The Economics of American Sports Leagues

Abstract

Player mobility in North American sports leagues is limited by labor market constraints designed ostensibly to allow teams to recoup player development costs and to maintain competitive balance within leagues. Theory holds that the distribution of talent will be invariant under any institutional configuration, and that while rules to constrain movement will serve to enhance monopsonistic exploitation of talent, they will have no effect on competitive balance. This paper reprises a general theory through which the effects of the labor market constraints can be comparatively analyzed for American sports leagues. The economics of sports has been relegated to the realm of labor theory by the unnecessarily limiting assumption that owners of sports clubs are single-minded profit maximizers. This paper also presents a theory that seeks to unify capital market decisions of financial leverage and ownership syndication with operational labor market decisions for athletic talent and an owner's desire to win.