Profit‐Maximizing Gate Revenue Sharing in Sports Leagues

17 Pages Posted: 7 Feb 2015

See all articles by Thomas Peeters

Thomas Peeters

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); University of Antwerp - Department of Economics

Date Written: April 2015

Abstract

In this article, I examine how sports leagues can use gate revenue sharing to coordinate talent investments and maximize club profits. Gate revenue sharing reduces incentives to invest in talent. Initially lower investments boost profits, because total costs go down, but investing less also shrinks revenues, which harms profits at higher levels of sharing. The league maximizes profits by setting a sharing rule, which balances these two effects. Gate revenue sharing decreases talent investments more strongly in leagues with heterogeneous rather than homogeneous local market sizes. As a result, the profit-maximizing level of sharing is higher for relatively homogeneous leagues. This implies that more balanced leagues are expected to share more gate revenues than less balanced leagues. It also explains why gate revenue sharing is widely used in the U.S. major leagues, while it is largely absent in European soccer.

JEL Classification: L41, L83

Suggested Citation

Peeters, Thomas, Profit‐Maximizing Gate Revenue Sharing in Sports Leagues (April 2015). Economic Inquiry, Vol. 53, Issue 2, pp. 1275-1291, 2015, Available at SSRN: https://ssrn.com/abstract=2561681 or http://dx.doi.org/10.1111/ecin.12184

Thomas Peeters (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

University of Antwerp - Department of Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
339
PlumX Metrics