Does a win bonus help to increase profit or wins in professional team sports?

Stefan Kesenne

Working Papers from University of Antwerp, Faculty of Business and Economics

Abstract: In a sports league, team owners can expect to increase player performance, and the team’s winning percentage or profits, by providing a win bonus on top of the players’ fixed salary level. In some clubs, the guaranteed player salary is relatively low and the premium, in case of a winning game, relatively high, whereas in other clubs, hardly any win bonus is paid. In this theoretical paper, we investigate what the impact of a win bonus is on the winning percentage, the competitive balance, the owner profits and the overall quality in a professional sports league. The model we start from is an extension of the well-known Quirk and Fort (1992) two-club model where a premium system is introduced consisting of a win bonus that is paid on top of a fixed salary. Assuming that players are motivated to increase effort if their salary depends on the winning percentage, we derive the Nash-Cournot equilibrium under both the profit and a win maximisation hypothesis. The impact of a premium system turns out to be rather complex, given the fact that clubs react to the strategies of other clubs in the league. The team that introduces a premium system can expect to increase its profits or its winning percentage by paying a bonus combined with a reduced fixed salary. A crucial factor, though, is the players’ response to the win bonus. If the team’s effort is not enhanced enough by the bonus, the team’s profits and wining percentage can go down. Also the effect that an increased winning percentage has on the current season revenue is an important factor.

Pages: 22 pages
Date: 2007-01
New Economics Papers: this item is included in nep-spo
References: Add references at CitEc
Citations:

Downloads: (external link)
https://repository.uantwerpen.be/docman/irua/58e690/31c8cf12.pdf (application/pdf)

Related works:
Working Paper: Does a win bonus help to increase profit or wins in professional team sports? (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ant:wpaper:2007002

Access Statistics for this paper

More papers in Working Papers from University of Antwerp, Faculty of Business and Economics Contact information at EDIRC.
Bibliographic data for series maintained by Joeri Nys ().