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Overinvestment in Team Sports Leagues: A Contest Theory Model

Helmut Dietl, Egon Franck () and Markus Lang ()

No 38, Working Papers from University of Zurich, Institute for Strategy and Business Economics (ISU)

Abstract: This paper applies contest theory to provide an integrated framework of a team sports league and analyses the competitive interaction between clubs. We show that dissipation of the league revenue arises from `overinvestment' in playing talent as a direct consequence of the ruinous competitive interaction between clubs. This overinvestment problem increases if the discriminatory power of the contest function increases, revenue-sharing decreases, and the size of an additional exogenous prize increases. We further show that clubs invest more when they play in an open compared to a closed league. Moreover, the overinvestment problem within open leagues increases with the revenue differential between leagues.

Keywords: contests; sports league; overinvestment; revenue-sharing; promotion and relegation (search for similar items in EconPapers)
JEL-codes: C72 L83 M21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic and nep-spo
Date: 2005, Revised 2007
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Downloads: (external link)
http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/38_ISU_full.pdf First version, 2005 (application/pdf)

Related works:
Journal Article: OVERINVESTMENT IN TEAM SPORTS LEAGUES: A CONTEST THEORY MODEL (2008) Downloads
Working Paper: Overinvestment in Team Sports Leagues: A Contest Theory Model (2007) Downloads
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