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Pool Revenue Sharing, Team Investments, and Competitive Balance in Professional Sports A Theoretical Analysis

Author

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  • Yang-Ming Chang

    (Kansas State University, ymchang@ksu.edu)

  • Shane Sanders

    (Nicholls State University)

Abstract

Using a contest model of a professional sports league, we show that pool revenue sharing has a negative effect on total expenditure for player talent. There are ``moral hazard'' problems with lower revenue teams in that they may pocket the money they receive from the pool without increasing talent investments. Based on four alternative measures of competitive balance, we find that pool revenue sharing increases the variance of expected winning percentages for a match and thus reduces the degree of competition in the league. Policy recommendations that combine pool revenue sharing with the requirement of a minimum payroll on players are shown to be procompetitive.

Suggested Citation

  • Yang-Ming Chang & Shane Sanders, 2009. "Pool Revenue Sharing, Team Investments, and Competitive Balance in Professional Sports A Theoretical Analysis," Journal of Sports Economics, , vol. 10(4), pages 409-428, August.
    • Handle: RePEc:sae:jospec:v:10:y:2009:i:4:p:409-428
    DOI: 10.1177/1527002508328823
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    References listed on IDEAS

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    Cited by:

    1. Cedric Duvinage & Peter-J. Jost, 2019. "The Role of Referees in Professional Sports Contests," Journal of Sports Economics, , vol. 20(8), pages 1014-1050, December.
    2. Miceli, Thomas J., 2024. "Patent races and pennant races: A new rationale for revenue sharing in sports leagues," Economics Letters, Elsevier, vol. 234(C).
    3. Fort, Rodney & Maxcy, Joel & Diehl, Mark, 2016. "Uncertainty by regulation: Rottenberg׳s invariance principle," Research in Economics, Elsevier, vol. 70(3), pages 454-467.
    4. Helmut Dietl & Rodney Fort & Markus Lang, 2011. "International Sports League Comparisons," Working Papers 0042, University of Zurich, Center for Research in Sports Administration (CRSA).
    5. Jason Winfree & Rodney Fort, 2012. "Nash Conjectures and Talent Supply in Sports League Modeling," Journal of Sports Economics, , vol. 13(3), pages 306-313, June.
    6. Liam J. A. Lenten, 2017. "A Formal Test for Asymmetry in the Uncertainty of Outcome Hypothesis," Journal of Sports Economics, , vol. 18(3), pages 253-270, April.
    7. Chang Yang-Ming & Sanders Shane D., 2009. "Corruption on the Court: The Causes and Social Consequences of Point-Shaving in NCAA Basketball," Review of Law & Economics, De Gruyter, vol. 5(1), pages 269-291, May.
    8. Subhasish M. Chowdhury & Patricia Esteve‐González & Anwesha Mukherjee, 2023. "Heterogeneity, leveling the playing field, and affirmative action in contests," Southern Economic Journal, John Wiley & Sons, vol. 89(3), pages 924-974, January.

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