, Volume 34, Issue 3, pp 193-215
Date: 20 Jun 2009

Modelling Professional Sports Leagues: An Industrial Organization Approach

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Abstract

This paper outlines a simple model of professional sports contests that can provide a number of useful insights into the operations of professional sports leagues. The model incorporates a concern for competitive balance on the part of fans and has the advantage that a number of league market structures can be analyzed using standard industrial organization techniques. The model can also be used to determine the effect of a number of league rules including revenue sharing, payroll caps, and luxury taxes on the respective demands for talented players. In addition, it can be shown that the model of professional sports contests developed here has a useful parallel with a standard model of differentiated products.