Inter-league Competition and the Optimal Broadcasting Revenue-Sharing Rule

Yvon Rocaboy

The B.E. Journal of Theoretical Economics, 2023, vol. 23, issue 2, 723-756

Abstract: We propose a model where two sports leagues compete for sporting talent, and at the same time consider the competitive balance in their domestic championships. The allocation of broadcasting revenues by the league-governing body acts as an incentive for teams to invest in talent. We derive a strategic league authority’s optimal sharing rule of broadcasting revenues across teams in the league. While a weighted form of performance-based sharing is the best way of attracting talent, cross-subsidization from high- to low-payroll teams is required to improve competitive balance. The optimal sharing rule is then a combination of these two “sub-rules”. We show that the distribution of broadcasting revenues in two first divisions in European men’s football, the English Premier League (EPL) and the French Ligue 1 (L1), corresponds to the optimal sharing rule we discuss. We propose a new method to assess empirically the cross-subsidization impact of the sharing formula. As the impact of cross-subsidization is greater in the EPL than L1, we conclude that ensuring domestic competitive balance seems to be a more important target for the EPL than for L1.

Keywords: revenue sharing; sports economics; distribution of broadcasting revenues; national football leagues; inter-league competition; competitive balance; sport regulation (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/bejte-2022-0042

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