Abstract
Professional sports teams receive large subsidies, some in excess of $500 million, from local governments for the construction of new facilities. These subsidies cannot be explained by tangible economic benefits, and estimates of the value of intangible benefits also fall short of typical subsidies. In this paper, we incorporate fans’ reference-dependent preferences into a model of the bargaining between local governments and teams. The model predicts that teams use relocation threats to exploit fans’ utility loss from team departures, a negative deviation from the status quo, to extract large subsidies from local governments. Fans’ loss aversion provides an explanation of the current team distribution, and observed team relocation and league expansion decisions in North America. The model also highlights the importance of anti-trust exemptions of the leagues in creating credible relocation threats for existing teams.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.