Can subsidies help buy success? Revenue sharing in English football

Abstract

This paper investigates the impact of redistribution of revenues from large successful organizations to small unsuccessful ones. In particular, we ask whether such redistribution actually makes the performance of these organizations closer. Such redistributive mechanisms are common in sports where the motivation is to ensure that competitions are closely run in the sense that the outcomes become hard to predict. In some cases this is achieved through regulation, in others through handicapping, and in the case of English football and many other sports financial redistribution is employed. We aim to identify the effect of such redistribution by looking at how exogenous variation in financial resources impact on success of the field. This is achieved by exploiting the random assignment of teams to games in the FA Cup knockout competition. We use this random assignment to investigate the extent to which the resulting variation in revenues impact on the performances of clubs in the League competition where all teams play each other (twice) each season. © 2010 Springer-Verlag Berlin Heidelberg.