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SALARY CAP REGULATION IN PROFESSIONAL TEAM SPORTS
Author(s) -
DIETL HELMUT M.,
FRANCK EGON,
LANG MARKUS,
RATHKE ALEXANDER
Publication year - 2012
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.2011.00265.x
Subject(s) - salary , league , football , revenue , payment , revenue sharing , planner , business , economics , finance , labour economics , market economy , political science , computer science , law , physics , astronomy , programming language
This paper analyzes the effects of a percentage‐of‐revenue salary cap in a team sports league with win‐maximizing clubs and flexible talent supply. It shows that a percentage‐of‐revenue cap produces a more balanced league and decreases aggregate salary payments. Taking into account the idiosyncrasies of European football, our paper further highlights the potential conflicts between the league and society. From the perspective of a league governing body, a percentage‐of‐revenue cap always enhances financial stability of win‐maximizing clubs. A social planner, however, will not permit the introduction of such a cap if fans and players unduly suffer. This paper shows under which conditions the social planner accepts (rejects) a salary cap proposed by the league regulator. ( JEL D02, D60, L83)