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Welfare Effects of Salary Caps in Sports Leagues with Win-Maximizing Clubs

  • Helmut Dietl

    ()

    (Institute for Strategy and Business Economics, University of Zurich)

  • Egon FrancK

    ()

    (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)

This paper studies the welfare effect of a percentage-of-revenue salary cap in a European context with win-maximizing clubs. It shows that a percentage-of-revenue cap increases competitive balance and decreases the overall salary payments in the league, therefore contributing to financial stability. A percentage-of-revenue cap will always increase social welfare if the weight on aggregate club surplus in the welfare function is sufficiently high. Additionally, if fans’ preferences for aggregate talent are sufficiently high then the percentage-of-revenue cap will also increase social welfare; no matter how much weight the league puts on financial stability.

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File URL: http://college.holycross.edu/RePEc/spe/Dietletal_SalaryCaps.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 0825.

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Length: 25 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:spe:wpaper:0825
Contact details of provider: Web page: http://www.cdes.fr/index.php?id=fr69

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  1. 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.
  2. Sonia Falconieri & Frédéric Palomino & József Sákovics, 2004. "Collective Versus Individual Sale of Television Rights in League Sports," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 833-862, 09.
  3. Cyrenne, Philippe, 2001. "A Quality of Play Model of a Professional Sports League," MPRA Paper 29060, University Library of Munich, Germany.
  4. Helmut Dietl & Markus Lang & Alexander Rathke, 2007. "The Effect of Salary Caps in Professional Team Sports on Social Welfare," Working Papers 0016, University of Zurich, Center for Research in Sports Administration (CRSA).
  5. Helmut Dietl & Egon Franck & Stephan Nüesch, 2005. "Are Voluntary Salary Cap Agreements Self-Enforcing?," Working Papers 0040, University of Zurich, Institute for Strategy and Business Economics (ISU).
  6. 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.
  7. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
  8. KÉSENNE, Stefan, . "The salary cap proposal of the G-14 in European football," Working Papers 2003018, University of Antwerp, Faculty of Applied Economics.
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