Abstract
This article develops a game-theoretical model to analyze the effect of subsidies on player salaries, competitive balance, club profits, and welfare. Within this model, fan demand depends on win percentage, competitive balance, and aggregate talent. The results show that if a large-market club receives a subsidy and fans have a relatively strong preference for aggregate talent, compared to competitive balance and own team winning percentage, club profits and welfare increase for both clubs. If the small-market club is subsidized, a small subsidy increases competitive balance and player salaries of both clubs.
Dietl, Helmut M