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on Sports and Economics |
| By: | Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Egon Franci (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: | This paper studies the welfare effect of a percentage-of-revenue salary cap in a European context with win-maximizing clubs. It shows that a percentage-of-revenue cap increases competitive balance and decreases the overall salary payments in the league, therefore contributing to financial stability. A percentage-of-revenue cap will always increase social welfare if the weight on aggregate club surplus in the welfare function is sufficiently high. Additionally, if fans’ preferences for aggregate talent are sufficiently high then the percentage-of-revenue cap will also increase social welfare; no matter how much weight the league puts on financial stability. |
| Keywords: | Salary Caps, Social Welfare, Competitive Balance, Team Sports League |
| JEL: | L83 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:spe:wpaper:0825&r=spo |
| By: | Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Stephan Werner (Institute for Strategy and Business Economics, University of Zurich) |
| Abstract: | A wide range of literature which discusses the impact of the chosen objective function on competitive balance and revenue sharing. Some authors argued that sports clubs (or the owners of the sports clubs) behave like profit maximizers. This assumption of profit maximization coincides with the standard microeconomic theory of firms. On the other hand, some researchers pronounced that European football clubs behave like utility maximizers having a utility function that incorporates variables other than (only) club profits. Also, this assumption is well-known in standard microeconomic theory, since households maximize their utility with respect to a given budget constrain. In this paper, we want give a formal framework for the so called mixed leagues, i.e. professional sports leagues, where some club owners maximize clubs’ profits and the rest of the clubs are interested in maximizing their winning probability. This paper fills the gap in the existing literature since mixed leagues have not (formally) discussed, and therefore, no policy implications exist. |
| Keywords: | Mixed League, objective function, competitive balance, aggregated investments |
| JEL: | L83 M21 D02 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:spe:wpaper:0826&r=spo |
| By: | Martin Grossmann (Institute for Strategy and Business Economics, University of Zurich); Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich) |
| Abstract: | This paper presents a dynamic model of talent investments where two clubs compete in each period with respect to a contest prize. We show that aggregate talent stocks of both clubs converge to an identical level such that competitive balance is assured in the steady state as long as league prizes are identical for clubs. In the transition the dynamics are mainly influenced by the elasticity of marginal costs. Finally, we generalize the static results of Szymanski and Kesenne (2004): It is possible to have a persistent inequality in team qualities and revenue sharing decreases competitive balance if clubs have different market potentials. |
| Keywords: | Contest, Sports Economics, Competitive Balance, Revenue Sharing |
| JEL: | L83 D92 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:spe:wpaper:0822&r=spo |
| By: | Trudo Dejonghe (Lessius Hogeschool (KULeuven), Belgium) |
| Abstract: | The facts show that in the given economic environment a restructuring of the Belgian professional football league is necessary for several reasons. First, to provide some form of “limited” competition with other European countries. Second, the introduction of the licence system by the Belgian Football Association in 2000-01 and by the UEFA in 2004-05, because clubs would no longer be allowed to have debts to the social security system, inland revenue, players,etc, Third, to stop the gradually increasing number of bankruptcies since the introduction of the licence system. Historical reasons and conservatism make a transition very difficult. |
| Keywords: | sports economics, soccer |
| JEL: | L83 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:spe:wpaper:0827&r=spo |
| By: | Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Stephan Werner (Institute for Strategy and Business Economics, University of Zurich) |
| Abstract: | In this paper we model the effect of a luxury tax in the framework of profit maximizing clubs. A well-known effect of luxury taxes is a more balanced league, but no social welfare evaluation has taken place in existing literature. The effects of a more equal league are not surprising since large clubs reduce their investments. We discuss the simple case of a taxation-redistribution scenario: Large clubs finance the subsidy for the small clubs through a luxury tax. Under this assumption, the social welfare tax rate will not fully balance the league. In the second step, we assume that the league organization gets a share (exogenous) of the tax revenues and can determine the ’optimal’ tax rate. From their point of view a 100% tax rate is optimal. This tax rate can result in the social welfare optimum. We also show that there exists a second and third best where the welfare optimizing tax rate is below the league revenue maximizing tax rate. On the other hand we show, a fully balancing tax rate is, in general, not welfare maximizing. |
| Keywords: | Luxury Taxes, social welfare, redistribution, taxation regimes |
| JEL: | L83 M21 D02 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:spe:wpaper:0823&r=spo |
| By: | Trudo Dejonghe (Lessius Hogeschool (KULeuven), Belgium) |
| Abstract: | The problem with Belgian football competition is that in the long run, and as reality shows us in the short term, the contemporary situation will lead to market failures and the elimination of some of the clubs. The solution proposed in this paper is the creation of a new professional competition with fewer teams combined with territorial exclusivity in a centre with a potential number of consumers that reach a certain absolute or relative threshold. |
| Keywords: | sports economics, soccer |
| JEL: | L83 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:spe:wpaper:0828&r=spo |
| By: | Krige Siebrits (Department of Economics, University of Stellenbosch); Johan Fourie (Department of Economics, University of Stellenbosch) |
| Abstract: | Recent remarks in the media suggest that the Currie Cup competition, the premier rugby union competition in South Africa, is in need of a revamp. This is not a new inclination; the structure of the Currie Cup has had numerous alterations over the preceding two decades. But why has the Currie Cup suddenly lost its glamour? Existing measures of competitive balance used in the economics of sports literature are found to be unsatisfactory for rugby union competitions. Using a new measure of match attractiveness, this paper shows that the existing Currie Cup performs poorly compared to the top rugby union competitions across the world. 21 years of Currie Cup rugby are assessed to determine which structure yields the most attractive rugby. It is found that it is not the number of matches or the format of the competition that determines the “attractiveness”, but rather how many teams participate. A structure where only the five Super 14 franchises compete yields the most attractive outcomes. Yet, even a competition of “five plus one” will be relatively more attractive than most current rugby union competitions, while also contributing to broadening participation and representation in South African rugby. A format is proposed where the five Super 14 franchises and one team open to promotion/relegation compete. The existing Vodacom Cup excluding the five Super 14-unions can be used as qualification tournament for the sixth team. Promotion for the sixth team should be determined on the highest league log points at the end of the tournament (Vodacom Cup) and not in a play-off match. |
| Keywords: | Economics of sport leagues, Competitive balance, Match attractiveness, Rugby union, Currie Cup |
| JEL: | L83 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:sza:wpaper:wpapers64&r=spo |
| By: | Trudo Dejonghe (Lessius Hogeschool (KULeuven), Belgium) |
| Abstract: | The place of Gent in the urban system is that of a regional city with high centrality. This means that consumer-oriented services with a high threshold, such as a professional football team, reach their threshold in the city. In the case of professional football a functional substitution has taken place and the top team is located in Brugge The service area of Bruges reaches almost up to Gent and the E40 highway reduces the time-distance. The new location of the stadium is near the main highway.. The question is of the market potential of the clubs is large enough to attract more attendances. |
| Keywords: | local identity, relocation, functional substitution, service area, market potential, consumer oriented service, spatial competition |
| JEL: | L83 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:spe:wpaper:0821&r=spo |
| By: | Peter Dawson (Department of Economics and International Development, University of Bath); Stephen Dobson (Nottingham Trent University) |
| Abstract: | This study considers the influences on agents’ decisions in an international context. Using data from five seasons of European cup matches it is found that football referees favour home teams when awarding yellow and red cards. Previous research on referee decisions in national leagues has identified social pressure as a key reason for favouritism. While social pressure is also found to be an important influence in this study, the international context reveals that referee decisions are also influenced by the nationality of the referee and club, and the reputation of the league. |
| Keywords: | social pressure, decision-making, referee behaviour, home bias, football |
| JEL: | D81 L83 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:spe:wpaper:0809&r=spo |
| By: | Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Stephan Werner (Institute for Strategy and Business Economics, University of Zurich) |
| Abstract: | In the December 2002 issue of the American Economic Review, Mark Duggan and Steven D. Levitt published an article on corruption in professional sumo. In this article, the authors provide empirical evidence for match rigging in professional sumo. The article caused tremendous attention and uproar because sumo wrestling has a more than 2000 year-old history and is usually characterized by honesty, tradition and rituals. In this paper, we analyze the effect of Duggan and Levitt’s econometric research on corruption in sumo wrestling by comparing the outcome of critical matches before, during and after the period of the publication process. We show that Duggan and Levitt’s study significantly reduced corruption in sumo wrestling. The reduction is caused by two effects. First, the sumo association reacted to Duggan and Levitt’s study by reducing the value of the eighth win. Second, we show that the level of corruption is heavily influenced by public scrutiny. Moreover, we identify two additional strategies for match rigging: sudden weakness and stable reciprocity. |
| Keywords: | Corruption incentive scheme social ties monitoring |
| JEL: | K42 L83 M21 M52 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:spe:wpaper:0824&r=spo |