The Economics of Professional Sports Leagues

Over the years, sporting leagues around the world have implemented a number of cross-subsidization policies aiming to preserve their competitive balance. The main target of these policies has been the sporting labor market. Some of these policies aim to directly affect players' salaries, whereas others attempt to reform the transfer market. In this article, after a brief review of cross-subsidization policies, the authors develop a simple model of the transfer market where players' salaries are determined by a bargaining process. Within this framework, the authors reexamine the effect of such policies for competitive balance, taking explicitly into account their effects on transactions in the transfer market.