The Economic Consequences of Foreigner Rules in National Sports Leagues

This paper provides a contest model of a professional team sports league and analyzes the impact of a restriction on foreign players. It shows that a league with binding restrictions on foreign talent for all clubs is more balanced than a league without binding restrictions on foreign talent. Moreover, the wage level of domestic (foreign) talent is higher (lower) in a league with a binding restriction on foreign players. Finally, a tighter restriction on foreign players increases profits of all clubs.Team Sports Leagues, UEFA's Homegrown Rule, FIFA's 6+5 Rule, Competitive Balance, Player Salaries

THE ECONOMIC CONSEQUENCES OF FOREIGNER RULES IN NATIONAL SPORTS LEAGUES

Profitable and balanced domestic league sports are among the central prerequisites for attracting the right to host a mega-event like the soccer world cup as well as for the overall economic success of such events. This paper provides a contest model of a professional team sports league and analyzes the impact of a restriction on foreign players. It shows that a league with binding restrictions on foreign talent for all clubs is more balanced than a league without binding restrictions on foreign talent. Moreover, the wage level of domestic (foreign) talent is higher (lower) in a league with a binding restriction on foreign players. Finally, a tighter restriction on foreign players increases profits of all clubs.TEAM SPORTS LEAGUES, COMPETITIVE BALANCE, PLAYER SALARIES

Overvalued: Swedish Monetary Policy in the 1930s

This paper reconsiders the role of monetary policy in Sweden’s strong recovery from the Great Depression. The Riksbank in the 1930s is sometimes seen as an example of a central bank that was relatively innovative in terms of the conduct of monetary policy. To consider this analytically, we estimate a small-scale, structural general equilibrium model of a small open economy using Bayesian methods. We find that the model captures the key dynamics of the period surprisingly well. Importantly, our findings suggest that Sweden avoided the worst excesses of the depression by conducting conservative rather than innovative monetary policy. We find that, by keeping the Swedish krona undervalued to replenish foreign reserves, Sweden’s exchange rate policy unintentionally contributed to the Swedish growth miracle of the 1930s, avoiding a major slump in 1932 and enabling the country to benefit quickly from the eventual recovery of world demand.

The Combined Effect of Salary Restrictions and Revenue Sharing on Club Profits, Player Salaries, and Competitive Balance

This article provides a standard "Fort and Quirk"-style model of a professional team sports league and analyzes the combined effect of salary restrictions (caps and floors) and revenue-sharing arrangements. It shows that the invariance proposition does not hold even under Walrasian conjectures if revenue sharing is combined with either a salary cap or a salary floor. In leagues with a binding salary cap for large clubs but no binding salary floor for small clubs, revenue sharing will decrease the competitive balance and increase club profits. Moreover, a salary cap produces a more balanced league and decreases the cost per unit of talent. The effect of a more restrictive salary cap on the profits of the small clubs is positive, whereas the effects on the profits of the large clubs as well as on aggregate profits are ambiguous. In leagues with a binding salary floor for the small clubs but no binding salary cap for the large clubs, revenue sharing will increase the competitive balance. Moreover, revenue sharing will decrease (increase) the profits of large (small) clubs. Implementing a more restrictive salary floor produces a less balanced league and increases the cost per unit of talent. Furthermore, a salary floor will result in lower profits for all clubs.Team sports leagues, invariance proposition, competitive balance, revenue sharing, salary cap, salary floor

Economics and Olympics: An Efficiency Analysis

Applying stochastic frontier analysis, we estimate the importance of sports in society as technical efficiency of countries in the production ofnOlympic success since the 1950s. Our measures of success are medal shares and a broader concept including Olympic diplomas. Following Bernard andnBusse (2004), population and GDP are used as inputs. While the impact of GDP is always positive, we show that the sign of the population effect depends on wealth and population size of a country.nThe results show that the spread of importance is very wide over time, across countries, gender, and sports. These differences can be seen asncaused by differences in financial support, training methods, organization, or culture. Using the method proposed by Battese and Coelli (1995), we confirm the result well documented in the literature that planned economies and host countries are more successful than others in terms of Olympic successn(e.g. Bernard and Busse, 2004). The method allows to shed light on important aspects of recent sport history, such as the consequences of thenbreakdown of the former Soviet Union

Organizational Differences between U.S. Major Leagues and European Leagues: Implications for Salary Caps

This paper outlines and compares the organizational structure of major sports leagues, explores the reasoning behind their formation, and derives implications for salary caps in European football. To understand why sports leagues have developed a specific organizational structure, one must take the economic peculiarities of team sports leagues into consideration. For this purpose, we analyze the production process and illuminate its major peculiarities. For example, we present the difference between economic competition and competition on the pitch and discuss the consequences of this distinction for an attractive final product. Furthermore, we show that a hold-up problem exists between the two stages of the production process and demonstrate how these problems are overcome by the organizational structure chosen by sports leagues. We also outline the differences between the U.S. major leagues and European leagues and document recent developments in that context. Finally, based on this comparative institutional analysis, we derive implications for the introduction of salary caps into European football.Sports leagues, organization, salary cap, hold-up problem

Welfare Effects of Salary Caps in Sports Leagues with Win-Maximizing Clubs

This paper studies the welfare effect of a percentage-of-revenue salary cap in a European context with win-maximizing clubs. It shows that a percentage-of-revenue cap increases competitive balance and decreases the overall salary payments in the league, therefore contributing to financial stability. A percentage-of-revenue cap will always increase social welfare if the weight on aggregate club surplus in the welfare function is sufficiently high. Additionally, if fans’ preferences for aggregate talent are sufficiently high then the percentage-of-revenue cap will also increase social welfare; no matter how much weight the league puts on financial stability.Salary Caps, Social Welfare, Competitive Balance, Team Sports League

The Effect of Salary Caps in Professional Team Sports on Social Welfare

This paper provides a theoretical model of a team sports league and studies the welfare effect of salary caps. It shows that salary caps will increase competitive balance and decrease overall salary payments within the league. The resulting effect on social welfare is counter-intuitive and depends on the preference of fans for aggregate talent and for competitive balance. A salary cap that binds only for large-market clubs will increase social welfare if fans prefer aggregate talent despite the fact that the salary cap will result in lower aggregate talent. If fans prefer competitive balance, on the other hand, any binding salary cap will reduce social welfar