Munich Personal RePEc Archive

Risk Diversification from Revenue Sharing in a Professional Sports League: Measuring Welfare Gains

Rockerbie, Duane and Easton, Stephen (2017): Risk Diversification from Revenue Sharing in a Professional Sports League: Measuring Welfare Gains.

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Abstract

Revenue sharing is a common league policy in professional sports leagues. Several motivations for revenue sharing have been explored in the literature, including supporting small market teams, affecting league parity, suppressing player salaries and improving team profitability. We investigate a different motivation. Risk-averse team owners may be able to increase league welfare by using revenue sharing to reduce the variance and affect the skewness of the league distribution of team local revenues. We first determine the extent to which revenue sharing affects these moments in theory, then we attempt to quantify the effects on league welfare for Major League Baseball. Our results suggest that revenue sharing had significant welfare gains, obtained at little cost, that enhance the positive effects noted by other studies.

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