Overinvestment in Team Sports Leagues: A Contest Theory Model

Dietl, Helmut; Franck, Egon; Lang, Markus

doi:10.1111/j.1467-9485.2008.00457.x

Cited by 100 publications

(64 citation statements)

References 25 publications

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“…Following the increasing commercialization in European football through the introduction of the English Premier League in 1992/93 and the new payout system in the Champions League in 2000/01, sports economists increasingly adopt this analogy to explain the unprofitable nature of European professional football despite escalating revenues [8,22]. Dietl et al [23] develop a contest-theoretical model to study the problem of overinvestment. They determine that clubs compete by investments and that the competitive interaction among clubs leads to overinvestment into teams which, in turn, results in a dissipation of overall league revenues.…”

Section: Contests and The Economics Of Overinvestmentmentioning

confidence: 99%

Europe’s Elite Football: Financial Growth, Sporting Success, Transfer Investment, and Private Majority Investors

Rohde

Breuer

2016

IJFS

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Europe's elite football clubs are a small group of about 30 clubs mostly originating from the Big Five leagues in England, Italy, Spain, Germany, and France. These clubs top Deloitte's Football Money League ranking Europe's top football clubs by revenues. They also win the vast majority of national and European football competitions, and account for the major share of FIFA World Cup appearances. Nevertheless, empirical analyses studying the antecedents of financial success of this peculiar sample are rare. This paper extends previous research by building an empirical model of financial performance and applying it to a unique, high-quality dataset of the top 30 EU football clubs by club revenues analyzed over ten consecutive seasons from 2004 to 2013. Fixed effects models are performed to account for time trends and club fixed effects. The results show that financial success is driven by national and international sporting success, as well as brand value; sporting success is driven by team investments, and team investments tend to be driven by (foreign) private majority investors.

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Section: Contests and The Economics Of Overinvestmentmentioning

confidence: 99%

Europe’s Elite Football: Financial Growth, Sporting Success, Transfer Investment, and Private Majority Investors

Rohde

Breuer

2016

IJFS

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“…In the following, we will briefly explain their model for a league with two clubs. Note that Dietl, Franck, Lang (2008a) consider a league with n clubs. Moreover, they assume a flexible supply of talent and therefore use the "Contest-Nash conjectures".…”

Section: The Overinvestment Problem In Team Sports Leaguesmentioning

confidence: 99%

Contest Theory and its Applications in Sports

Dietl

Franck

Grossmann

et al. 2012

The Oxford Handbook of Sports Economics

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This paper outlines how the theory of contests is applied to professional team sports leagues. In the first part, we present the traditional Tullock contest and explain some basic properties of the equilibrium. We will then extend this static contest to a two-period model in order to analyze dynamic aspects of contests. In the second part, we will present applications of contest theory in sports. In particular, we will show how the Tullock framework is applied to models of team sports leagues. For this purpose, we will first explain the value creation process in team sports leagues and show how club revenues are related to the contest success function. Then, we present some basic modeling issues; for instance, we show how the assumption of flexible vs. fixed talent supply depends on the league under consideration and how it influences the equilibria. Furthermore, we explicate the effect of revenue sharing on competitive balance in the different models. Then we address the relationship between competitive balance and social welfare. Finally, we illustrate why many clubs tend to "overinvest" in playing talent in many team sports leagues.

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“…Dietl, Franck, and Lang (2008) and Madden (2011) develop similar models of within-league strategic interaction. Grossmann, Dietl, and Lang (2010) develop a dynamic model of the behavior of teams in a sports league.…”

Section: Introductionmentioning

confidence: 99%

Competition Between Sports Leagues: Theory and Evidence on Rival League Formation in North America

Che

Humphreys

2014

Rev Ind Organ

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The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. AbstractWe analyze the formation of rival leagues and deterrence by incumbent leagues in professional team sports, which is one of the least studied forms of competition in sports. We first survey the economic history of professional sport leagues in North America and develop stylized facts about rival league formation. We then develop a game-theoretical model to explain some of these interesting stylized facts, showing that if the bargaining power of the incumbent league is sufficiently small -i.e., less than a certain cutoff -the incumbent should choose expansion to deter the rival league formation; otherwise, it is optimal for the incumbent league to allow a rival league formation and then merge with it, conditional on rival league success. We further show that the incumbent league may pay players relatively high salaries as an alternative way to deter formation by a rival league.JEL Codes: D42, L12, L83

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Overinvestment in Team Sports Leagues: A Contest Theory Model

Cited by 100 publications

References 25 publications

Europe’s Elite Football: Financial Growth, Sporting Success, Transfer Investment, and Private Majority Investors

Europe’s Elite Football: Financial Growth, Sporting Success, Transfer Investment, and Private Majority Investors

Contest Theory and its Applications in Sports

Competition Between Sports Leagues: Theory and Evidence on Rival League Formation in North America

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