Gate Revenue Sharing and Luxury Taxes in Professional Sports

Abstract

This paper examines the impact of gate revenue sharing and luxury taxes on professional sports leagues within the context of a less restrictive demand function than those used in prior models. In contrast to previous studies, the analysis finds that the increased sharing of revenues may enhance competitive balance. Consistent with other models, the analysis finds that player salaries will diminish as the percentage of shared gate receipts rises. The analysis also explores several variations of luxury taxes. All have the effect of lowering salaries. The impact on league balance depends on how the tax is implemented and on how its proceeds are distributed. As with salary caps, enforcement problems exist with the tax. Copyright 1997 Western Economic Association International.

Free Ride, Take It Easy: An Empirical Analysis of Adverse Incentives Caused by Revenue Sharing

“…While previous papers have investigated free riding and revenue sharing in professional sport, these papers have primarily focused on the impact of revenue sharing on competitive balance (Késenne, 2000;Palomino & Rigotti, 2000;Szymanski & Késenne, 2004) and attendance (Fort & Quirk, 1995;Marburger, 1997;Rascher, 1997;Vrooman, 1996). This paper has advanced existing knowledge regarding free riding in professional sport by directly examining the impact of free riding upon NFL franchise profitability.…”

“…A few large market teams have even expressed frustration that revenue sharing has resulted in smaller market teams consistently producing greater profits than the higher revenue clubs that generated the revenue to be shared (Helyar). Other authors utilized models to investigate revenue-sharing issues specifically tied to attendance by customers who are purchasing because of the presence of the visiting team (Fort & Quirk, 1995;Marburger, 1997;Rascher, 1997;Vrooman, 1996). These authors found that increases in revenue sharing will either improve competitive balance in a league or have minimal-to-no-impact on competitive balance.…”

Antitrust Analysis of Sports Leagues

“…The Yankees are the prime example of a 'deep pocketed' team that is willing to reach deeply into that pocket to field a winner. Other teams, 44 See Marburger (1997), Késenne (2000), Sanderson & Siegfried (2003), Késenne (2004), and Szymanski & Késenne (2004). 45 For a discussion of revenue-sharing in U.S. and European sports leagues, see Palomino and Rigotti (2000) and Palomino and Sákovics (2004).…”

Revenue Sharing in Sports Leagues

“…If teams maximize profits but fans care about the relative and absolute quality of a given team, then revenue sharing can improve competitive balance (Marburger, 1997). Furthermore, if teams maximize utility (for example, a team owner receives consumption value through the quality of the team), then revenue sharing can improve competitive balance (Rascher (1997) and Késenne (2000)).…”