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The Effect of Gate Revenue-Sharing on Social Welfare

Author

Listed:
  • Helmut Dietl

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

  • Markus Lang

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

Abstract

This paper provides a theoretical model of a team sports league based on contest theory and studies the welfare effect of gate revenue-sharing. It derives two counter-intuitive results. First, it challenges the "invariance proposition" by showing that revenue-sharing reduces competitive balance and thus produces a more unbalanced league. Second, the paper concludes that a lower degree of competitive balance compared with the non-cooperative league equilibrium yields a higher level of social welfare and club profits. Combining both results, we conclude that gate revenue-sharing increases social welfare and club profits in our model.

Suggested Citation

  • Helmut Dietl & Markus Lang, 2006. "The Effect of Gate Revenue-Sharing on Social Welfare," Working Papers 0012, University of Zurich, Center for Research in Sports Administration (CRSA), revised 2007.
    • Handle: RePEc:rsd:wpaper:0012
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    File URL: http://repec.business.uzh.ch/RePEc/rsd/CRSA_WPS/12_CRSA_full.pdf
    File Function: First version, 2006
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D6 - Microeconomics - - Welfare Economics
    • 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

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