Discussion on Club Objectives

Club Objectives, Competitive Balance, and the Invariance Proposition

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Subscriber: Ohio State University; date: 17 August 2018

Abstract and Keywords

This chapter considers the analysis of the competitive balance in a formal model that focuses attention on the nature of the market for talent and the nature of the club owner’s objective function, and derives the conditions which have led to the dissenting results about the competitive balance. It then addresses the optimal competitive balance in a league theoretically, and whether a win- or profit-maximizing club comes closest to the social optimum. Next, the chapter deals with the invariance proposition, analyzing the effects of restrictions on player mobility and revenue-sharing arrangements. The most unequal competitive balance can be expected in a league in which the large-market clubs are win maximizers and the small-market clubs are profit maximizers. It is noted that the invariance proposition no longer holds if one of the teams in a league is a win maximizer.

Keywords: competitive balance, invariance proposition, club owner, win maximizers, profit maximizers, player mobility, revenue sharing

Club Objectives, Competitive Balance, and the Invariance Proposition Stefan Kesenne The Oxford Handbook of Sports Economics: The Economics of Sports Volume 1 Edited by Leo H. Kahane and Stephen Shmanske

Print Publication Date: Apr 2012 Subject: Economics and Finance, Industrial Organization, Business Economics Online Publication Date: Sep 2012 DOI: 10.1093/oxfordhb/9780195387773.013.0003

 

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Club Objectives, Competitive Balance, and the Invariance Proposition

Page 2 of 15

PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). © Oxford University Press, 2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a title in Oxford Handbooks Online for personal use (for details see Privacy Policy and Legal Notice).

Subscriber: Ohio State University; date: 17 August 2018

1. Introduction There has been some controversy in the sports-economics literature regarding the differences in competitive balance between a league in which all teams are maximizing profits and a league in which the objective of the teams is to maximize their season winning percentage. Kesenne (1996, 2000), using a simple fixed-supply Walrasian model, has shown that the distribution of playing talents in a win-maximization league will be more unequal than in a profit-maximization league. However, Fort and Quirk (2004) have questioned the validity of this result, showing that nothing can be derived about the difference in competitive balance between a win- and a profit-maximization league, if no other assumptions are made on the club-revenue functions beyond concavity. In section 2 of this chapter, we will further investigate this issue by deriving the conditions that have led to these dissenting results about the competitive balance. In section 3, we try to derive the optimal competitive balance in a league theoretically, and whether a win- or

profit-maximizing club, comes closest to the social optimum. Section 4 deals with the invariance proposition, analyzing the effects of restrictions on player mobility and revenue-sharing arrangements. Section 5 concludes.

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