THE COMBINED EFFECT OF SALARY RESTRICTIONS AND REVENUE SHARING IN SPORTS LEAGUES

Many major sports leagues are characterized by a combination of cross‐subsidization mechanisms like revenue‐sharing arrangements and payroll restrictions. Up to now, the effects of these policy tools have only been analyzed separately. This article provides a theoretical model of a team sports leagu...

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Bibliographic Details
Published in:Economic inquiry 2011-04, Vol.49 (2), p.447-463
Main Authors: DIETL, HELMUT M., LANG, MARKUS, RATHKE, ALEXANDER
Format: Article
Language:English
Subjects:
Analysis
Athletes
Compensation and benefits
Competition
Competitiveness
Economics
Evaluation
Impact analysis
Income distribution
Policy
Professional sports
Profit
Revenue sharing
Salaries
Salary caps
Sports
Sports associations
Sports team owners
Statistical analysis
Studies
Team sports
Wages
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Summary:Many major sports leagues are characterized by a combination of cross‐subsidization mechanisms like revenue‐sharing arrangements and payroll restrictions. Up to now, the effects of these policy tools have only been analyzed separately. This article provides a theoretical model of a team sports league and analyzes the combined effect of salary restrictions (caps and floors) and revenue sharing. It shows that the effect on club profits, player salaries, and competitive balance crucially depends on the mix of these policy tools. Moreover, the invariance proposition does not hold even under Walrasian‐conjectures if revenue sharing is combined with a salary cap or floor. (JEL L83, C72, L11)
ISSN:0095-2583
1465-7295
DOI:10.1111/j.1465-7295.2010.00330.x