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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Helmut Dietl & Martin Grossmann & Markus Lang, 2009. "Competitive Balance and Revenue Sharing in Sports Leagues with Utility-Maximizing Teams," Working Papers 0033, University of Zurich, Center for Research in Sports Administration (CRSA), revised Jun 2010.
    • Handle: RePEc:rsd:wpaper:0033
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    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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