Revenue Sharing in Professional Sports Leagues

Abstract

This entry provides a review of economic models of professional sports leagues with and without revenue sharing. These include models that assume profit-maximizing and win-maximizing (sportsmen) club owners. Both approaches predict that revenue sharing will reduce the demand for player talent, depress player salaries, and transfer revenue from large-market to small-market clubs, but they differ on league parity effects. Empirical work has been sparse due to financial data limitations and has not yielded definitive results on the parity issue. Despite the growing awareness of sports economics in the sports industry, the lack of consensus from theoretical models has resulted in sports leagues searching for an optimal revenue sharing policy. The difficulty in providing consistent policy prescriptions in models that incorporate revenue sharing, salary caps, and other league policies has made economic modeling of sports leagues very difficult and complex. While revenue sharing remains an interesting theoretical modeling issue, it has not bridged the gap to real-world league policies.