nep-spo New Economics Papers
on Sports and Economics
Issue of 2007‒10‒20
seven papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Does a win bonus help to increase profit or wins in professional team sports? By Késenne S.
  2. National Dominance in European Football Leagues By Goossens K.
  3. The impact of the luxury tax on competitive balance in Major League Baseball By Olugbenga Ajilore; Joshua Hendrickson
  4. Financing sports arenas - options for large and middle-size projects By Rebeggiani, Luca; Witte, Sebastian
  5. The Changing Hitting Performance Profile In the Major League, 1996-2006 By Paul M. Sommers
  7. Interactions Between Workers and the Technology of Production: Evidence from Professional Baseball By Gould, Eric D; Winter, Eyal

  1. By: Késenne S.
    Abstract: In a sports league, team owners can expect to increase player performance, and the team’s winning percentage or profits, by providing a win bonus on top of the players’ fixed salary level. In some clubs, the guaranteed player salary is relatively low and the premium, in case of a winning game, relatively high, whereas in other clubs, hardly any win bonus is paid. In this theoretical paper, we investigate what the impact of a win bonus is on the winning percentage, the competitive balance, the owner profits and the overall quality in a professional sports league. The model we start from is an extension of the well-known Quirk and Fort (1992) two-club model where a premium system is introduced consisting of a win bonus that is paid on top of a fixed salary. Assuming that players are motivated to increase effort if their salary depends on the winning percentage, we derive the Nash-Cournot equilibrium under both the profit and a win maximisation hypothesis. The impact of a premium system turns out to be rather complex, given the fact that clubs react to the strategies of other clubs in the league. The team that introduces a premium system can expect to increase its profits or its winning percentage by paying a bonus combined with a reduced fixed salary. A crucial factor, though, is the players’ response to the win bonus. If the team’s effort is not enhanced enough by the bonus, the team’s profits and wining percentage can go down. Also the effect that an increased winning percentage has on the current season revenue is an important factor.
    Date: 2007–01
  2. By: Goossens K.
    Abstract: Professional team sports generate indivisible joint-products. Neale (1964, p.2) captures this interrelatedness in the following sentence: ‘pure monopoly is disaster’. Or in short: teams need each other to produce games. Rottenberg (1956, p. 242) mentions that “The nature of the industry is such that competitors must be of approximate equal ‘size’ if any are to be successful”. The notion of competitive balance is founded upon this idea: for an attractive championship teams should not excel excessively in playing strength. In the media and the professional sports sector this idea of competitive balance receives significant attention and underlies many sports policy decisions. In Sports Economics as well competitive balance is at least relevant. Over the last four decades several events occurred that can be considered to have had an impact on competitive balance. More specifically they affect the dominance of ‘large market’ teams. We define such teams as those located in a large city combined with a large fan base. Such imbalance is what Kesenne (2004) calls a ‘bad’ imbalance. We theoretically research the impact of some major changes that caused important shifts in the revenue functions. We construct a two league –four teams model and include the market, local and national, as major determinants of the revenue functions of teams. We determine the choice of talent under both the win maximizing as the profit maximizing objective. The difference in win percentages is used to measure the competitive imbalance. We calculate the total demand function for talent and intersect it with an elastic supply formalized into a simple linear supply function. The resulting equilibrium wage is discussed where possible. We discuss three scenarios based on three successive periods in European football leagues. All periods are introduced by important changes generally discussed to influence dominance. We start from a benchmark scenario with a closed labour market in which ticket sales, based on the local market are considered to constitute the main income source. The sale of broadcast rights combined with shirt sponsoring introduces the second period. In most countries this new era began at the end of the 70ies and early 80ies. Both increased revenues substantially and are highly interrelated. Live matches persuaded sponsors to invest in the teams as well as in commercial blocks on tv. Sports fans were now able to enjoy live games of teams located in another part of the country so that the market of supporters increased with a part of the national market. The third period is marked by a combination of three events. Jean-Marc Bosman, a professional Belgian football player, changed the labour market in professional team sports at the end of the nineties. He went to court to oppose against the transfer ruling. The European Court of Justice ruled that the transfer system concerning the European international football players violated the free movement of workers constituted in Article 48 of the ECC treaty. Following the verdict of 15 december 1995, the European Commission abandoned the policy of transfer restrictions and abolished the rule to limit the number of foreign players fielded as well, giving rise to a new chapter in the European football history: a more open and competitive labour market. The abolishment was in the middle of the season and the real impact on the acquirement of talent can be assumed to begin at the earliest in season 1996-1997. In 1997 the Champions League (CL) changed its selection criteria and its revenue distribution. The ‘market pool’ came into use, designating the revenue that is divided based on the national tv-market. Teams from countries with a larger market receive a larger share. This makes it possible that a CL champion receives a lower income than teams that ended lower in the ranking. Porto for example received in 2003-2004 € 19 million while runners-up AS Monaco FC received € 26.4 million. (, 8 June 2004) Even though the CL, named the Champions Cup before 1992, has an extensive history of adaptations, we consider this change as the most important one to substantially influence the dominance of teams in the national competition. With the deregulation of the television market, the competition for broadcast rights intensified. Among other things, this boosted the broadcast revenues considerably. The introduction of digital television at the end of the nineties can be assumed to be the start of a continuing boom of broadcast rights and so influences the third period as well. We provide a first empirical verification by constructing a measure that incorporates the identity of teams to focus on large market teams. Two European football leagues, England and Belgium are briefly discussed. In our conclusion we provide an overview table and discuss some future research topics.
    Date: 2006–11
  3. By: Olugbenga Ajilore (University of Toledo); Joshua Hendrickson (Wayne State University of Toledo)
    Abstract: There has been much discussion recently in the world of professional sports about competitive balance. As more is focused on the growing disparity between large market and small market teams, one must ask whether the luxury tax, as implemented by Major League Baseball, has had its intended effect. This paper adds to the literature on competitive balance by developing measures to quantify competitiveness at the individual team-level. We estimate a model analyzing the impact of the luxury tax on competitive balance. The results show that the luxury tax is beginning to have the intended impact on competitive balance.
    Keywords: sports economics, Major League Baseball, Luxury Tax
    JEL: L83
    Date: 2007–10
  4. By: Rebeggiani, Luca; Witte, Sebastian
    Abstract: Hosting the 2006 FIFA World Championship induced a boom in stadium investments in Germany. A second wave of smaller arena constructions can currently be observed across the country. These projects are promoted by smaller clubs of the first and the second Bundesliga, aiming not to fall behind the top clubs. The present paper gives an overview over recent financing models for large stadiums and then focuses on the special case of middle-size arenas.
    Keywords: Sportökonomie; Stadionbau; Kommunale Investitionen; sports facilities
    JEL: H82 G31 L83
    Date: 2007–09
  5. By: Paul M. Sommers
    Abstract: The career batting profile of a regular starting major league ballplayer typically rises, at least up to a point, and then falls as skills diminish with age. The career batting profiles are derived for all regular starting players in the National and American Leagues for each of five different years: 1966, 1976, 1986, 1996, and 2006. The profiles have changed dramatically since the 1960s, with arguably stronger ballplayers reaching a higher peak several years after the batting average reached a peak for regulars in 1966. The profiles for 2006 show what might be early manifestations of baseball’s tougher steroids policy.
    Keywords: Major League Baseball, career profile, batting average, steroids
    Date: 2007
  6. By: Paul M. Sommers; Ryan M. Keohane
    Date: 2007
  7. By: Gould, Eric D; Winter, Eyal
    Abstract: This paper examines how the effort choices of workers within the same firm interact with each other. In contrast to the existing literature, we show that workers can affect the productivity of their co-workers based on income maximization considerations, rather than relying on behavioural considerations such as peer pressure, social norms, and shame. Theoretically, we show that a worker's effort has a positive effect on the effort of co-workers if they are complements in production, and a negative effect if they are substitutes. The theory is tested using panel data on the performance of baseball players from 1970 to 2003. The empirical analysis shows that a player's batting average significantly increases with the batting performance of his peers, but decreases with the quality of the team's pitching. Furthermore, a pitcher's performance increases with the pitching quality of his team-mates, but is unaffected by the batting output of the team. These results are inconsistent with behavioural explanations which predict that shirking by any kind of worker will increase shirking by all fellow workers. The results are consistent with the idea that the effort choices of workers interact in ways that are dependent on the technology of production. These findings are robust to controlling for individual fixed-effects, and to using changes in the composition of one's co-workers in order to produce exogenous variation in the performance of one's peers.
    Keywords: Externalities; Peer Effects; Team Production
    JEL: J2
    Date: 2007–10

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