Competitive balance and gate revenue sharing in team sports

This article uses economic theory to examine the variables that affect the competitive balance in a professional sports league and the impact of revenue sharing. The generally accepted proposition that revenue sharing does not affect the competitive balance in a profi t-maximizing league has been challenged by many. It is shown that the competitive balance and the impact of revenue sharing not only depend on the relative size of the market of the clubs, but that they are also affected by the objectives of the club owners and the importance to spectators of absolute team quality and uncertainty of outcome. Furthermore, the clubs’ hiring strategies, including the talent supply conditions, turn out to be important elements affecting competitive balance and the impact of revenue sharing.

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A Contest Model of a Professional Sports League with Two-Sided Markets

Jahrbücher für Nationalökonomie und Statistik ◽

10.1515/jbnst-2012-0311 ◽

2012 ◽

Vol 232 (3) ◽

Cited By ~ 5

Author(s):

Helmut Dietl ◽

Tobias Duschl ◽

Egon Franck ◽

Markus Lang

Keyword(s):

Network Effects ◽

Network Externalities ◽

Team Sports ◽

Professional Sports ◽

Revenue Sharing ◽

Market Potential ◽

Competitive Balance ◽

Professional Team Sports ◽

Negative Effect ◽

Two Sided Markets

SummaryThis paper develops a model of a professional sports league with network externalities by integrating the theory of two-sided markets into a two-stage contest model. In professional team sports, the competition of the clubs functions as a platform that enables sponsors to interact with fans. In these club-mediated interactions, positive network effects operate from the fan market to the sponsor market, while positive or negative network effects operate from the sponsor market to the fan market. We show that the size of these network effects determines the level of competitive balance within the league. If the market potential of the sponsors is small (large), competitive balance increases (decreases) with stronger combined network effects. We further deduce that clubs benefit from stronger combined network effects through higher profits and that network externalities can mitigate the negative effect of revenue sharing on competitive balance. Finally, we derive implications for improving competitive balance by taking advantage of network externalities. For example, our model suggests that an increase in the market potential of sponsors produces a more balanced league.

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Economics of Antitrust

10.5406/illinois/9780252039140.003.0002 ◽

2017 ◽

Cited By ~ 1

Author(s):

David George Surdam

Keyword(s):

Team Sports ◽

Professional Sports ◽

Revenue Sharing ◽

Antitrust Law ◽

Competitive Balance ◽

Sports Teams ◽

Sherman Act ◽

Professional Team Sports ◽

Sports Leagues ◽

Professional Sports Leagues

This chapter examines the economics of antitrust, with particular emphasis on how antitrust law affects professional team sports. In the late 1800s, Americans worried about the growing concentration of power in the hands of a few producers such as Standard Oil, American Tobacco, and other large firms that consolidated their holds over industries by merging and acquiring other companies. Other industrial leaders sought to fix prices above those obtained under competition. The Sherman Antitrust Act, enacted in 1890, contains provisions addressing “contract,” “conspiracy,” and “trade and commerce.” This chapter first considers how courts applied the Sherman Act to cases involving professional team sports before discussing the characteristics of professional sports leagues, how owners of professional sports teams reported profits and losses, the issue of player salaries and exploitation, and competitive balance and revenue sharing in professional leagues. It also describes franchise relocation and expansion and how television created demand in sports.

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Revenue Sharing, Competitive Balance and the Contest Success Function

German Economic Review ◽

10.1111/j.1468-0475.2011.00530.x ◽

2011 ◽

Vol 12 (3) ◽

pp. 256-273 ◽

Cited By ~ 3

Author(s):

Marco Runkel

Keyword(s):

Revenue Sharing ◽

Competitive Balance ◽

Contest Success Function ◽

Success Function

Abstract This paper investigates revenue sharing in an asymmetric two-teams contest model of a sports league with Nash behavior of team owners. The innovation of the analysis is that it focuses on the role of the contest success function (CSF). In case of an inelastic talent supply, revenue sharing turns out to worsen competitive balance regardless of the shape of the CSF. For the case of an elastic talent supply, in contrast, the effect of revenue sharing on competitive balance depends on the specification of the CSF. We fully characterize the class of CSFs for which revenue sharing leaves unaltered competitive balance and identify CSFs ensuring that revenue sharing renders the contest closer.

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