Are Voluntary Salary Caps Self-Enforcing?

European Sport Management Quarterly, Vol. 6, No. 1, pp. 23-34., 2006

Posted: 17 Nov 2010

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)

Stephan Nüesch

University of Muenster

Date Written: 2006

Abstract

In 2002 the leading European football clubs reacted to the increasing player salaries by signing a voluntary agreement to limit player salaries to 70% of revenues. We analyse under which conditions a voluntary salary cap agreement is self-enforcing. Based on a simple model of a league with two profit-maximising clubs, we show that the self-enforcing character of salary caps increases with the clubs’ valuation of future profits and the importance of competitive balance. In European football leagues salary cap agreements are not likely to be self-enforcing because (1) promotion and relegation as well as limited transfer windows reduce the clubs’ discount factor; and (2) competitive balance is less important in order to activate fan interest than in US Major Leagues.

Suggested Citation

Dietl, Helmut M. and Franck, Egon P. and Nüesch, Stephan, Are Voluntary Salary Caps Self-Enforcing? (2006). European Sport Management Quarterly, Vol. 6, No. 1, pp. 23-34., 2006, Available at SSRN: https://ssrn.com/abstract=1710119

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)

Stephan Nüesch (Contact Author)

University of Muenster ( email )

Schlossplatz 2
Muenster, D-48149
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/uf

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