The Valuation of Athletes as Risky Investments: A Theoretical Model

Journal of Sport Management, Vol. 22, No. 1, pp. 50-81, 2008

54 Pages Posted: 2 May 2007 Last revised: 21 Apr 2009

See all articles by Haim Kedar-Levy

Haim Kedar-Levy

Ben Gurion University of the Negev - Guilford Glazer Faculty of Business and Management

Michael Bar Eli

Ben-Gurion University of the Negev

Date Written: December 6, 2007

Abstract

The desire to hire the best athletes and coaches in order to maximize team performance necessitates generous compensation contracts, which in turn increase the risk of financial distress or even bankruptcy for team owners. Indeed, one of the largest expense items in the budget of professional sport teams is the remuneration of players and coaches. Yet an investment made today in a given team yields an uncertain income in the future, as team profitability depends on the (uncertain) performance of each player and the synchronization among players - both influenced by the coach. We present a formal theoretical model that assesses athletes' valuation, accounting for the abovementioned factors. The optimal compensation schedule is determined empirically by regressing expected performance measures of each player with the aggregate team performance. Once the optimal schedule has been determined, the expected rate of return for the owner is earned at the lowest possible risk.

Keywords: Sport, Economics, Valuation, Athletes, Risk

JEL Classification: L83, D81, D46

Suggested Citation

Kedar-Levy, Haim and Bar Eli, Michael, The Valuation of Athletes as Risky Investments: A Theoretical Model (December 6, 2007). Journal of Sport Management, Vol. 22, No. 1, pp. 50-81, 2008. Available at SSRN: https://ssrn.com/abstract=983811

Haim Kedar-Levy (Contact Author)

Ben Gurion University of the Negev - Guilford Glazer Faculty of Business and Management ( email )

P.O. Box 653
Beer-Sheva 84105
Israel
(972) 8 6472569 (Phone)
(972) 8 6477697 (Fax)

Michael Bar Eli

Ben-Gurion University of the Negev ( email )

P.O. Box 653
Beer-Sheva 84105
Israel

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