Contest Theory and its Applications in Sports

University of Zurich Institute for Strategy and Business Economics Working Paper No. 105

31 Pages Posted: 2 Sep 2009 Last revised: 27 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)

Martin Grossmann

University of Zurich

Markus Lang

University of Lausanne - Faculty of Social and Political Sciences

Date Written: September 1, 2009

Abstract

This paper outlines how the theory of contests is applied to professional team sports leagues. In the first part, we present the traditional Tullock contest and explain some basic properties of the equilibrium. We will then extend this static contest to a two-period model in order to analyze dynamic aspects of contests. In the second part, we will present applications of contest theory in sports. In particular, we will show how the Tullock framework is applied to models of team sports leagues. For this purpose, we will first explain the value creation process in team sports leagues and show how club revenues are related to the contest success function. Then, we present some basic modeling issues; for instance, we show how the assumption of flexible vs. fixed talent supply depends on the league under consideration and how it influences the equilibria. Furthermore, we explicate the effect of revenue sharing on competitive balance in the different models. Then we address the relationship between competitive balance and social welfare. Finally, we illustrate why many clubs tend to "overinvest" in playing talent in many team sports leagues.

Keywords: Contest theory, Tullock contest, sports leagues, competitive balance, revenue sharing, social welfare, overinvestment

JEL Classification: C72, L83

Suggested Citation

Dietl, Helmut M. and Franck, Egon P. and Grossmann, Martin and Lang, Markus, Contest Theory and its Applications in Sports (September 1, 2009). University of Zurich Institute for Strategy and Business Economics Working Paper No. 105, Available at SSRN: https://ssrn.com/abstract=1465256 or http://dx.doi.org/10.2139/ssrn.1465256

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)

Martin Grossmann

University of Zurich ( email )

Plattenstrasse 14
CH-8032 Z├╝rich, 8032
Switzerland

Markus Lang (Contact Author)

University of Lausanne - Faculty of Social and Political Sciences

Quartier UNIL-Centre
Synathlon
Lausanne, 1015
Switzerland

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