The Sport League's Dilemma: Competitive Balance versus Incentives to Win

F.A. Palomino, L. Rigotti

Research output: Working paperDiscussion paperOther research output

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Abstract

We analyze a dynamic model of strategic interaction between a professional sport league that organizes a tournament, the teams competing to win it, and the broadcasters paying for the rights to televise it.Teams and broadcasters maximize expected profits, while the league's objective may be either to maximize the demand for the sport or to maximize the teams'joint profits.Demand depends positively on symmetry among teams (competitive balance) and how aggressively teams try to win (incentives to win).Revenue sharing increases competitive balance but decreases incentives to win.Under demand maximization, a performance-based reward scheme (used by European sport leagues) may be optimal. Under joint profit maximization, full revenue sharing (used by many US leagues) is always optimal.These results reflect institutional differences among European and American sports leagues.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages36
Volume2000-109
Publication statusPublished - 2000

Publication series

NameCentER Discussion Paper
Volume2000-109

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Sports leagues
Incentives
Competitive balance
Revenue sharing
Profit
Professional sports
Symmetry
Tournament
Reward
Profit maximization
Strategic interaction
Institutional differences

Keywords

  • sport
  • competition
  • incentives
  • broadcasting industry
  • revenue sharing

Cite this

Palomino, F. A., & Rigotti, L. (2000). The Sport League's Dilemma: Competitive Balance versus Incentives to Win. (CentER Discussion Paper; Vol. 2000-109). Tilburg: Microeconomics.
Palomino, F.A. ; Rigotti, L. / The Sport League's Dilemma : Competitive Balance versus Incentives to Win. Tilburg : Microeconomics, 2000. (CentER Discussion Paper).
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Palomino, FA & Rigotti, L 2000 'The Sport League's Dilemma: Competitive Balance versus Incentives to Win' CentER Discussion Paper, vol. 2000-109, Microeconomics, Tilburg.

The Sport League's Dilemma : Competitive Balance versus Incentives to Win. / Palomino, F.A.; Rigotti, L.

Tilburg : Microeconomics, 2000. (CentER Discussion Paper; Vol. 2000-109).

Research output: Working paperDiscussion paperOther research output

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AB - We analyze a dynamic model of strategic interaction between a professional sport league that organizes a tournament, the teams competing to win it, and the broadcasters paying for the rights to televise it.Teams and broadcasters maximize expected profits, while the league's objective may be either to maximize the demand for the sport or to maximize the teams'joint profits.Demand depends positively on symmetry among teams (competitive balance) and how aggressively teams try to win (incentives to win).Revenue sharing increases competitive balance but decreases incentives to win.Under demand maximization, a performance-based reward scheme (used by European sport leagues) may be optimal. Under joint profit maximization, full revenue sharing (used by many US leagues) is always optimal.These results reflect institutional differences among European and American sports leagues.

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Palomino FA, Rigotti L. The Sport League's Dilemma: Competitive Balance versus Incentives to Win. Tilburg: Microeconomics. 2000. (CentER Discussion Paper).