nep-spo New Economics Papers
on Sports and Economics
Issue of 2007‒10‒06
two papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. The Effect of Salary Caps in Professional Team Sports on Social Welfare By Helmut Dietl; Markus Lang; Alexander Rathke
  2. The Collective Bargaining Effects of NBA Player Productivity Dynamics By Turner, Chad; Hakes, Jahn Karl

  1. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Alexander Rathke (Institute for Empirical Research in Economics, University of Zurich)
    Abstract: Increasing financial disparity and spiralling wages in European football have triggered a debate about the introduction of salary caps. This paper provides a theoretical model of a team sports leagues and studies the welfare effect of salary caps. It shows that salary caps will increase competitive balance and decrease overall salary payments within the league. The resulting effect on social welfare is counter-intuitive and depends on the preference of fans for aggregate talent and for competitive balance. A salary cap that binds only for large market clubs will increase social welfare if fans prefer aggregate talent despite the fact that the salary cap will result in lower aggregate talent. If fans prefer competitive balance, on the other hand, any binding salary cap will reduce social welfare.
    Keywords: Salary Caps, Social Welfare, Competitive Balance, Team Sports League
    JEL: L83
    Date: 2007–08
  2. By: Turner, Chad; Hakes, Jahn Karl
    Abstract: We apply quintile regression methodology to player pay and performance data from the 1985-86 to 2005-06 seasons of the National Basketball Association (NBA). In addition to confirming a finding from Hakes and Turner (2007) of systematic bias in pooled OLS regressions of career paths for salary and productivity, the quintile analysis presents two important results regarding NBA salary structure. Unlike Major League Baseball (MLB), the highest ability veteran NBA players suffer salary suppression relative to the lesser-talented players in their debut-year cohort, indicating rents have been transferred from the most able players to players of lesser abilities. Also, while young NBA players in general suffer from salary suppression relative to free agents, as is well-reported in baseball, our regression results show that the highest-ability young players suffer the most salary suppression, and that the effects of the rookie salary cap in the 1995 NBA Collective Bargaining Agreement depressed salaries for young players of all ability levels.
    Keywords: career dynamics; pay and productivity; professional basketball
    JEL: J5 L83
    Date: 2007–09–27

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