Some Comparative Economics of the Organization of Sports: Competition and Regulation in North American vs. European Professional Team Sports Leagues

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Abstract:

This article contends that a new research avenue is open to comparative economics which is the economic comparison between American (closed) and European (open) professional team sports leagues. It starts with sketching the major institutional differences between the two leagues systems. Then it surveys the American modelling of competitive balance in these sports leagues that objects pro-competitive balance regulation as being non Walrasian when (American) teams are profit maximising. A next step is to cover how the Walrasian model has been adapted to European open leagues and their regulation of win maximising clubs under a hard budget constraint. Such approach has recently been outdated by models where win maximising clubs operate with a flexible supply of talent in a non cooperative game, given the globalization of the labour market for sporting talent (namely after the Bosman case). Finally, the article ploughs into a new research path advocating for a disequilibrium model where clubs would have a "soft" budget constraint rooted in their weak governance, and empirically tests a vicious circle between TV rights revenues and wages in French football that may explain the aforementioned disequilibrium.

JEL: L83, L21, J42, J31, G30.

Keywords: sports economics, comparative economics, economic organisation, governance, sports leagues, Walrasian model, Nash equilibrium, competitive balance, regulation, soft budget constraint, TV rights, wages, profit maximising, win maximising

(ProQuest: ... denotes formulae omitted.)

What is the future of comparative economics? This question has been with us since the collapse of the former communist regimes associated with "socialist centrally planned economies". Various responses have been suggested in the literature during the post-communist period of economic transformation and I will briefly sketch a few of them below (see section 1). But no one could imagine that a possible dividing line between a quasi-socialist system and a deregulated market economy were to persist in some area until today, 2010. Had it been so, would not all those involved into comparative economics have taken this opportunity to prolong the use of their usual economic and institutional tools of comparative analysis in that area? Amazing as it may seem, such an area does exist and my contribution is devoted to briefly present it as an avenue for new comparative economic research.

There is a dividing line between the North American closed league system in professional team sports - a sort of island of regulated "quasi-socialist" economy in the middle of a liberal American market capitalism - and the European open league system which has rapidly been almost completely deregulated, starting from European football (soccer) in 1995 and spreading throughout other European sports and all open professional team sport leagues. There are four dimensions along which closed and open team sports leagues can be compared: organizational (section 2), in a Walrasian model (section 3), using a Nash-equilibrium conjecture (section 4), and through empirical testing (section 5). I will briefly screen all four. The empirical evidence will show that European open leagues differ from North American closed leagues in that teams' budget constraints in the former are soft while they are hard in the latter. We thus meet Kornaï's insight in unexpected places. A disequilibrium model would fit open leagues better.

1) Which future for comparative economic studies?

Jan Tinbergen (1961) was the first economist and Nobel Prize winner who stated and predicted that the core object of comparative economics, capitalism versus socialism, would vanish, since the two opposite institutional and economic systems may be replaced by a single system. This hypothesis is known as one of convergence between economic systems (Andreff, 1992). The collapse of the Soviet-type systems between 1989 and 1991 followed by two decades of postcommunist transformation did not exactly confirm Tinbergen's (and others') convergence prognosis. …