[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/rsd/wpaper/0023.html
   My bibliography  Save this paper

The Effect of Luxury Taxes on Competitive Balance, Club Profits, and Social Welfare in Sports Leagues

Author

Listed:
  • Helmut Dietl

    (Institute for Strategy and Business Economics, University of Zurich)

  • Markus Lang

    (Institute for Strategy and Business Economics, University of Zurich)

  • Stephan Werner

    (Institute for Strategy and Business Economics, University of Zurich)

Abstract
This paper provides a game-theoretic model of a professional sports league and analyzes the effect of luxury taxes on competitive balance, club profits and social welfare. We show that a luxury tax increases aggregate salary payments in the league as well as produces a more balanced league. Moreover, a higher tax rate increases the profits of large-market clubs, whereas the profits of small-market clubs only increase if the tax rate is not set inadequately high. Finally, we show that social welfare increases with a luxury tax.

Suggested Citation

  • Helmut Dietl & Markus Lang & Stephan Werner, 2008. "The Effect of Luxury Taxes on Competitive Balance, Club Profits, and Social Welfare in Sports Leagues," Working Papers 0023, University of Zurich, Center for Research in Sports Administration (CRSA), revised Jul 2009.
    • Handle: RePEc:rsd:wpaper:0023
    as

    Download full text from publisher

    File URL: http://repec.business.uzh.ch/RePEc/rsd/CRSA_WPS/23_CRSA_full.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Helmut M. Dietl & Markus Lang & Stephan Werner, 2009. "Social Welfare in Sports Leagues with Profit‐Maximizing and/or Win‐Maximizing Clubs," Southern Economic Journal, John Wiley & Sons, vol. 76(2), pages 375-396, October.
    2. Olugbenga Ajilore & Joshua Hendrickson, 2005. "The impact of the luxury tax on competitive balance in Major League Baseball," IASE Conference Papers 0517, International Association of Sports Economists.
    3. Rodney Fort & James Quirk, 1995. "Cross-subsidization, Incentives, and Outcomes in Professional Team Sports Leagues," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1265-1299, September.
    4. Helmut M. Dietl & Markus Lang, 2008. "The Effect Of Gate Revenue Sharing On Social Welfare," Contemporary Economic Policy, Western Economic Association International, vol. 26(3), pages 448-459, July.
    5. repec:bla:scotjp:v:47:y:2000:i:4:p:364-98 is not listed on IDEAS
    6. Thomas Hoehn & Stefan Szymanski, 2010. "The Americanization of European football," Palgrave Macmillan Books, in: Football Economics and Policy, chapter 3, pages 52-96, Palgrave Macmillan.
    7. Sonia Falconieri & Frédéric Palomino & József Sákovics, 2004. "Collective Versus Individual Sale of Television Rights in League Sports," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 833-862, September.
    8. Stefan Szymanski, 2010. "The Economic Design of Sporting Contests," Palgrave Macmillan Books, in: The Comparative Economics of Sport, chapter 1, pages 1-78, Palgrave Macmillan.
    9. Stefan Kesenne, 2000. "Revenue Sharing and Competitive Balance in Professional Team Sports," Journal of Sports Economics, , vol. 1(1), pages 56-65, February.
    10. repec:bla:scotjp:v:47:y:2000:i:4:p:422-30 is not listed on IDEAS
    11. Sloane, Peter J, 1971. "The Economics of Professional Football: The Football Club as a Utility Maximiser," Scottish Journal of Political Economy, Scottish Economic Society, vol. 18(2), pages 121-146, June.
    12. Dietl Helmut M & Lang Markus & Rathke Alexander, 2009. "The Effect of Salary Caps in Professional Team Sports on Social Welfare," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-23, April.
    13. Brad R. Humphreys, 2002. "Alternative Measures of Competitive Balance in Sports Leagues," Journal of Sports Economics, , vol. 3(2), pages 133-148, May.
    14. Daniel R. Marburger, 1997. "Gate Revenue Sharing And Luxury Taxes In Professional Sports," Contemporary Economic Policy, Western Economic Association International, vol. 15(2), pages 114-123, April.
    15. Rodney Fort & James Quirk, 2004. "Owner Objectives and Competitive Balance," Journal of Sports Economics, , vol. 5(1), pages 20-32, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Martín González Eiras & Nikolaj A. Harmon & Martín Rossi, 2017. "Fundamentals and Optimal Institutions: The case of US sports leagues," Working Papers 128, Universidad de San Andres, Departamento de Economia, revised Jan 2017.
    2. Budzinski, Oliver, 2017. "Market-internal financial regulation in sports as an anticompetitive institution," Ilmenau Economics Discussion Papers 110, Ilmenau University of Technology, Institute of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Markus LANG & Alexander RATHKE & Marco RUNKEL, 2010. "The Economic Consequences Of Foreigner Rules In National Sports Leagues," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 31, pages 47-64.
    2. Helmut M. Dietl & Markus Lang & Stephan Werner, 2009. "Social Welfare in Sports Leagues with Profit‐Maximizing and/or Win‐Maximizing Clubs," Southern Economic Journal, John Wiley & Sons, vol. 76(2), pages 375-396, October.
    3. Helmut Dietl & Egon Franck & Markus Lang & Alexander Rathke, 2010. "Organizational Differences between U.S. Major Leagues and European Leagues: Implications for Salary Caps," Working Papers 0122, University of Zurich, Institute for Strategy and Business Economics (ISU).
    4. Helmut Dietl & Egon Franck & Martin Grossmann & Markus Lang, 2009. "Contest Theory and its Applications in Sports," Working Papers 0105, University of Zurich, Institute for Strategy and Business Economics (ISU).
    5. Helmut M. Dietl & Egon Franck & Markus Lang & Alexander Rathke, 2012. "Salary Cap Regulation In Professional Team Sports," Contemporary Economic Policy, Western Economic Association International, vol. 30(3), pages 307-319, July.
    6. Helmut M. Dietl & Martin Grossmann & Markus Lang, 2011. "Competitive Balance and Revenue Sharing in Sports Leagues With Utility-Maximizing Teams," Journal of Sports Economics, , vol. 12(3), pages 284-308, June.
    7. Helmut M. Dietl & Markus Lang, 2008. "The Effect Of Gate Revenue Sharing On Social Welfare," Contemporary Economic Policy, Western Economic Association International, vol. 26(3), pages 448-459, July.
    8. Helmut Dietl & Egon Franck & Markus Lang & Alexander Rathke, 2008. "Revenue Sharing, Reserve Clause and Salary Caps in Professional Team Sports Leagues," Working Papers 0026, University of Zurich, Center for Research in Sports Administration (CRSA), revised 2009.
    9. Dietl Helmut & Duschl Tobias & Franck Egon & Lang Markus, 2012. "A Contest Model of a Professional Sports League with Two-Sided Markets," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 232(3), pages 336-359, June.
    10. Markus Lang & Martin Grossmann & Philipp Theiler, 2011. "The Sugar Daddy Game: How Wealthy Investors Change Competition in Professional Team Sports," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(4), pages 557-577, December.
    11. Martin Grossmann & Helmut Dietl & Markus Lang, 2010. "Revenue Sharing and Competitive Balance in a Dynamic Contest Model," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(1), pages 17-36, February.
    12. Helmut M. Dietl & Markus Lang & Alexander Rathke, 2011. "The Combined Effect Of Salary Restrictions And Revenue Sharing In Sports Leagues," Economic Inquiry, Western Economic Association International, vol. 49(2), pages 447-463, April.
    13. Oliver Gürtler & Markus Lang & Tim Pawlowski, 2015. "On the Release of Players to National Teams," Journal of Sports Economics, , vol. 16(7), pages 695-713, October.
    14. Scelles, Nicolas (Сели, Николя) & Duran, Christophe (Дюра, Кристоф) & Bonnal, Liliane (Бонналь, Лилиан) & Goyeau, Daniel (Гойюс, Даниэль) & Andreff, Wladimir (Андрефф, Владимир), 2016. "Do all sporting prizes have a significant positive impact on attendance in a European national football league? Competitive intensity in the French Ligue 1 [Действительно Ли Все Спортивные Призы Ок," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 3, pages 82-107, June.
    15. Dietl, Helmut M. & Duschl, Tobias & Lang, Markus, 2011. "Executive Pay Regulation: What Regulators, Shareholders, and Managers Can Learn from Major Sports Leagues," Business and Politics, Cambridge University Press, vol. 13(2), pages 1-30, August.
    16. Dietl Helmut M & Lang Markus & Rathke Alexander, 2009. "The Effect of Salary Caps in Professional Team Sports on Social Welfare," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-23, April.
    17. Wladimir Andreff, 2009. "Équilibre compétitif et contrainte budgétaire dans une ligue de sport professionnel," Revue économique, Presses de Sciences-Po, vol. 60(3), pages 591-633.
    18. Pedro Garcia-del-Barrio & Stefan Szymanski, 2009. "Goal! Profit Maximization Versus Win Maximization in Soccer," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(1), pages 45-68, February.
    19. Madden, Paul, 2012. "Fan welfare maximization as a club objective in a professional sports league," European Economic Review, Elsevier, vol. 56(3), pages 560-578.
    20. Eberhard Feess & Frank Stähler, 2009. "Revenue Sharing In Professional Sports Leagues," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(2), pages 255-265, May.

    More about this item

    Keywords

    Sports League; Luxury Tax; Social Welfare; Competitive Balance;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rsd:wpaper:0023. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: IBW IT Support (email available below). General contact details of provider: https://edirc.repec.org/data/isuzhch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.