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Competitive balance and revenue sharing in sports leagues with utility-maximizing teams


Dietl, Helmut; Grossmann, Martin; Lang, Markus (2011). Competitive balance and revenue sharing in sports leagues with utility-maximizing teams. Journal of Sports Economics, 12(3):284-308.

Abstract

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.

Abstract

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.

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Citations

10 citations in Web of Science®
11 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:2011
Deposited On:28 Oct 2011 14:17
Last Modified:07 Dec 2017 09:23
Publisher:Sage Publications
ISSN:1527-0025
Additional Information:Copyright: Sage Publications, Inc.
Publisher DOI:https://doi.org/10.1177/1527002511404787

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