Revenue Sharing in MLB: The Effect on Player Transfers
The 1997 collective bargaining agreement between the Major League Baseball owners and players’ union considerably altered the system of revenue redistribution. This system, a convoluted cross-subsidization system, known as the “split pool plan”, was designed to progressively redistribute income from the highest revenue generating teams toward the lowest revenue-producing clubs. The 2003 agreement extended the basic system of revenue redistribution, but increased the tax rate to 34%, and modified the nature of the redistribution. The purpose of the revenue sharing system was to alleviate a growing disparity in revenue generation, which MLB claims is continuing to cause increased levels of competitive imbalance. The new scheme is examined theoretically within the principal-agent framework, which shows that the incentive to divest in talent is increased for low revenue clubs. Empirical results are supportive. Payroll disparity and competitive imbalance increased modestly from the period immediately preceding implementation. Most striking however is a significant increase in the rate that productive players have transferred away from low revenue teams. This strongly suggests that these teams were acting on the increased incentives to divest in talent.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Daniel Rascher, 1997. "A model of a professional sports league," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 3(3), pages 327-328, August.
- Joel G. Maxcy, 2002. "Rethinking Restrictions On Player Mobility In Major League Baseball," Contemporary Economic Policy, Western Economic Association International, vol. 20(2), pages 145-159, April.
- E. Woodrow Eckard, 2001. "Baseballâ€™s Blue Ribbon Economic Report," Journal of Sports Economics, , vol. 2(3), pages 213-227, August.
- Daniel R. Marburger, 1997. "Gate Revenue Sharing And Luxury Taxes In Professional Sports," Contemporary Economic Policy, Western Economic Association International, vol. 15(2), pages 114-123, April.
- Stefan Kesenne, 2000. "Revenue Sharing and Competitive Balance in Professional Team Sports," Journal of Sports Economics, , vol. 1(1), pages 56-65, February.
- 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.
- 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 1302-1319, Nov.-Dec..
- Daly, George & Moore, William J, 1981. "Externalities, Property Rights and the Allocation of Resources in Major League Baseball," Economic Inquiry, Western Economic Association International, vol. 19(1), pages 77-95, January.
- Stephen Hall & Stefan Szymanski & Andrew S. Zimbalist, 2002. "Testing Causality Between Team Performance and Payroll," Journal of Sports Economics, , vol. 3(2), pages 149-168, May.
- Brad R. Humphreys, 2002. "Alternative Measures of Competitive Balance in Sports Leagues," Journal of Sports Economics, , vol. 3(2), pages 133-148, May.
When requesting a correction, please mention this item's handle: RePEc:spe:cpaper:0634. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Victor Matheson)
If references are entirely missing, you can add them using this form.