An Economic Model of a Professional Sports League

Abstract

This paper investigates the economic structure of professional sports to determine the extent to which the current operating rules justify exemption of professional sports leagues from some aspects of antitrust statutes. We construct a formal decision-making model incorporating certain fundamental features of the industry. Within the context of the model we find that, under current rules of operation, equalization of playing strengths is generally not consistent with profit maximization by teams. However, we suggest a rule that guarantees convergence to a path of equal playing strengths under decentralized control of teams. As an example we study baseball leagues. Some refinements of the model are introduced, for example, incorporating time lags and training costs that result when teams train their own players.Over the past twenty years, the U.S. Congress has held a number of hearings on various bills designed to exempt certain practices of the professional sports industry from prosecution under the federal antitrust statutes. While two bills providing such exemption for special aspects of sports have passed the Congress, one dealing with the AFL-NFL merger in professional football and the second dealing with television and radio contract pooling, the issue of exemption for other phases of professional sports still has not been resolved. It is the purpose of this paper to investigate the economic structure of professional sports to determine the extent to which the current operating rules of professional sports justify such an exemption. Thus this paper considers some of the problems investigated by Rottenberg (1956) in his excellent study of the labor market in baseball, but from a somewhat different point of view and with emphasis on somewhat different aspects of professional sports. The approach adopted here is to

Aggregate wages of players and performance in Italian Serie A

“…In a considerable set of studies it turns out that the probability of sport success is positively associated with teams' talent availability. In particular, since the seminal contributions of El Hodiri and Quirk (1971) and Scully (1974) the winning ratio between two teams has always been associated with the relative available talent, whose better proxy is considered, with few exemptions Nüesch (2010, 2011)], the payroll. Along these lines, Fort and Quirk (1995), Vrooman (1995), Késenne (2000), Szymanski and Késenne (2004), Smith (1997), Hall et al (2002), Burger and Walters (2003), Frick (2007), Berri and Schmidt (2010), Rodríguez et al (2013), Frick (2013) and Szymanski (2013), among the others, have employed the talent ratio to compare the competitive balance equilibria inside professional team sports leagues.…”

Revenue Sharing and Competitive Balance in a Dynamic Contest Model

“…One exception is El-Hodiri and Quirk (1971) who develop a dynamic decision-making model of a professional sports league. They con…rm the "invariance proposition" and show that revenue sharing does not in ‡uence competitive balance.…”

A new research area: disequilibrium sports economics

“…The first one of course is the concept of economic equilibrium assumed to be reached by a league for its product market and labour market for talent -its major input. Economic equilibrium is obtained through the usual marginal calculation achieved by all economic agents operating in a league's market, namely, the calculation of team owners driven by a profit maximization objective, both in the original model (El Hodiri and Quirk, 1971) and later in the standard model of a closed North American team sport league (Fort and Quirk, 1995). Therefore, the assumption of profit maximization is a second pillar.…”