3_League Model and Competitive Balance Flashcards
(12 cards)
Lump-Sum Revenue Sharing
definition: Large-market teams transfer funds to small-market teams.Effect: Helps reduce financial disparities but does not affect talent acquisition costs.Competitive Balance Impact: Improves financial equity but does not directly alter competition.
Hard Salary Cap
definition: Imposes a strict salary cap that makes the marginal cost of talent acquisition infinite beyond a set threshold.Effect: Prevents teams from exceeding the spending limit.Competitive Balance Impact: Ensures financial parity and limits dominance by wealthier teams.
Luxury Tax (Unredistributed)
definition: A tax imposed on teams that exceed a certain spending threshold.Effect: Increases the marginal cost of talent but does not redistribute revenue.Competitive Balance Impact: Deters excessive spending but does not aid lower-spending teams.
Luxury Tax (Redistributed)
definition: A tax on high-spending teams where the revenue is redistributed to lower-spending teams.Effect: Transfers funds from wealthy teams to those with fewer resources.Competitive Balance Impact: Encourages parity by financially assisting lower-revenue teams.
Luxury Tax & Poverty Subsidy
definition: A tax on high-spending teams combined with a subsidy for small-market teams spending below a set level.Effect: Creates a disincentive for overspending and an incentive for underfunded teams to invest.Competitive Balance Impact: Strengthens financial and competitive parity.
Individual Sports and Contest Design
Number of Competitors and Prize Structures
Key Considerations:
If a contest has only one prize, competition is intense.
If all participants receive prizes, competitive incentives weaken.
Athlete effort depends on how rewards are structured.
Individual Sports and Contest Design
Expansion of College Football Playoff
Szymanski’s Predictions:
Expansion may increase revenue-sharing among schools.
Could lead to greater competitive parity or reduce incentives for weaker teams.
Invariance Proposition (Rottenberg’s Theorem)
Antitrust in Sports
Sherman Act of 1890
Definition: A U.S. law that restricts monopolization and trade restraints.
Effect: Declares contracts that limit competition illegal.
Impact on Sports: Applies to leagues that attempt to restrict competition unfairly.
Antitrust in Sports
Historical Case – Baseball Antitrust Exemption
Case: Federal Baseball v. National League (1922)
Ruling: Supreme Court declared that MLB does not engage in interstate commerce, granting it an antitrust exemption.
Impact: Other professional leagues did not receive the same protection, leading to ongoing antitrust challenges.
Antitrust in Sports
Collusion and Competitive Restrictions in Sports
How Leagues Restrict Competition:
Player entry rules (drafts, roster limits).
Limits on new teams entering the league.
Collusion in media rights (e.g., exclusive broadcasting deals).
Antitrust in Sports
Labor Market Competition in Sports
Collective Bargaining Agreements (CBAs):
Players negotiate agreements that set rules for salaries, free agency, and contracts.
Under the Clayton Antitrust Act (1914), CBAs are exempt from antitrust laws.
Key Question:
Why do players agree to market restrictions instead of demanding full free agency?
Possible reasons: job security, revenue guarantees, pension benefits, and league stability.
