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

  • 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)

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.

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File URL: http://repec.business.uzh.ch/RePEc/rsd/CRSA_WPS/27_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 0027.

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Length: 37 pages
Date of creation: Apr 2009
Date of revision: Jan 2010
Handle: RePEc:rsd:wpaper:0027
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  1. Rodney Fort & Jason Winfree, 2009. "Sports Really are Different: The Contest Success Function and the Supply of Talent," Review of Industrial Organization, Springer, vol. 34(1), pages 69-80, February.
  2. Scott E. Atkinson & Linda R. Stanley & John Tschirhart, 1988. "Revenue Sharing as an Incentive in an Agency Problem: An example from the National Football League," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 27-43, Spring.
  3. Idson, Todd L & Kahane, Leo H, 2000. "Team Effects on Compensation: An Application to Salary Determination in the National Hockey League," Economic Inquiry, Western Economic Association International, vol. 38(2), pages 345-57, April.
  4. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
  5. Stefan Szymanski & Stefan KÈsenne, 2004. "Competitive balance and gate revenue sharing in team sports," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 165-177, 03.
  6. Skaperdas, Stergios, 1996. "Contest Success Functions," Economic Theory, Springer, vol. 7(2), pages 283-90, February.
  7. 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.
  8. Kesenne, Stefan, 2000. "The Impact of Salary Caps in Professional Team Sports," Scottish Journal of Political Economy, Scottish Economic Society, vol. 47(4), pages 422-30, September.
  9. 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.
  10. Rodney Fort & James Quirk, 2007. "Rational Expectations And Pro Sports Leagues," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(3), pages 374-387, 07.
  11. Christian Riis & Derek J. Clark, 1997. "Contest success functions: an extension," Economic Theory, Springer, vol. 11(1), pages 201-204.
  12. Helmut Dietl & Egon Franck & Markus Lang, 2005. "Overinvestment in Team Sports Leagues: A Contest Theory Model," Working Papers 0038, University of Zurich, Institute for Strategy and Business Economics (ISU), revised 2007.
  13. Stefan Kesenne, 2000. "Revenue Sharing and Competitive Balance in Professional Team Sports," Journal of Sports Economics, , vol. 1(1), pages 56-65, February.
  14. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  15. Cyrenne, Philippe, 2001. "A Quality-of-Play Model of a Professional Sports League," Economic Inquiry, Western Economic Association International, vol. 39(3), pages 444-52, July.
  16. Helmut Dietl & Markus Lang & Alexander Rathke, 2007. "The Effect of Salary Caps in Professional Team Sports on Social Welfare," Working Papers 0072, University of Zurich, Institute for Strategy and Business Economics (ISU).
  17. 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.
  18. Rodney Fort & Young Hoon Lee, 2007. "Structural Change, Competitive Balance, And The Rest Of The Major Leagues," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 519-532, 07.
  19. El-Hodiri, Mohamed & Quirk, James, 1971. "An Economic Model of a Professional Sports League," Journal of Political Economy, University of Chicago Press, vol. 79(6), pages 1302-19, Nov.-Dec..
  20. Thomas Hoehn & Stefan Szymanski, 1999. "The Americanization of European football," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 203-240, 04.
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