Revenue Sharing and Absolute League Quality; Talent Investment and Talent Allocation
| Date | 01 February 2015 |
| Published date | 01 February 2015 |
| DOI | http://doi.org/10.1111/sjpe.12062 |
REVENUE SHARING AND ABSOLUTE
LEAGUE QUALITY; TALENT INVEST-
MENT AND TALENT ALLOCATION
Stefan Kesenne*
,
**
ABSTRACT
Beside the competitive balance or the relative quality of teams in a sports league,
also a league’s absolute quality matters to attract spectators. If the absolute
quality depends among other variables, on the total budget of the league, it can
be shown that that revenue sharing enhances the absolute quality by improving
the allocation of talent over the teams in both a profit- and a win-maximisation
league, even if it worsens the competitive balance.
II
NTRODUCTION
In the sports economics literature, there is no unanimous empirical evidence
regarding the impact of competitive balance on stadium attendance, (see
Forrest and Simmons, 2002; Borland and Macdonald, 2003; Krautmann and
Hadley, 2004). Nevertheless, in many team sport leagues, revenue sharing
arrangements exist to improve competitive balance. Moreover, Szymanski
and Kesenne (2004) have shown that, in a profit-maximization league, gate
sharing does not improve but worsens the competitive balance. Furthermore,
every economist will agree that revenue sharing discourages talent investment
because teams have to share their return on investment with opponent
teams. Most sports economists would also agree that the absolute quality of
a league has a stronger impact on attendance than relative quality (see
Canes, 1974; Bruggink and Eaton, 1996; Marburger, 1997; Szymanski,
2003).
So, beside the impact of revenue sharing on relative quality or the alloca-
tion of talent, it makes sense to also examine how revenue sharing affects
absolute quality. It is reasonable to assume that the absolute quality of a lea-
gue can be approached by total league revenue, being the sum of the budgets
of all teams. In an open league with a flexible supply of talent, total league
revenue and absolute quality are not only affected by talent investment,
but also by talent allocation. A few very rich clubs, in particular in a
*University of Antwerp
**KU Leuven
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12062, Vol. 62, No. 1, February 2015
©2015 Scottish Economic Society.
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