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

  • Helmut Dietl

    ()

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

  • Martin Grossmann

    ()

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

  • Markus Lang

    ()

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

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, we show that revenue sharing does not always reduce investment incentives due to the dulling effect. We 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.

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File URL: http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/118_ISU_full.pdf
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Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0118.

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Length: 26 pages
Date of creation: Dec 2009
Date of revision: Jun 2010
Handle: RePEc:iso:wpaper:0118
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