Revenue Sharing, Conjectures, and Scarce Talent in a Sports League Model

Abstract

This article develops a model of a representative professional sports club operating in a league that has the option of adopting one of two different forms of revenue sharing: traditional revenue sharing or central-pool-type revenue sharing. To adopt either form of revenue sharing, the league requires tehat a majority of clubs increase their profit with adoption of the plan. We derive necessary conditions for either plan to garner enough support for a majority vote. The likelihood of forming a majority depends on the distribution of team revenues and the conjectures on acquiring talent that clubs possess. Competitive conjectures make the adoption of revenue sharing more likely, whereas cartel conjectures make its adoption less likely. This may partly explain why salary caps and revenue sharing tend to be used together in some leagues.

Revenue Sharing and Competitive Balance When Teams are not Wage Takers

“…3 Vrooman (1995) considers a positive cost elasticity of winning. Treble (2005), Easton and Rockerbie (2005), Sandy et al (2006, section 6) use a quadratic cost function. So, in these models the team internalises the externality created by its own demand on the price-market for talent, but the team does not internalise the price effects tied to the demand for talent from each rival teams.…”

“…Extending the two-team model to an n-team model, we find out that some results are not robust when the number of teams increases. As an example, the invariance proposition no 2 In Marburger (1997) and Easton and Rockerbie (2005), revenue depends on the absolute talent of each team. In Palomino and Rigotti (2002), Treble (2005), and Sandy et al (2006, section 6), revenue depends on both absolute and relative talent.…”

Sports Really are Different: The Contest Success Function and the Supply of Talent

“…More recently, Szymanski (2004), Szymanski and Kesenne (2004), and Easton and Rockerbie (2005) choose to apply a conjectures interpretation to dt j dt i , rather than the traditional TSE interpretation. They argue that dt 2 dt 1 = dt 1 dt 2 = 0 denotes "Nash conjectures"-each owner believes that his choice will have no effect on the choices of other owners in equilibrium.…”

Profit‐maximizing Gate Revenue Sharing in Sports Leagues

“…8 Both clubs act to maximize their 6. I do not model the internal decision-making in the cartel, as is done in Easton and Rockerbie (2005) or Peeters (2012).…”