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Progressive Revenue Sharing in MLB: The Effect on Player Transfers

  • Joel G. Maxcy

    ()

    (Department of Kinesiology, University of Georgia)

The 1997 collective bargaining agreement between the Major League Baseball owners and players’ union altered MLB’s system of sharing revenue sharing between clubs. The new system, a convoluted cross-subsidization scheme, by design progressively redistributed income from the highest revenue generating clubs toward the lowest revenue-producing clubs. The 2003 agreement extended this method of revenue redistribution, but with an increased the tax rate and modified process. The purpose of the revenue sharing system was to alleviate a growing disparity in revenue generation, which MLB claimed caused competitive imbalance. We examine progressive revenue sharing theoretically, within the principal-agent framework, and shows that the incentive to divest in talent is increased for lower revenue producing clubs. Empirical results are supportive. Payroll disparity and competitive imbalance increased modestly from the period immediately preceding implementation. Most striking however is the alteration in transfer rates of players, in particular the increased flow of productive talent away from the lowest revenue clubs. We show conclusively that low revenue producing clubs acted on the increased incentives to divest in talent.

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File URL: http://college.holycross.edu/RePEc/spe/Maxcy_Transfers2.pdf
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Paper provided by International Association of Sports Economists & North American Association of Sports Economists in its series Working Papers with number 0728.

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Length: 34 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:spe:wpaper:0728
Contact details of provider: Web page: http://www.cdes.fr/index.php?id=fr69

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  1. 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, 04.
  2. KÉSENNE, Stefan, . "Revenue sharing and competitive balance in professional team sports," Working Papers 1999019, University of Antwerp, Faculty of Applied Economics.
  3. Brad R. Humphreys, 2002. "Alternative Measures of Competitive Balance in Sports Leagues," Journal of Sports Economics, , vol. 3(2), pages 133-148, May.
  4. 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.
  5. 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..
  6. 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, 04.
  7. 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.
  8. E. Woodrow Eckard, 2001. "Baseball’s Blue Ribbon Economic Report," Journal of Sports Economics, , vol. 2(3), pages 213-227, August.
  9. Stephen Hall & Stefan Szymanski & Andrew S. Zimbalist, 2002. "Testing the Causality between Team Performance and Payroll: The Cases of Major League Baseball and English Soccer," Journal of Sports Economics, , vol. 3(2), pages 149-168, May.
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