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Legal Restrictions on Buyout Fees: Theory and Evidence from German Soccer

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  • Eberhard Feess
  • Bernd Frick
  • Gerd Muehlheusser

Abstract

We perform a theoretical and empirical analysis of the impact of transfer fee regulations on professional soccer in Europe. Based on a model on the interaction of moral hazard and heterogeneity, we show (i) how the regulations effect contract durations and wages, (ii) that contracting parties have an incentive to agree upon inefficiently long contracts, (iii) how these incentives vary with the legal system, and (iv) how the relationship between contract duration and performance also depends on the legal system. With one exception, all theoretical results are empirically confirmed using a comprehensive data set from the top German Soccer League ("Bundesliga").

Suggested Citation

  • Eberhard Feess & Bernd Frick & Gerd Muehlheusser, 2004. "Legal Restrictions on Buyout Fees: Theory and Evidence from German Soccer," Diskussionsschriften dp0411, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp0411
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    Cited by:

    1. Bernd Frick & Gunnar Pietzner & Joachim Prinz, 2007. "Career Duration a Competitive Environment: The Labor Market for Soccer Players in Germany," Eastern Economic Journal, Eastern Economic Association, vol. 33(3), pages 429-442, Summer.
    2. Jean-Marc Falter & Christophe Pérignon & Olivier Vercruysse, 2008. "Impact of Overwhelming Joy on Consumer Demand," Journal of Sports Economics, , vol. 9(1), pages 20-42, February.
    3. Bernd Frick, 2009. "Globalization and Factor Mobility," Journal of Sports Economics, , vol. 10(1), pages 88-106, February.
    4. Alex Bryson & Giambattista Rossi & Rob Simmons, 2014. "The Migrant Wage Premium in Professional Football: A Superstar Effect?," Kyklos, Wiley Blackwell, vol. 67(1), pages 12-28, February.
    5. Giovanni Bernardo & Massimo Ruberti & Roberto Verona, 2022. "Image is everything! Professional football players' visibility and wages: evidence from the Italian Serie A," Applied Economics, Taylor & Francis Journals, vol. 54(5), pages 595-614, January.
    6. Helmut Dietl & Egon Franck & Markus Lang, 2008. "Why football players may benefit from the ‘shadow of the transfer system’," European Journal of Law and Economics, Springer, vol. 26(3), pages 419-419, December.
    7. Lukas Richau & Florian Follert & Monika Frenger & Eike Emrich, 2021. "The sky is the limit?! Evaluating the existence of a speculative bubble in European football," Journal of Business Economics, Springer, vol. 91(6), pages 765-796, August.
    8. Bernd Frick, 2007. "The Football Players' Labor Market: Empirical Evidence From The Major European Leagues," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(3), pages 422-446, July.
    9. Frick, Bernd, 2012. "Die Entlohnung von Fußball-Profis: Ist die vielfach kritisierte 'Gehaltsexplosion' ökonomisch erklärbar?," Edition HWWI: Chapters, in: Büch, Martin-Peter & Maennig, Wolfgang & Schulke, Hans-Jürgen (ed.), Sport und Sportgroßveranstaltungen in Europa - zwischen Zentralstaat und Regionen, volume 4, pages 79-110, Hamburg Institute of International Economics (HWWI).
    10. Frenger, Monika & Emrich, Eike & Geber, Sebastian & Follert, Florian & Pierdzioch, Christian, 2019. "The influence of performance parameters on market value," Working Papers of the European Institute for Socioeconomics 30, European Institute for Socioeconomics (EIS), Saarbrücken.
    11. Guimaraes, Bernardo & Cordeiro De Noronha Pessoa, Joao Paulo & Ponczek, Vladimir, 2021. "Non-compete agreements, wages and efficiency: theory and evidence from Brazilian football," LSE Research Online Documents on Economics 114417, London School of Economics and Political Science, LSE Library.
    12. Paul Downward, 2014. "English professional football," Chapters, in: John Goddard & Peter Sloane (ed.), Handbook on the Economics of Professional Football, chapter 17, pages 277-297, Edward Elgar Publishing.
    13. Paulo Reis Mourao, 2016. "Soccer transfers, team efficiency and the sports cycle in the most valued European soccer leagues – have European soccer teams been efficient in trading players?," Applied Economics, Taylor & Francis Journals, vol. 48(56), pages 5513-5524, December.
    14. Todd H. Kuethe & Mesbah Motamed, 2010. "Returns to Stardom: Evidence From U.S. Major League Soccer," Journal of Sports Economics, , vol. 11(5), pages 567-579, October.
    15. Richau, Lukas & Follert, Florian & Frenger, Monika & Emrich, Eike, 2021. "The Rainmaker?! The impact of investors on transfer fees in the English Premier League," Working Paper 187/2021, Helmut Schmidt University, Hamburg.

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    More about this item

    Keywords

    regulation of labor markets; long-term contracts; sports economics; breach of contract; empirical contract theory;
    All these keywords.

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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