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Free Ride, Take it Easy: An Empirical Analysis of Adverse Incentives Caused by Revenue Sharing

Author

Listed:
  • Daniel, Rascher
  • Matt, Brown
  • Mark, Nagel
  • Chad, McEvoy

Abstract

A fundamental belief in professional sport leagues is that competitive balance is needed to maximize demand and revenues; therefore, leagues have created policies attempting to attain proper competitive balance. Further, research posits that objectives of professional sport teams’ owners include some combination of winning and profit maximization. Although the pursuit of wins is a zero sum game, revenue generation and potential profit making is not. This article focuses upon the National Football League’s potential unintended consequences of creating the incentive for some teams to free ride on the rest of the league’s talent and brand. It examines whether an owner’s objectives to generate increased revenues and profits are potentially enhanced by operating as a continual low-cost provider while making money from the shared revenues and brand value of the league. The present evidence indicates that, overall, being a low-cost provider is more profitable than increasing player salaries in an attempt to win additional games.

Suggested Citation

  • Daniel, Rascher & Matt, Brown & Mark, Nagel & Chad, McEvoy, 2009. "Free Ride, Take it Easy: An Empirical Analysis of Adverse Incentives Caused by Revenue Sharing," MPRA Paper 25806, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:25806
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    File URL: https://mpra.ub.uni-muenchen.de/25806/1/MPRA_paper_25806.pdf
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    References listed on IDEAS

    as
    1. Scully, Gerald W., 1995. "The Market Structure of Sports," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226743950, August.
    2. 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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    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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