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Salary Cap In Professional Sports Essay Outline

Author

Abstract

Increasing financial disparity and spiralling wages in European football have triggered a debate about the introduction of salary caps. This paper provides a theoretical model of a team sports leagues 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 welfare.

Suggested Citation

  • Helmut Dietl & Markus Lang & Alexander Rathke, 2007. "The Effect of Salary Caps in Professional Team Sports on Social Welfare," Working Papers 0072, University of Zurich, Institute for Strategy and Business Economics (ISU).
  • Handle: RePEc:iso:wpaper:0072

    Listed:
    • Helmut Dietl

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

    • Markus Lang

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

    • Alexander Rathke

      () (Institute for Empirical Research in Economics, University of Zurich)

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    Pro Salary Cap Essay

    Pro Salary Cap
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