A Proposal for Incentive-Compatible Revenue Sharing in Major League Baseball

2012 ◽  
Vol 26 (6) ◽  
pp. 479-489 ◽  
Author(s):  
Michael G. Wenz
Keyword(s):  
Major League Baseball ◽  
Current System ◽  
Profit Maximization ◽  
Field Performance ◽  
Revenue Sharing ◽  
Optimal Level ◽  
Competitive Balance ◽  
Payroll Tax ◽  
Marginal Value ◽  
Major League

This paper proposes a payroll tax and revenue sharing model for Major League Baseball that better aligns the incentives of individual team owners with league-wide goals of competitive balance and cartel profit maximization. The author demonstrates why the current system is poorly suited for improving competitive balance, then argue for a system of transfer payments based on a more aggressive payroll tax combined with a subsidy distributed based on on-field performance rather than market size or financial performance. High-payroll teams would contribute disproportionately to the revenue-sharing pool, while successful teams would receive disproportionately large subsidies. By increasing the marginal value of a win through the performance-based subsidies, small-market teams will see increased incentives to invest in playing talent. The author presents some limited financial data and suggest how to calibrate the model to yield the optimal level of competitive balance and optimal revenue split between players and owners.

Individual Team Incentives and Managing Competitive Balance in Sports Leagues: An Empirical Analysis of Major League Baseball

2008 ◽  
Vol 45 (5) ◽  
pp. 535-549 ◽  
Author(s):  
Michael Lewis
Keyword(s):  
Programming Model ◽  
Major League Baseball ◽  
Revenue Sharing ◽  
Local Market ◽  
Competitive Balance ◽  
Structural Dynamic ◽  
Local Revenue ◽  
Major League ◽  
Sports Leagues ◽  
The Impact

Major League Baseball and other professional sports leagues have long been concerned with competitive imbalances caused by differences in local revenues. The fear is that in the absence of salary caps or other regulatory mechanisms, smaller-market teams will be unable to remain competitive. This research uses a structural dynamic programming model to analyze ownership's payroll investment decisions. This model estimates the relationship between optimal payrolls and local-market populations and the influence of long-term customer equity dynamics on payroll investments. In addition, the author analyzes the impact of a recent policy intervention that implemented revenue transfers from high-local-revenue markets to low-local-revenue markets. The statistical results indicate that market population has a significant impact on the value of a team's payroll investments. For example, optimal payrolls double as the population increases from 2.5 million to 7.5 million. Furthermore, rather than improving competitive balance, the adoption of revenue sharing has decreased the incentives for small-market teams to remain competitive. The author uses the estimation results to evaluate alternative approaches to managing competitive balance. Specifically, the results suggest that basing revenue-sharing payments on local-market population and (higher) attendance rates reduces payroll dispersion.

Is offense worth more than defense and pitching? Marginal revenue product and revenue sharing in major league baseball

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Justin Andrew Ehrlich ◽  
Joel M. Potter
Keyword(s):  
Major League Baseball ◽  
Revenue Sharing ◽  
Ordinary Least Squares ◽  
Decision Makers ◽  
Marginal Revenue ◽  
Content Type ◽  
Marginal Revenue Product ◽  
Major League ◽  
Team Decision ◽  
Revenue Product

PurposeSports economists have consistently found that winning positively impacts team revenue fans prefer to allocate their entertainment dollars to winning teams. Previous research has also found that fans do not have a preference for how their team wins. However, this research ignores the significant variability in revenue that can exist between teams with similar attendance figures. The authors contribute to the literature by testing whether profit maximizing teams should pay different amounts for different types of production by estimating the marginal revenue product of a win due to offense, defense and pitching.Design/methodology/approachUsing data from the 2010–2017 Major League Baseball seasons and an Ordinary Least Squares-Fixed Effects approach, the authors test whether a unit of offensive, defensive and pitching production generates differing amounts of team revenue both before and after revenue sharing. The authors then test if team Wins Above Replacement is a good approximation of actual wins while accounting for the previously observed nonlinear relationship between wins and revenue.FindingsThe authors found that marginal revenue product estimates in the postrevenue sharing model for mowar, pwar and dwar are nearly identical to each other. Further, after predicting prerevenue sharing, the authors find that fans have no preference for mowar, pwar or dwar play styles.Originality/valueThe findings illustrate that team decision-makers appear to be acting irrationally by paying more for offense than they do for defense. Thus, the findings suggest that team decision-makers should value defensive wins and pitching wins at the same rate as offensive wins on the free agent market.

scholarly journals Revenue Sharing in Major League Baseball: The Moments That Meant so Much

2018 ◽  
Vol 6 (3) ◽  
pp. 71 ◽  
Author(s):  
Duane Rockerbie ◽  
Stephen Easton
Keyword(s):  
Major League Baseball ◽  
Professional Sports ◽  
Revenue Sharing ◽  
Higher Order ◽  
Risk Averse ◽  
Positive Effects ◽  
Small Market ◽  
Major League ◽  
Sports Leagues ◽  
Professional Sports Leagues

Revenue sharing is a common league policy in professional sports leagues. Several motivations for revenue sharing have been explored in the literature, including supporting small market teams, affecting league parity, suppressing player salaries, and improving team profitability. We investigate a different motivation. Risk-averse team owners, through their commissioner, are able to increase their utility by using revenue sharing to affect higher order moments of the revenue distribution. In particular, it may reduce the variance and kurtosis, as well as affecting the skewness of the league distribution of team local revenues. We first determine the extent to which revenue sharing affects these moments in theory, then we quantify the effects on utility for Major League Baseball over the period 2002–2013. Our results suggest that revenue sharing produced significant utility gains at little cost, which enhanced the positive effects noted by other studies.

Competitive Balance in Major League Baseball

1995 ◽  
Vol 39 (2) ◽  
pp. 46-52 ◽  
Author(s):  
Michael R. Butler
Keyword(s):  
Major League Baseball ◽  
Competitive Balance ◽  
Free Agency ◽  
Major League ◽  
Competing Hypotheses

The purpose of this paper is to test several competing hypotheses of the causes of improving competitive balance in major league baseball. Various researchers have previously attributed this improvement in competitive balance to the introduction of free agency, a narrowing of team market sizes, and a compression of baseball talent. Two models of competitive balance are presented and estimated in this paper, with results varying depending on the measure of competitive balance employed. If the degree of competitive balance is measured by the distribution of team winning percentages within a single season, none of the competing hypotheses is supported. If competitive balance is measured by the correlation of team winning percentages across seasons, however, all three of the competing hypotheses are supported.

Common Factors in Major League Baseball Game Attendance

2016 ◽  
Vol 19 (4) ◽  
pp. 583-598 ◽  
Author(s):  
Young H. Lee
Keyword(s):  
Data Model ◽  
Major League Baseball ◽  
Common Factors ◽  
Early Years ◽  
Competitive Balance ◽  
Capita Gross Domestic Product ◽  
Major League ◽  
Per Capita ◽  
Game Attendance ◽  
Modern Era

This article applies a panel data model with observed common factors to Major League Baseball (MLB) data from 1904 to 2012 to analyze attendance. In particular, it aims to identify common factors. The empirical results suggest that MLB fan preferences were simple in the early years (1904-1957) with respect to common factors and then became multifaceted in later years (1958-2012), because the number of significant common factors increased from four to seven. Time trends and per capita gross domestic product were significant over the whole sample period, but outcome uncertainties and offensive performance, such as slugging performance, became newly significant common factors influencing attendance in later years. This indicates that fans consider not only their home team’s characteristics but also the characteristics of the away teams; then, in the modern era, it became critical for the league to implement elaborate business measures to promote competitive balance and slugging performance.

Prospective measures of competitive balance: application to money lines in major league baseball

2013 ◽  
Vol 45 (29) ◽  
pp. 4071-4081 ◽  
Author(s):  
R. Alan Bowman ◽  
Thomas Ashman ◽  
James Lambrinos
Keyword(s):  
Major League Baseball ◽  
Competitive Balance ◽  
Major League

Competitive Balance and Game Attendance in Major League Baseball

2007 ◽  
Vol 8 (6) ◽  
pp. 563-580 ◽  
Author(s):  
James W. Meehan ◽  
Randy A. Nelson ◽  
Thomas V. Richardson
Keyword(s):  
Major League Baseball ◽  
Competitive Balance ◽  
Major League ◽  
Game Attendance
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