Spillovers in Sports Leagues with Promotion and Relegation

Helmut Dietl, Martin Grossmann, Andreas Hefti and Markus Lang

Scottish Journal of Political Economy, 2015, vol. 62, issue 1, 59-74

Abstract: type="main" xml:id="sjpe12060-abs-0001">

This paper analyzes spillover effects in sports leagues that are embedded in a system of promotion and relegation. Based on a contest model of a professional sports league with a top division and a second division, we show that league prizes and club efficiencies have opposing effects; while a stronger second division that offers a higher league prize leads to a more balanced top division, the opposite is true for a stronger second division whose clubs become more cost efficient. Moreover, we demonstrate that a higher second-division prize induces a lower investment level, but higher profits in the top division, while higher club efficiency in the second division leads to both a lower investment level and lower profits in the top division. These results have important policy implications for the organization of sports leagues.

Date: 2015
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