Overinvestment in Team Sports Leagues: A Contest Theory Model
Egon Franck () and
Markus Lang ()
No 38, Working Papers from University of Zurich, Institute for Strategy and Business Economics (ISU)
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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http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/38_ISU_full.pdf First version, 2005 (application/pdf)
Journal Article: OVERINVESTMENT IN TEAM SPORTS LEAGUES: A CONTEST THEORY MODEL (2008)
Working Paper: Overinvestment in Team Sports Leagues: A Contest Theory Model (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:iso:wpaper:0038
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