Over-Investment in Team Sports Leagues: A Contest Theory Model

16 Pages Posted: 4 Jun 2008

See all articles by Helmut M. Dietl

Helmut M. Dietl

University of Zurich - Department of Business Administration (IBW)

Egon P. Franck

University of Zurich - Department of Business Administration (IBW)

Markus Lang

University of Lausanne - Faculty of Social and Political Sciences

Abstract

This paper applies contest theory to provide an integrated framework of a team sports league and analyzes the competitive interaction between clubs. We show that dissipation of the league revenue arises from over-investment in playing talent as a direct consequence of the ruinous competitive interaction between clubs. This over-investment 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 league compared with a closed league. Moreover, the over-investment problem within open leagues increases with the revenue differential between leagues.

Suggested Citation

Dietl, Helmut M. and Franck, Egon P. and Lang, Markus, Over-Investment in Team Sports Leagues: A Contest Theory Model. Scottish Journal of Political Economy, Vol. 55, No. 3, pp. 353-368, July 2008, Available at SSRN: https://ssrn.com/abstract=1140406 or http://dx.doi.org/10.1111/j.1467-9485.2008.00457.x

Helmut M. Dietl (Contact Author)

University of Zurich - Department of Business Administration (IBW) ( email )

Hottingerstrasse 10
Plattenstrasse 14
Zurich, 8032
Switzerland

Egon P. Franck

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich 8032
Switzerland
+41 1 634 28 45 (Phone)

Markus Lang

University of Lausanne - Faculty of Social and Political Sciences

Quartier UNIL-Centre
Synathlon
Lausanne, 1015
Switzerland

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