Rottenberg and the Economics of Sport after 50 Years: An Evaluation

25 Pages Posted: 24 Jul 2006

See all articles by Peter J. Sloane

Peter J. Sloane

University of Wales, Swansea; IZA Institute of Labor Economics

Date Written: June 2006

Abstract

Simon Rottenberg's seminal 1956 article in the Journal of Political Economy, 1956, is generally accepted as the starting point for the development of the economics of sport. While he recognised that certain features of professional sports leagues were unusual he saw little reason to treat this industry any differently from a conventional industry. He discusses the importance of uncertainty of outcome, the monopsonistic nature of the labour market, the nature of the product and demand (attendances). He considers alternatives to the reserve clause, such as equal revenue sharing, maximum salary limits, equal market franchise distribution and roster limits. Each of these is rejected in favour of a free market solution which, on the basis of the invariance principle, he suggests will perform just as well as the reserve clause in allocating talent to where it is most productive. The ensuing literature has focused on all these issues, many of which have created considerable debate amongst sports economists. In particular the assumption of profit maximisation has been challenged and a divergence of views, reflected in the so-called North American and European models of sports leagues has emerged. Over the last 50 years sports leagues have expanded, TV markets have opened up and legal challenges to existing practices have multiplied. This paper seeks to evaluate Rottenberg's contribution to a rapidly expanding field and to judge its relevance today.

Keywords: sport, monopsony, monopoly power

JEL Classification: J0, L0, L8

Suggested Citation

Sloane, Peter J., Rottenberg and the Economics of Sport after 50 Years: An Evaluation (June 2006). IZA Discussion Paper No. 2175. Available at SSRN: https://ssrn.com/abstract=918719

Peter J. Sloane (Contact Author)

University of Wales, Swansea ( email )

Singleton Park
Swansea, Wales SA2 8PP
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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