nep-spo New Economics Papers
on Sports and Economics
Issue of 2011‒04‒09
six papers chosen by
Joao Carlos Correia Leitao
University of Beira Interior and Technical University of Lisbon

  1. TV Revenue Sharing as a Coordination Device in Sports Leagues By Thomas Peeters
  2. Organizational Differences between U.S. Major Leagues and European Leagues: Implications for Salary Caps By Helmut Dietl; Egon Franck; Markus Lang; Alexander Rathke
  3. International Sports League Comparisons By Helmut Dietl; Rodney Fort; Markus Lang
  4. Executive Pay Regulation: What Regulators, Shareholders, and Managers Can Learn from Major Sports Leagues By Helmut Dietl; Tobias Duschl; Markus Lang
  5. The Sugar Daddy's Game: How Wealthy Investors Change Competition in Professional Team Sports By Markus Lang; Martin Grossmann; Philipp Theiler
  6. The Institutional Framework for Doing Sports Business: Principles of EU Competition Policy in Sports Markets By Oliver Budzinski

  1. By: Thomas Peeters (University of Antwerp)
    Abstract: As sports clubs jointly produce contests, they cannot determine contest quality through their private talent investments. Sports leagues therefore try to coordinate talent investments towards the profit-maximizing contest quality. In this paper I analyze how revenue sharing mechanisms may serve this goal when demand comes from hard-core club and neutral sports fans. Performance-based sharing turns out to be an inefficient sharing rule for the cartel, although it is not harmful for social welfare. This inefficient cartel behavior can be rationalized as the result of bargaining with asymmetric outside options. Data from US and European sports leagues illustrate the theoretical findings.
    Keywords: cartel behavior, revenue sharing, sports leagues, TV rights
    JEL: L41 L83
    Date: 2011–03
  2. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Egon Franck (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 outlines and compares the organizational structure of major sports leagues, explores the reasoning behind their formation, and derives implications for salary caps in European football. To understand why sports leagues have developed a specific organizational structure, one must take the economic peculiarities of team sports leagues into consideration. For this purpose, we analyze the production process and illuminate its major peculiarities. For example, we present the difference between economic competition and competition on the pitch and discuss the consequences of this distinction for an attractive final product. Furthermore, we show that a hold-up problem exists between the two stages of the production process and demonstrate how these problems are overcome by the organizational structure chosen by sports leagues. We also outline the differences between the U.S. major leagues and European leagues and document recent developments in that context. Finally, based on this comparative institutional analysis, we derive implications for the introduction of salary caps into European football.
    Keywords: Sports leagues, organization, salary cap, hold-up problem
    JEL: L83
    Date: 2011–03
  3. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Rodney Fort (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Sport Management, University of Michigan)
    Abstract: Comparisons between European and North American sports leagues have occurred over the years. In this paper, we attempt to bring these comparisons down to the essential elements -what has come to be called Rottenberg's (1956) invariance principle and theoretical insights into attempts to alter competitive balance using revenue sharing, talent drafts, and payroll caps. We also examine player reserve systems (the reserve clause in North American leagues and transfer restrictions in European leagues) and differences in objective functions (North American leagues are treated under profit maximization while European leagues are treated under utility maximization and win maximization). The focus is on model predictions compared to actual outcomes, and any differences between North America and Europe.
    Keywords: Sports league, invariance principle, revenue sharing, talent draft, payroll cap
    JEL: L83
    Date: 2011–03
  4. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Tobias Duschl (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: Executive pay regulation is widely discussed as a measure to reduce financial mismanagement in corporations. We show that the professional team sports industry, the only industry with substantial experience in the regulation of compensation arrangements, provides valuable insights for the regulation of executive pay. Based on the experience from professional sports leagues, we develop implications for the corporate sector regarding the establishment and enforcement of executive pay regulation as well as the level, structure, and rigidity of such regulatory measures.
    Keywords: Salary Caps, Executive Compensation, Corporate Governance, Financial Crisis, Financial Regulation
    JEL: G38 K23 L83 M52
    Date: 2011–03
  5. By: Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Martin Grossmann (Institute for Strategy and Business Economics, University of Zurich); Philipp Theiler (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: Professional sports leagues have witnessed the appearance of so-called "sugar daddies" - people who invest enormous amounts of money into clubs and become their owners. This paper presents a contest model of a professional sports league that incorporates this phenomenon. We analyze how the appearance of a sugar daddy alters competitive balance and social welfare compared to a league with purely profit-maximizing club owners. We further show that the welfare effect of revenue sharing in a sugar daddy league is ambiguous and depends on the degree of redistribution and on whether the sugar daddy invests in a small or large club.
    Keywords: Competitive balance, contest model, social welfare, sports leagues, sugar daddy
    JEL: L83 L2 D43 C72
    Date: 2011–03
  6. By: Oliver Budzinski (Markets & Competition Group, Department of Environmental and Business Economics, University of Southern Denmark)
    Abstract: The competition rules and policy framework of the European Union represents an important institutional restriction for doing sports business. Driven by the courts, the 2007 overhaul of the approach and methodology has increased the scope of competition policy towards sports associations and clubs. Nowadays, virtually all activities of sports associations that govern and organize a sports discipline with business elements are subject to antitrust rules. This includes genuine sporting rules that are essential for a league, championship or tournament to come into existence. Of course, „real? business or commercial activities like ticket selling, marketing of broadcasting rights, etc. also have to comply with competition rules. Regulatory activities of sports associations comply with European competition rules if they pursuit a legitimate objective, its restrictive effects are inherent to that objective and proportionate to it. This new approach offers important orientation for the strategy choice of sports associations, clubs and related enterprises. Since this assessment is done following a case-by-case approach, however, neither a blacklist of anticompetitive nor a whitelist of procompetitive sporting rules can be derived. Instead, conclusions can be drawn only from the existing case decisions – but, unfortunately, this leaves many aspects open. With respect to business activities, the focus of European competition policy is on centralized marketing arrangements bundling media rights. These constitute cartels and are viewed to be anticompetitive in nature. However, they may be exempted from the cartel prohibition on efficiency and consumer benefits considerations. Here, a detailed list of conditions exists that centralized marketing arrangements must comply with in order to be legal. Although this policy seems to be well-developed at first sight, a closer look at the decision practice reveals several open problems. Other areas of the buying and selling behavior of sports associations and related enterprises are considerably less well-developed and do not provide much orientation for business.
    Keywords: sports business, competition policy, sporting rules, centralized marketing, sports economics
    JEL: L83 L41 K21 D02 M21
    Date: 2011–03

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