REVENUE SHARING IN PROFESSIONAL SPORTS LEAGUES

DOIhttp://doi.org/10.1111/j.1467-9485.2009.00483.x
AuthorFrank Stähler,Eberhard Feess
Publication Date01 May 2009
REVENUE SHARING IN PROFESSIONAL
SPORTS LEAGUES
Eberhard Feess
n
and Frank Sta
¨hler
nn
Abstract
We employ a model of n heterogenous profit-maximizing clubs to analyze the
impact of revenue sharing in professional sports leagues on competitive balance.
Revenues of each club depend on absolute quality, relative quality and on
competitive balance itself so that our model captures much of the preceding
literature as special cases. We show that revenue sharing always increases
competitive balance if clubs differ only with respect to the impact of absolute
quality on revenues. On the contrary, revenue sharing reduces competitive balance
if only clubs’ relative qualities play a role for revenues or if only two teams are
considered.
I Intro ductio n
The issue of revenue sharing in professional sports leagues has attracted
considerable attention in recent years. In the United States, gate revenue sharing
in major sports leagues such as the National Football League (NFL) or the
Major League Baseball (MLB) has long been accepted as an exemption from
antitrust law.
1
The reason is that revenue sharing is supposed to enhance
competitive balance by transferring funds from strong to weak clubs, allegedly a
vital feature of many sporting contests. In some of the major European football
leagues as England and Germany, the revenue from selling broadcasting rights is
distributed according to rules designed by the National Football Associations,
and performance plays only a minor role.
2
The European Commission (EC) constantly challenges the collective sale of
broadcasting rights as anti-competitive, but it also emphasizes that collective
sale and revenue sharing are different issues. In fact, the EC states that some
n
Frankfurt School of Finance and Management
nn
University of Otago
1
See e.g. the survey articles by Szymanski (2003) and Fort and Quirk (1995). More
information on the history of revenue sharing in the United States is also provided in Fort and
Quirk (1995).
2
In Germany, for instance, 50% of the broadcasting revenues from its top league
(Bundesliga) are distributed lump sum, and the other 50% according to a scoring model.
For further details on European football leagues, see Falconieri et al. (2004).
Scottish Journal of Political Economy, Vol. 56, No. 2, May 2009
r2009 The Authors
Journal compilation r2009 Scottish Economic Society. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main St, Malden, MA, 02148, USA
255

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