| By: |
Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich);
Egon Franck (Institute for Strategy and Business Economics, University of Zurich);
Martin Grossmann (Institute for Strategy and Business Economics, University of Zurich);
Markus Lang (Institute for Strategy and Business Economics, University of Zurich) |
| Abstract: |
This paper explicates 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 |
| JEL: |
C72 L83 |
| Date: |
2009–08 |
| URL: |
http://d.repec.org/n?u=RePEc:iso:wpaper:0105&r=spo |