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Salary Cap Regulation in Professional Team Sports

  • 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)

  • Alexander Rathke

    ()

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

This paper analyzes the effects of a percentage-of-revenue salary cap in a team sports league with win-maximizing clubs and flexible talent supply. It shows that a percentage-of-revenue cap produces a more balanced league and decreases aggregate salary payments. Taking into account the idiosyncrasies of European football, our paper further highlights the potential conflicts between the league and society. From the perspective of a league governing body, a percentage-of-revenue cap always enhances financial stability of win-maximizing clubs. A social planner, however, will not permit the introduction of such a cap if fans and players unduly suffer. This paper shows under which conditions the social planner accepts (rejects) a salary cap proposed by the league regulator.

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File URL: http://repec.business.uzh.ch/RePEc/rsd/CRSA_WPS/20_CRSA_full.pdf
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Paper provided by University of Zurich, Center for Research in Sports Administration (CRSA) in its series Working Papers with number 0020.

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Length: 24 pages
Date of creation: Jul 2008
Date of revision: Nov 2010
Handle: RePEc:rsd:wpaper:0020
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  1. 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.
  2. Stefan Kesenne, 2000. "Revenue Sharing and Competitive Balance in Professional Team Sports," Journal of Sports Economics, , vol. 1(1), pages 56-65, February.
  3. Markus Lang & Martin Grossmann & Philipp Theiler, 2011. "The Sugar Daddy Game: How Wealthy Investors Change Competition in Professional Team Sports," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(4), pages 557-577, December.
  4. Thomas Hoehn & Stefan Szymanski, 1999. "The Americanization of European football," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 203-240, 04.
  5. Helmut Dietl & Egon Franck & Markus Lang, 2006. "Why football players may benefit from the "shadow of the transfer system"," Working Papers 0013, University of Zurich, Center for Research in Sports Administration (CRSA), revised 2007.
  6. Dietl Helmut M & Lang Markus & Rathke Alexander, 2009. "The Effect of Salary Caps in Professional Team Sports on Social Welfare," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-23, April.
  7. KÉSENNE, Stefan, . "The impact of salary caps in professional team sports," Working Papers 1999026, University of Antwerp, Faculty of Applied Economics.
  8. SZYMANSKI, Stefan & KÉSENNE, Stefan, 2003. "Competitive balance and gate revenue sharing in team sports," Working Papers 2003003, University of Antwerp, Faculty of Applied Economics.
  9. Helmut M. Dietl & Egon Franck & Markus Lang, 2008. "Overinvestment In Team Sports Leagues: A Contest Theory Model," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(3), pages 353-368, 07.
  10. Helmut Dietl & Markus Lang & Stephan Werner, 2008. "Social Welfare in Sports Leagues with Profit-Maximizing and/or Win-Maximizing Clubs," Working Papers 0090, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Jul 2009.
  11. Helmut Dietl & Egon Franck & Tariq Hasan & Markus Lang, 2006. "Governance of Professional Sports Leagues - Cooperatives versus Contracts," Working Papers 0011, University of Zurich, Center for Research in Sports Administration (CRSA), revised 2007.
  12. Sloane, Peter J, 1971. "The Economics of Professional Football: The Football Club as a Utility Maximiser," Scottish Journal of Political Economy, Scottish Economic Society, vol. 18(2), pages 121-46, June.
  13. Helmut Dietl & Markus Lang, 2006. "The Effect of Gate Revenue-Sharing on Social Welfare," Working Papers 0060, University of Zurich, Institute for Strategy and Business Economics (ISU), revised 2007.
  14. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
  15. KÉSENNE, Stefan, . "The salary cap proposal of the G-14 in European football," Working Papers 2003018, University of Antwerp, Faculty of Applied Economics.
  16. Sonia Falconieri & Frédéric Palomino & József Sákovics, 2004. "Collective Versus Individual Sale of Television Rights in League Sports," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 833-862, 09.
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