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Salary cap regulation in professional team sports


Dietl, Helmut M; Franck, Egon; Lang, Markus; Rathke, Alexander (2012). Salary cap regulation in professional team sports. Contemporary Economic Policy, 30(3):307-319.

Abstract

This paper analyzes the effects of a percentage-of-revenue salary cap in a team sports league with win-maximizing clubs and flexible talent supply. It shows that a percentage-of-revenue cap produces a more balanced league and decreases aggregate salary payments. Taking into account the idiosyncrasies of European football, our paper further highlights the potential conflicts between the league and society. From the perspective of a league governing body, a percentage-of-revenue cap always enhances financial stability of win-maximizing clubs. A social planner, however, will not permit the introduction of such a cap if fans and players unduly suffer. This paper shows under which conditions the social planner accepts (rejects) a salary cap proposed by the league regulator.

Abstract

This paper analyzes the effects of a percentage-of-revenue salary cap in a team sports league with win-maximizing clubs and flexible talent supply. It shows that a percentage-of-revenue cap produces a more balanced league and decreases aggregate salary payments. Taking into account the idiosyncrasies of European football, our paper further highlights the potential conflicts between the league and society. From the perspective of a league governing body, a percentage-of-revenue cap always enhances financial stability of win-maximizing clubs. A social planner, however, will not permit the introduction of such a cap if fans and players unduly suffer. This paper shows under which conditions the social planner accepts (rejects) a salary cap proposed by the league regulator.

Citations

3 citations in Web of Science®
4 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Language:English
Date:2012
Deposited On:10 Jul 2012 14:55
Last Modified:05 Apr 2016 15:53
Publisher:Wiley-Blackwell
ISSN:1074-3529
Publisher DOI:https://doi.org/10.1111/j.1465-7287.2011.00265.x
Other Identification Number:merlin-id:7135

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