Revenue Sharing in Professional Sports Leagues: For the Sake of Competitive Balance or as a Result of Monopsony Power?

F.A. Palomino, J. Sakovics

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Abstract

We analyze the distribution of broadcasting revenues by sports leagues.In the context of an isolated league, we show that when the teams engage in competitive bidding to attract talent, the league's optimal choice is full revenue sharing (resulting in full competitive balance) even if the revenues are independent of the level of balancedness.This result is overturned when the league has no monopsony power in the talent market.When the teams of two different leagues bid for talent, the equilibrium level of revenue sharing is bounded away from the full sharing of revenues: leagues choose a performance-based reward scheme.Finally, we argue that our model explains the observed differences in revenue sharing rules used by the U.S. sports leagues (full revenue sharing) and European soccer leagues (performance-based reward).
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages19
Volume2000-110
Publication statusPublished - 2000

Publication series

NameCentER Discussion Paper
Volume2000-110

Keywords

  • broadcasting industry
  • sport
  • competition
  • revenue sharing

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