Competitive Balance and Revenue Sharing in Sports Leagues With Utility-Maximizing Teams

This paper develops a contest model of a professional sports league in which clubs maximize a weighted sum of profits and wins (utility maximization). The model analyzes how more win-oriented behavior of certain clubs affects talent investments, competitive balance, and club profits. Moreover, in co...

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Bibliographic Details
Published in:Journal of sports economics 2011-06, Vol.12 (3), p.284-308
Main Authors: Dietl, Helmut M., Grossmann, Martin, Lang, Markus
Format: Article
Language:English
Subjects:
Competition
Professional sports
Revenue sharing
Studies
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Summary:This paper develops a contest model of a professional sports league in which clubs maximize a weighted sum of profits and wins (utility maximization). The model analyzes how more win-oriented behavior of certain clubs affects talent investments, competitive balance, and club profits. Moreover, in contrast to traditional models, the authors show that revenue sharing does not always reduce investment incentives due to the dulling effect. The authors identify a new effect of revenue sharing called the ‘‘sharpening effect.’’ In the presence of the sharpening effect (dulling effect), revenue sharing enhances (reduces) investment incentives and improves (deteriorates) competitive balance in the league.
ISSN:1527-0025
1552-7794
DOI:10.1177/1527002511404787