Free Agent Auctions and Revenue Sharing: A Simple Exposition

in Journal of Sport Management

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Duane RockerbieUniversity of Lethbridge

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This article uses a simple approach to address the issue of how revenue sharing in professional sports leagues can affect the allocation of free agent players to teams. To affect the allocation of free agents, the imposition of revenue sharing must alter the ranking of bidding teams in terms of maximum salary offers. Two types of revenue sharing systems are considered: traditional gate revenue sharing and pooled revenue sharing. The article suggests that team rankings for ability to pay are not affected by pooled revenue sharing, however the distribution of player salaries will be affected asymmetrically. Traditional gate revenue sharing can alter the ability to pay rankings for teams, depending upon playing schedules and the closeness of revenues between closely ranked teams. Revenue data for two professional sports leagues provide evidence in favor of the model predictions.

Rockerbie is with the Dept. of Economics, University of Lethbridge, Lethbridge, Alberta, Canada T1K3M4.

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