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Revenue Sharing in Professional Sports Leagues : For the Sake of Competitive Balance or as a Result of Monopsony Power?

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  • Palomino, F.A.

    (Tilburg University, Center For Economic Research)

  • Sakovics, J.

    (Tilburg University, Center For Economic Research)

Abstract

We analyze the distribution of broadcasting revenues by sports leagues.In the context of an isolated league, we show that when the teams engage in competitive bidding to attract talent, the league's optimal choice is full revenue sharing (resulting in full competitive balance) even if the revenues are independent of the level of balancedness.This result is overturned when the league has no monopsony power in the talent market.When the teams of two different leagues bid for talent, the equilibrium level of revenue sharing is bounded away from the full sharing of revenues: leagues choose a performance-based reward scheme.Finally, we argue that our model explains the observed differences in revenue sharing rules used by the U.S. sports leagues (full revenue sharing) and European soccer leagues (performance-based reward).

Suggested Citation

  • Palomino, F.A. & Sakovics, J., 2000. "Revenue Sharing in Professional Sports Leagues : For the Sake of Competitive Balance or as a Result of Monopsony Power?," Discussion Paper 2000-110, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:2251c089-4e8c-4382-8a0b-e97150c9f363
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    References listed on IDEAS

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    1. 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.
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    5. Scully, Gerald W., 1995. "The Market Structure of Sports," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226743950, July.
    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. Frederic Palomino, 2000. "Competitive Balance vs. Incentives to Win: A Theoretical Analysis of Revenue Sharing," Econometric Society World Congress 2000 Contributed Papers 0930, Econometric Society.
    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. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-858, December.
    10. Thomas Hoehn & Stefan Szymanski, 1999. "The Americanization of European football," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 203-240, April.
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    Cited by:

    1. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
    2. Frederic Palomino and Luca Rigotti., 2000. "The Sport League's Dilemma: Competitive Balance versus Incentives to Win," Economics Working Papers E00-292, University of California at Berkeley.
    3. Palomino, Frederic & Sakovics, Jozsef, 2004. "Inter-league competition for talent vs. competitive balance," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 783-797, June.
    4. Barajas, Angel, 2004. "Modelo de valoración de clubes de fútbol basado en los factores clave de su negocio
      [Valuation model for football clubs based on the key factors of their business]
      ," MPRA Paper 13158, University Library of Munich, Germany.

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