Regulation of the sporting event organized in a professional league
The reputation and public viewers the big leagues of North American professional sports e s largely beyond the territory of the United States and Canada: the sister 's matches are broadcast in many countries of the world. The same is true for some European professional sports leagues , in particular the five main football leagues: English Premier League , Spanish Liga de Futbol , Italian Lega Calcio , German Bundesliga and French Liga 1. An economic theory of team sports leagues sheds light on regulatory issues. It was formed Alisée from the model of El Hodiri & Quirk (1971) for are closed leagues North American (Box). Is taken by its adaptation to the case s leagues open European like the five that we just mentioned.
North American closed leagues
American professional team sports are organized into closed leagues, such as MLB ( Major League Baseball ), NFL ( National Football League ), NBA ( National Basketball Association ) and NHL ( National Hockey League ), centrally coordinated by a Commissioner (regulator), representing club owners, according to the following rules:
1. The league is an independent organization bringing together several member clubs. It is closed by a barrier to entry, the excess that any club owner must pay in order to participate in the championship. The owner of the candidate club must convince a qualified majority (usually 75%) of the members that his entry will increase the income of the league. This system favors large cities over small ones. The Commissioner fixes the amount of the franchise after a study of the market of the city supposed to host the new club. Entry into the league depends on an economic criterion and not on good sporting results. An American league accepts few entries, unless they do not harm the clubs in place. There is no relegation exit to a lower league. The decision to exclude a club from the league due to its financial fragility is difficult and often postponed. No club has left the MLB since 1900. The size of the American leagues is of the order of 30 clubs, resulting in many games without a stake and the use of a final phase ( play off ) to recreate, at the end of the game. season, uncertainty over who will be the champion.
2. The number and identity of clubs in the league are fixed from one season to another, except when selling an expansion franchise, the only opportunity for a new club to enter.
3. Once its location is assigned by the league, the club has absolute exclusivity for an urban area and therefore has a monopoly on the local market for the sale of its sports spectacle. If this market ceases to be profitable, the club can relocate to another city with the agreement of the league. There have been 48 club relocations in the four major leagues since their inception . Club mobility is geographic and horizontal, within the league, and not vertical between a higher league (division) and a lower league.
4. Restrictions on the recruitment and mobility of players give the league monopsony power in the labor market where players' sporting talent is exchanged. In the past, a reserve clause prohibited the player from changing clubs without the consent of the owner of the club where he was employed and where he had signed his first employment contract. An owner would only give his consent if a club offered him a player transfer price that was higher than the income the player created at his home club by attracting audiences. The MLB reservation clause was attacked under the anti-trust law in 1922. The Supreme Court exempted the MLB from the law on the (spurious) grounds that baseball is an exhibition, not a business. Since the 1970s, after various labor disputes, the experienced players ( veterans ) have obtained a status of free agent after a certain seniority (6 years in MLB). New entrants to the league (young players from university or foreign clubs) are recruited from a hierarchical hiring list ( rookie draft ) on which experts rank the players in descending order of their sports performance.
5. Clubs have a limited right to hire due to the fact that the hire list is a reverse-order-of-finish draft : the club ranked last at the end of last season chooses first the best player of the season. list, then the club ranked second to last exercises its hiring choice second and so on, the champion of the past season chooses lower quality players located at the bottom of the draft . Clubs that are no longer in the playoff race intentionally lose matches to improve the order in which they choose new players for the following season. The leagues justify this violation of freedom of hiring throughout the American economy as being necessary to rebalance sporting forces. The hiring of each club is limited in terms of the number of players ( roster limits ).
6. Player mobility is all the weaker as a rule limits the transactions of buying and selling players in cash , banned in the NFL since 1960 and in MLB since 1976, especially for superstars. Transfers take place mainly by interclub exchange (in fact barter) of players. Competition between clubs for access to the same player is almost zero.
7. L are player salaries are the result of collective bargaining between club owners and the players' union. From ux leagues (NBA, NFL) have successfully negotiated a salary cap ( salary cap ): the a payroll in the league and each club can not exceed a specified percentage of its annual revenues. Introduced to counteract wage inflation triggered by the autonomy of experienced players, the salary cap is championed by club owners as a means of limiting the concentration of top players in rich, large-market clubs to the detriment of small-market clubs, therefore to maintain the competitive equilibrium. It is also a way for the league to preserve its monopsony rent since the abandonment of the reserve cla use. A tax ( luxury tax ) imposed on clubs whose payroll exceeds the ceiling is paid to the weakest clubs.
8. The league collectively sells the rights to broadcast matches from all clubs to national TV channels and redistributes these revenues. It thus secures a monopoly power on the national market of its derivative product (televised sport). Professional sport is the only sector of the American economy where this cartel practice is exempt from anti-trust law, thanks to the Sports Broadcasting Act (1961). The box office receipts are shared between the receiving club and the visiting club . The owners, especially those operating in small markets, justify this economic collusion between the clubs by maintaining the competitive balance. Minor source of income, except for the big clubs, only the TV rights sold to local TV beyond the redistribution.
9. Most American clubs are not listed on the stock exchange, while only the NFL formally prohibits their going public. Club owners do not want to expose themselves to the risk of a takeover by an outsider (stock market buyout, merger or absorption) wishing to enter the league.
10. The only competitive threat that a closed league can face comes from outside through the creation of a major league rival in the same sport by club owners who have fallen victim to the existing league barrier to entry. Thirteen rival leagues have emerged since the inception of the four major leagues, 7 have competed against the NFL, 3 the MLB, 2 the NBA and 1 the NHL. Congress generally facilitated, after a few years of competition, the merger of the two rival leagues into a new league exempt from anti-trust law.
11. The league is a cartel of clubs , of legal existence, which maximizes its joint profit and distributes it among the clubs. The dominant hypothesis is that the objective function of the American professional club is profit maximization. For the clubs which are unlikely to take part in the play-offs , this financial objective far outweighs that of sporting victory. Investing in sports talent is only undertaken if it increases revenues more than costs. Clubs in low-traffic cities lack the profit incentive to build competitive teams that would maximize league-wide revenue, which justifies their being subsidized by clubs in big cities.
The open league organization of European professional team sports, such as football, meets the following stylized rules (Szymanski, 2003; Andreff, 2007 b ):
1. In a governance structure integrated into a world hierarchy (the international football federation), the professional league of each country is subject to a national federation. L ost of are international federations prohibit the creation of more than one major league in their sport in a country.
2. Competition results from the fact that the league is opened each year to the entry of new clubs by a system of promotion of winners and relegation of losers. The mobility of clubs is not geographical but vertical along the hierarchy. It depends on the sports results of the club. A club created in the lowest amateur division can, by its victories, climb all the levels up to Ligue 1 and qualify for a European competition, if there is a local will to finance this rise. Entrance is free, without paying an excess. Incoming clubs must present financial guarantees. The exit of a number of clubs identical to that of entrants keeps the number of clubs participating in the championship fixed , but the identity of the clubs (promoted and relegated) changes from one season to another.
3. By relegating the weaker clubs and replacing them with the stronger clubs from the lower league, this system achieves a rebalancing , admittedly limited, but automatic of the sporting forces. It also works as an incentive mechanism . The clubs are making significant efforts to avoid sanction (relegation) or to be rewarded (promotion, European qualification) in matches with a high stake for the future of the club next season. There are far fewer non-stakes games than in the American leagues. The only exception to this importance of the stake, matches at the end of the season between teams in the middle of the standings (the “soft underbelly” of the championship) who can no longer be promoted or relegated.
4. There is no territorial exclusivity , nor local monopoly, for each club in the league.
5. The lifetime contract until 1968, then a reservation system with transfer of players at the end of the contract, for a long time limited the freedom to contract and the mobility of players. In 1995, the Bosman ruling removed all restrictions on the free choice of players on the labor market in accordance with Article 48 of the Treaty of Rome ensuring the free movement of workers in the European Union. Club / player relations are now articulated on a fixed-term employment contract. It provides clubs with temporary stability in their workforce for the entire season in return for the player's freedom to contract. In an open league, there is no draft and no limit on hiring. The Bosman ruling also abolished the quota of national players (6 out of 11 in 1995 in European football) which each club had to respect in the teams lined up in competition , as well as any restriction on the number of players hired. The acquisition of players is paid in cash , exchanges (barter) and loans of players are less frequent.
6. Labor market deregulation has triggered a high mobility of players, especially superstars. Players are transferred from the major league or minor league of one country to those of other countries. The leagues argue for a sporting exception , much more than a need for competitive balance, to escape European competition policy, but with limited success compared to the antitrust exemption obtained by the American leagues.
7. The unionization rate of players is lower than in the American leagues. Collective bargaining is not as elaborate, salary caps are not practiced, with some exceptions, as in English football in 1900-1961 (Szymanski & Kuypers, 1999).
8. Collective selling of national TV rights is the rule in open leagues, with income redistribution between clubs. Without antitrust exemptions, the leagues are exposed to pressure (and lawsuits from) big clubs to obtain individual ownership of their TV rights. The latter has been granted to football clubs in Spain, Greece, Portugal and Italy. In other European football leagues, the criteria for the redistribution of TV income have changed, the distribution by equal share has regressed in favor of a distribution according to the sports results and the media notoriety of each club (Andreff & Bourg, 2006) . There is no longer any revenue sharing at the guic het between host and visiting clubs in European football leagues .
9. There is no restriction on the listing of clubs on the stock exchange . The last European country to lift the ban on club listing is France (Aglietta et al. , 2008). Clubs are financially independent and responsible for carrying out their budgets.
10. Clubs aiming for promotion or to avoid relegation, their objective function is to maximize sporting victories under the constraint of balanced budgets. Compared to a closed league, the incentive to invest in sports talent is stronger and would be endless without the budget constraint. Overinvestment leads European clubs to have a higher number of substitute players than American clubs subject to quantitative restriction.
11. The promotion / relegation system and the maximization of victories push the clubs into an arms race (Sanderson, 2002) where each aims to recruit the best players at the start of the season to improve their position against opponents who in turn , are driven to outbid. The demand for talent from each club is excessive because each one wants to win the competition. But investments in additional recruitments are not effective when a club tries by all possible means to gain an advantage over its opponents, as this forces them all to do the same to remain competitive. Such investments are only socially effective if absolute quality considerations (and not relative as in a match between two teams ) are preponderant (Lazear & Rosen, 1981). However, there are only a few winners (promoted, qualified for the European level) in this arms race, while the increase in costs generalized to all clubs is certain - salary inflation and transfer bonuses - especially that it is not held back by profit maximization.
Since El Hodiri and Quirk ( 1971), using a Walrasian model of economic equilibrium, with two clubs, it has been shown that the equalization of sporting forces is not compatible with the maximization of club profit. The crucial assumption is that each player "contains" a certain number of units of homogeneous talent, the superstars more than the other players. An amount of talent translates into a winning percentage which, for each club, also depends on the acquisition of talent by other clubs. Assuming that the supply of talent is fixed ( Fort & Quirk, 1995) , club owners internalize the external effect that if they recruit one more talent, that makes one less talent available for another club. of the league, and this increased competitive imbalance will result in lower income for the league. Each club recruits talent until the marginal talent revenue equals the marginal cost of talent and the marginal cost of talent equals the exogenous equilibrium unit wage . At this point of balance, the big club recruits more talent than the small club and we are not in a competitive equilibrium . The economic balance generates the sporting imbalance of a closed league. If there is not a sufficient degree of competitive balance, supporters will have no interest in the championship. The club owners' argument for hiring restrictions to reduce the competitive imbalance is not entirely without merit. But their monopsony in the labor market results in players being exploited by club owners.
It is therefore to get closer to the competitive equilibrium that regulations are introduced in the closed league. The redistribution of income between clubs, through box office sharing and redistribution of TV rights, aims to reduce the gap between sporting forces and to ensure the financial viability of small clubs, but it lowers the salary. he balances and discourages the big clubs from investing in talent . The salary cap makes the distribution of talent more even among clubs, lowers the salary level and increases owner profits. The resulting wage losses are greater than the increase in profits because the new equilibrium diverges from the profit-maximizing market equilibrium (Késenne, 2007). It follows that the salary cap lowers the league's total revenues .
D findings do not validate empirical arious c e model theoretical closed sports league . The most unbalanced of the four major leagues, the NBA, has seen the strongest growth in attendances. Extensive income sharing maintains or improves the competitive balance in the less imbalanced, the NFL (Vrooman, 1995). Among 14 studies devoted to the uncertainty of the result as a determinant of attendance, applied to American closed leagues, only 8 confirm the hypothesis (Borland & Macdonald, 2003). The most paradoxical result comes from a comparison between the American and European leagues. The latter, less regulated, are closer to the competitive ideal. They should be more unbalanced than the American leagues. Table 2 shows the opposite. Used everywhere in the United States to justify restrictions on competition in antitrust litigation against leagues, competitive balance is not necessarily the only good tool for studying European football.
* Noll-Scully index : NS = σ / (0.5 / √N) , defined as the ratio of the observed standard deviation σ = √ Σ i (v i - 0.5) 2 to the standard deviation of victories of a perfectly balanced theoretical championship ( binomial distribution with an independent probability of winning of 0.5 in all matches, whose standard deviation is 0.5 / √N ) , where N is the number of matches played by each team. The closer NS is to 1, the more balanced the championship.
Sour this : Kringsta d & Gerrard (2007) .
In the open league, financial losses over several seasons are proof that the owners of European football clubs are not maximizing profit ; club owners could stop the losses by leaving this area, but more often than not they stay . The previous model was adapted to open leagues (K és enne, 1996 and 2000 ) by assuming that clubs maximize the percentage of wins, recruit as many talents as possible , under the constraint of a balanced budget , in a deregulated work where the entry of new players is completely free . Under these conditions, the demand for talent of a club which maximizes its victories is greater than that of a club which maximizes its profit, it spends more to recruit more talent , the equilibrium salary is higher and the competitive imbalance runs deeper. If the smaller clubs have a low budget and are less endowed with talent, then the income distribution improves the competitive balance . Income sharing raises the equilibrium wage compared to a situation without redistribution. Players enjoy revenue sharing in an open league.
Beyond this theoretical model, we will now illustrate the possible effect of a change in sporting, financial and hiring rules on the four sporting events selected in this chapter.
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