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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, School of Economics and Management)

  • Sakovics, J.

    (Tilburg University, School of Economics and Management)

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 sharing of revenues: leagues choose a performance-based reward scheme. Finally, we argue that our model explains he observed differences in revenue sharing rules used by the U.S. sports leagues (full revenue sharing) and European soccer leagues (performance-based reward).
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

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?," Other publications TiSEM 2251c089-4e8c-4382-8a0b-e, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis: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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    Cited by:

    1. Stefan Szymanski & Stefan Késenne, 2010. "Competitive Balance and Gate Revenue Sharing in Team Sports," Palgrave Macmillan Books, in: The Comparative Economics of Sport, chapter 7, pages 229-243, Palgrave Macmillan.
    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. Stefan Szymanski, 2010. "The Economic Design of Sporting Contests," Palgrave Macmillan Books, in: The Comparative Economics of Sport, chapter 1, pages 1-78, Palgrave Macmillan.
    4. 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.
    5. 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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