & Alexander Rathke, 2009. "The Combined Effect of Salary Restrictions and Revenue Sharing in Sports Leagues," Working Papers 0102, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Jan 2010.
  • Handle: RePEc:iso:wpaper:0102
    as

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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Oliver Guertler & Markus Lang & Tim Pawlowski, 2011. "On the Release of Players to National Teams," Working Papers 0046, University of Zurich, Center for Research in Sports Administration (CRSA).
    2. Grossmann Martin & Lang Markus & Dietl Helmut, 2011. "Transitional Dynamics in a Tullock Contest with a General Cost Function," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-26, August.
    3. 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(02), pages 1-30, August.
    4. Helmut Dietl & Rodney Fort & Markus Lang, 2011. "International Sports League Comparisons," Working Papers 0042, University of Zurich, Center for Research in Sports Administration (CRSA).
    5. Helmut Dietl & Egon Franck & Martin Grossmann & Markus Lang, 2009. "Contest Theory and its Applications in Sports," Working Papers 0029, University of Zurich, Center for Research in Sports Administration (CRSA).
    6. 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.
    7. Helmut Dietl & Tobias Duschl & Markus Lang, 2010. "Gehaltsobergrenzen und Luxussteuern: Erkenntnisse aus dem professionellen Mannschaftssport," Working Papers 0136, University of Zurich, Institute for Strategy and Business Economics (ISU).
    8. 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 0122, University of Zurich, Institute for Strategy and Business Economics (ISU).
    9. 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.
    10. Paul Madden, 2018. "Collective Bargaining in a Basic North American Sports League Model," The School of Economics Discussion Paper Series 1812, Economics, The University of Manchester.
    11. Papahristodoulou, Christos, 2009. "Bonus, effort, costs, market size and teams' performance," MPRA Paper 16989, University Library of Munich, Germany.
    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).

    More about this item

    Keywords

    Team sports leagues; invariance proposition; competitive balance; revenue sharing; salary cap; salary floor;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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