Salary Cap Regulation in Professional Team Sports

Contemporary Economic Policy, Forthcoming

University of Zurich - Institute for Strategy and Business Economics - Working Paper No. 86

24 Pages Posted: 9 Jul 2008 Last revised: 7 Mar 2011

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

Alexander Rathke

University of Zurich

Date Written: November 15, 2010

Abstract

This paper analyzes the effects of a percentage-of-revenue salary cap in a team sports league with win-maximizing clubs and flexible talent supply. It shows that a percentage-of-revenue cap produces a more balanced league and decreases aggregate salary payments. Taking into account the idiosyncrasies of European football, our paper further highlights the potential conflicts between the league and society. From the perspective of a league governing body, a percentage-of-revenue cap always enhances financial stability of win-maximizing clubs. A social planner, however, will not permit the introduction of such a cap if fans and players unduly suffer. This paper shows under which conditions the social planner accepts (rejects) a salary cap proposed by the league regulator.

Keywords: Competitive balance, regulation, salary cap, social welfare, team sports leagues

JEL Classification: D02, D60, L83

Suggested Citation

Dietl, Helmut M. and Franck, Egon P. and Lang, Markus and Rathke, Alexander, Salary Cap Regulation in Professional Team Sports (November 15, 2010). Contemporary Economic Policy, Forthcoming, University of Zurich - Institute for Strategy and Business Economics - Working Paper No. 86, Available at SSRN: https://ssrn.com/abstract=1156004

Helmut M. Dietl

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 (Contact Author)

University of Lausanne - Faculty of Social and Political Sciences

Quartier UNIL-Centre
Synathlon
Lausanne, 1015
Switzerland

Alexander Rathke

University of Zurich ( email )

Zuerich, 8006
Switzerland

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