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Revenue Sharing in Professional Sports Leagues : For the Sake of Competitive Balance or as a Result of Monopsony Power?

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  • Palomino, F.A.

    (Tilburg University, Center For Economic Research)

  • Sakovics, J.

    (Tilburg University, Center For Economic Research)

Abstract

We analyze the distribution of broadcasting revenues by sports leagues. In the context of an isolated league, we show that when the teams engage in competitive bidding to attract talent, the league's optimal choice is full revenue sharing (resulting in full competitive balance) even if the revenues are independent of the level of balancedness. This result is overturned when the league has no monopsony power in the talent market. When the teams of two different leagues bid for talent, the equilibrium level of revenue sharing is bounded away from sharing of revenues: leagues choose a performance-based reward scheme. Finally, we argue that our model explains he observed differences in revenue sharing rules used by the U.S. sports leagues (full revenue sharing) and European soccer leagues (performance-based reward).
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  • 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.
    • Handle: RePEc:tiu:tiucen:2251c089-4e8c-4382-8a0b-e97150c9f363
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    Cited by:

    1. Stefan Szymanski & Stefan Késenne, 2010. "Competitive Balance and Gate Revenue Sharing in Team Sports," Palgrave Macmillan Books, in: The Comparative Economics of Sport, chapter 7, pages 229-243, Palgrave Macmillan.
    2. Palomino, Frederic & Rigotti, Luca, 2000. "The Sport League's Dilemma: Competitive Balance versus Incentives to Win," Department of Economics, Working Paper Series qt2w3284jj, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. Frederic Palomino and Luca Rigotti., 2000. "The Sport League's Dilemma: Competitive Balance versus Incentives to Win," Economics Working Papers E00-292, University of California at Berkeley.
    4. Stefan Szymanski, 2010. "The Economic Design of Sporting Contests," Palgrave Macmillan Books, in: The Comparative Economics of Sport, chapter 1, pages 1-78, Palgrave Macmillan.
    5. 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.
    6. 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.

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