Social Welfare in Sports Leagues with Profit-Maximizing and/or Win-Maximizing Clubs

Helmut Max Dietl, Markus Lang () and Stephan Werner ()
Additional contact information
Stephan Werner: Institute for Strategy and Business Economics, University of Zurich

No 826, Working Papers from International Association of Sports Economists

Abstract: This paper develops a contest model to compare social welfare in homogeneous leagues in which all clubs maximize identical objective functions with mixed leagues in which clubs maximize different objective functions. We show that homogeneous leagues in which all clubs are profit-maximizers dominate all other leagues whereas mixed leagues in which small-market clubs are profit- and large-market clubs are win-maximizers (type-I mixed leagues) are dominated by all other leagues. In addition, we show that, from a welfare perspective, large-market clubs win too often in (purely) win-maximizing and type-I mixed leagues whereas small-market clubs win too many games in (purely) profit-maximizing leagues and in mixed leagues in which large-market clubs are profit- and small-market clubs are win-maximizers (type-II mixed leagues). These results have important policy implications: Social welfare will increase if clubs are reorganized from non-profit members associations to profit-maximizing corporations. Moreover, it is socially desirable to reorganize large-market clubs first because, in mixed leagues, it is better if large-market clubs maximize profits instead of small-market clubs. Finally, we show that the invariance proposition does not hold in any league. In mixed (homogeneous) leagues, revenue sharing decreases (increases) social welfare. Given these results, homogeneous leagues should introduce revenue sharing; mixed leagues should not.

Keywords: Social welfare; team sports leagues; objective functions; mixed leagues; competitive balance (search for similar items in EconPapers)
JEL-codes: L83 M21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-mic and nep-spo
Date: 2008-08
View list of references View citations in EconPapers

Downloads: (external link)
http://www.holycross.edu/departments/economics/ReP ... ner_MixedLeagues.pdf Updated version published March 2009 (application/pdf)

Related works:
Working Paper: Social Welfare in Sports Leagues with Profit-Maximizing and/or Win-Maximizing Clubs (2009)
Journal Article: Social Welfare in Sports Leagues with Profit-Maximizing and/or Win-Maximizing Clubs (2009)
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: http://EconPapers.repec.org/RePEc:spe:wpaper:0826

Access Statistics for this paper

More papers in Working Papers from International Association of Sports Economists
Contact information at EDIRC.
Series data maintained by Victor Matheson ().