Journal of Sports Economics

This article explores the standard 2-team model of talent choice in a professional sports league and argues that the application of Nash concepts leads to a different equilibrium than that which is normally identified. In particular, it is shown that the invariance principle for gate-revenue sharing no longer holds. Because the standard model, which is here called the Walrasian fixed-supply conjecture model, is widely taught in sports management and economics programs, these finding have important implications for teachers as well as researchers.

The data envelopment analysis technique is used to measure franchise payroll efficiency in the National Football League (NFL) from 1981 to 2000 and Major League Baseball (MLB) from 1985 to 2001. This article shows that there is a significant difference in the level of franchise inefficiency between MLB and the NFL because of the different financial structure in these leagues. MLB franchises, with little revenue sharing and no salary cap, tend to be less efficient than NFL franchises. Big spending and inefficient MLB franchises tend to come from large media markets, although this is not the case in the NFL. This article also shows that NFL franchise efficiency significantly improved after the salary cap was introduced in 1994.

A recent paper byWoodland andWoodland examines the efficiency of odds betting on professional hockey games, finding that actual returns on underdog bets consistently exceed expected returns and evidence of a reverse favorite-longshot bias. This article corrects the Woodland and Woodland calculation of bookmaker commissions for unchanged money lines. The authors’ revision substantially lowers the commission and thus is potentially important for tests of efficiency. The article also examines the impact of changes in money lines, which further reduce commissions but raise actual returns. The impact of these revisions on tests of efficiency is examined using the Woodland and Woodland sample. In general, the authors show that their revised no line change test statistic is a more stringent test of efficiency than either the Woodland andWoodland test statistic or any reasonable line change test statistic. However, the authors’ revised test statistics continue to find the inefficiency documented by Woodland and Woodland.

This article argues that a rigorous application of simple game theory tools may provide unambiguous predictions about the behavior of teams in sports. As an illustration, the authors analyze the merits of two controversial changes in soccer rules, namely, the “three-point victory” and the “golden goal.” Building on well-accepted premises, the authors show that contrary to the common belief, the incentives of teams to play offensively may be lower under the three-point victory than under the traditional two-point victory. They also provide clear and simple recommendations for the improvement of these rules.

Prior studies have suggested that salary discrimination may exist in the National Hockey League. In particular, it has been argued that Canadian NHL teams located outside of Québec discriminate against French Canadian players. The small number of French Canadian players along with the large number of teams located outside of English Canada, however, suggest that discrimination of this form should be observed much less frequently as players’ tenure in the league increases due to the greater likelihood of realizing unrestricted free agency. Although we find evidence that players born inQuébec suffer an earnings penalty on Canadian NHL teams located outside of Québec, it is not clear that the penalty is eliminated by free agency, which raises questions about the source of the pay gap.

In this article, a distinction is made between two types of competitive imbalances, the good and the bad ones. Because it is mainly the bad type of competitive imbalance that worries us most, that is, the large-market clubs dominating the small-market clubs, it can be shown that the competitive balance in a win-maximizing league is always worse than in a profit-maximizing league. Also, revenue sharing that aims to cure the good type of imbalance, that is, a small-market club dominating the league, might not have the desirable effect if the criterion for sharing is the budget of the clubs.

Traditional economic analyses of the reserve clause in major league baseball view it as having arisen from the superior bargaining of owners compared to players. This article interprets it instead as promoting efficient investment by teams in player development, given the transferability of player skills to other teams. Using a principal-agent framework, the article shows that limited player mobility emerges as part of the optimal contract between players (principals) and teams (agents).