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Revenue Sharing in Professional Sports Leagues as a Hedge for Exchange Rate Risk

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  • Rockerbie, Duane
  • Easton, Stephen

Abstract

Professional sports leagues that feature teams in different countries with different currencies are exposed to exchange rate uncertainty and risk. This is particularly evident for three professional sports leagues that feature teams in the United States and Canada. We construct a simple model of a profit-maximizing team that earns its revenue in one currency and meets its payroll obligations in a second currency and participates in a league-imposed revenue sharing plan. Team profit can increase or decrease due to movements in the exchange rate based on a simple condition. Revenue sharing reduces the exposure to exchange rate uncertainty and risk. Hedging is possible for a single team by adjusting its payroll, but not likely. Some elementary calculations suggest this previously unrecognized benefit of revenue sharing is substantial for baseball’s Toronto Blue Jays.

Suggested Citation

  • Rockerbie, Duane & Easton, Stephen, 2017. "Revenue Sharing in Professional Sports Leagues as a Hedge for Exchange Rate Risk," MPRA Paper 77428, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:77428
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    References listed on IDEAS

    as
    1. Stefan Kesenne, 2015. "Revenue Sharing and Absolute League Quality; Talent Investment and Talent Allocation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 62(1), pages 51-58, February.
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    7. Rockerbie, Duane, 2007. "Free Agent Auctions and Revenue Sharing: A Simple Approach," MPRA Paper 2218, University Library of Munich, Germany.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Revenue sharing; exchange rate; baseball; risk;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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