Contest Theory and its Applications in Sports

Helmut Max Dietl, Egon Franck (), Martin Grossmann () and Markus Lang ()
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Egon Franck: Institute for Strategy and Business Economics, University of Zurich
Martin Grossmann: Institute for Strategy and Business Economics, University of Zurich

No 913, Working Papers from International Association of Sports Economists

Abstract: This paper outlines how the theory of contests is applied to professional team sports leagues. In the first part, we present the traditional Tullock contest and explain some basic properties of the equilibrium. We will then extend this static contest to a two-period model in order to analyze dynamic aspects of contests. In the second part, we will present applications of contest theory in sports. In particular, we will show how the Tullock framework is applied to models of team sports leagues. For this purpose, we will first explain the value creation process in team sports leagues and show how club revenues are related to the contest success function. Then, we present some basic modeling issues; for instance, we show how the assumption of flexible vs. fixed talent supply depends on the league under consideration and how it influences the equilibria. Furthermore, we explicate the effect of revenue sharing on competitive balance in the different models. Then we address the relationship between competitive balance and social welfare. Finally, we illustrate why many clubs tend to "overinvest" in playing talent in many team sports leagues.

Keywords: Contest theory; Tullock contest; sports leagues; competitive balance; revenue sharing; social welfare; overinvestment (search for similar items in EconPapers)
JEL-codes: C72 L83 (search for similar items in EconPapers)
Date: 2009-11
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Working Paper: Contest Theory and its Applications in Sports (2009)
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