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Competitive Balance vs. Incentives to Win: A Theoretical Analysis of Revenue Sharing

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  • Frederic Palomino

    (Instituto de Analisis Econimico)

Abstract

We analyze a dynamic model of strategic interaction between the league organizing a professional sport, the teams playing the tournament organized by this league, and broadcasters competing for the rights to televise their matches. Teams and broadcasters maximize expected profits, while the league's objective may be either to maximize the demand for the sport or to maximize the teams' joint profits. Demand depends positively on competitive balance among teams and how intensively they compete to win the tournament. Revenue sharing increases competitive balance but decreases incentives to win. Under demand maximization, a performance-based reward scheme (as used by European top soccer leagues for national TV deals) may be optimal. Under joint profit maximization, full revenue sharing (as used by US team sport leagues for national TV deals) is always optimal.

Suggested Citation

  • Frederic Palomino, 2000. "Competitive Balance vs. Incentives to Win: A Theoretical Analysis of Revenue Sharing," Econometric Society World Congress 2000 Contributed Papers 0930, Econometric Society.
    • Handle: RePEc:ecm:wc2000:0930
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    Cited by:

    1. Palomino, F.A. & Sakovics, J., 2000. "Revenue Sharing in Professional Sports Leagues : For the Sake of Competitive Balance or as a Result of Monopsony Power?," Discussion Paper 2000-110, Tilburg University, Center for Economic Research.
    2. Palomino, Frederic & Sakovics, Jozsef, 2004. "Inter-league competition for talent vs. competitive balance," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 783-797, June.
    3. Barajas, Angel, 2004. "Modelo de valoración de clubes de fútbol basado en los factores clave de su negocio [Valuation model for football clubs based on the key factors of their business]," MPRA Paper 13158, University Library of Munich, Germany.
    4. Barajas, Angel & Crolley, Liz, 2005. "A model to explain support in Spanish football," MPRA Paper 3235, University Library of Munich, Germany.

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