TV revenue sharing as a coordination device in sports
Faculty of Applied Economics
Antwerp :UA, 2010
Research paper / UA, Faculty of Applied Economics ; 2010:5
University of Antwerp
As sports clubs jointly produce contests, they cannot determine contest quality through their private talent investments. Sports leagues therefore try to coordinate talent investments to- wards the pro…t-maximizing contest quality. In this paper I analyze how revenue sharing mech- anisms may serve this goal when demand comes from hard-core club and neutral sports fans. Performance-based sharing turns out to be an ine¢ cient sharing rule for the cartel, although it is not harmful for social welfare. This ine¢ cient cartel behavior can be rationalized as the re- sult of bargaining with asymmetric outside options. Data from US and European sports leagues illustrate the theoretical …ndings.