IDEAS home Printed from https://ideas.repec.org/p/spe/wpaper/0728.html
   My bibliography  Save this paper

Progressive Revenue Sharing in MLB: The Effect on Player Transfers

Author

Listed:
  • Joel G. Maxcy

    () (Department of Kinesiology, University of Georgia)

Abstract

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.

Suggested Citation

  • Joel G. Maxcy, 2007. "Progressive Revenue Sharing in MLB: The Effect on Player Transfers," Working Papers 0728, International Association of Sports Economists;North American Association of Sports Economists.
  • Handle: RePEc:spe:wpaper:0728
    as

    Download full text from publisher

    File URL: http://web.holycross.edu/RePEc/spe/Maxcy_Transfers2.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. 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.
    4. E. Woodrow Eckard, 2001. "Baseball’s Blue Ribbon Economic Report," Journal of Sports Economics, , vol. 2(3), pages 213-227, August.
    5. 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.
    6. Stefan Kesenne, 2000. "Revenue Sharing and Competitive Balance in Professional Team Sports," Journal of Sports Economics, , vol. 1(1), pages 56-65, February.
    7. 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.
    8. 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..
    9. Brad R. Humphreys, 2002. "Alternative Measures of Competitive Balance in Sports Leagues," Journal of Sports Economics, , vol. 3(2), pages 133-148, May.
    10. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sittl, Roman & Warnke, Arne Jonas, 2016. "Competitive balance and assortative matching in the German Bundesliga," ZEW Discussion Papers 16-058, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Joel G. Maxcy, 2011. "The Effect on Player Transfers of a Luxury Tax on Club Payrolls: The Case of Major League Baseball," Chapters,in: Contemporary Issues in Sports Economics, chapter 5 Edward Elgar Publishing.
    3. repec:spr:annopr:v:238:y:2016:i:1:d:10.1007_s10479-015-2099-7 is not listed on IDEAS

    More about this item

    Keywords

    Sport; revenue redistribution; collective bargaining;

    JEL classification:

    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spe:wpaper:0728. 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). General contact details of provider: http://edirc.repec.org/data/iaseeea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.