The Comparative Economics of North American and European Sports
Edited by Carlos Pestana Barros and Muradali Ibrahímo
Chapter 4: Improving the competitive balance and the salary distribution in professional team sports
4. Improving the competitive balance and the salary distribution in professional team sports Stefan Kesenne 1. INTRODUCTION Sport is competition, and the peculiarity of the economics of professional team sports is the so-called ‘inverted joint product’, meaning that two ﬁrms or clubs are necessary to supply the product which is playing a match, and at least two to organize a league championship. Moreover, the competitive balance between the teams in a league is an important determinant of the spectator interest and the total revenue of the league (see Neale, 1964). Given the unequal drawing potential of clubs for playing talent and supporters in big cities and small towns, the general concern is that a free agency player market will cause a very unequal distribution of playing strength among teams. Because the winner takes all, the stronger ﬁnancial position of the big city teams will also allow them to hire or buy the best players from the small town teams. This cumulative eﬀect results in a distribution of playing talent that is too unequal to keep the spectators interested, which will result in a decrease of the clubs’ revenue. In the past league authorities have taken diﬀerent measures to regulate the labour market and control the move of professional players in order to guarantee a reasonable competitive balance. The best known and most controversial of these measures is the retain and transfer system or reservation system. It did not allow end-of-contract players to move from one club to another...
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