Competitive Imbalance and Budget Constraints
New Horizons in the Economics of Sport series
Chapter 3: Management reference points for sporting leagues: simulating league expansion and the effect of alternative player drafting regulations
Most research on the economic design of sporting leagues has assumed that league managers, who are often club owners, seek an optimal mix of regulatory settings in the labour market, the product market and in the sharing of revenue between the league clubs (and league manager). From a normative perspective, the optimal league model identifies the regulatory settings that maximize a variable such as the aggregate profits or revenue of league clubs, or the social welfare of club owners, players and fans. From a positive perspective, such league models, as originally formalized by El-Hodiri and Quirk (1971), are generally solved to identify the equilibrium level of competitive balance and player wages given actual regulatory settings; with the profit, revenue or social welfare outcomes compared to the ideal normative models (Szymanski, 2003; Késenne, 2014). In contrast to this dominant Walrasian equilibrium approach, there are few disequilibrium or non-equilibrium models in the sports economics literature. Recent work by Andreff (2014, Chapter 2, this volume) offers first steps towards a robust disequilibrium model of the labour and product markets of a league. Other non-equilibrium approaches to league modelling have also developed, but have received little attention in the mainstream sports economics literature. In this chapter, we therefore build on the earlier modelling of labour markets and competitive balance by Tuck and Whitten (2012, 2013, 2014) to show how dynamic non-equilibrium simulation represents a viable tool to aid league managers in the design of labour market regulations.
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