Revenue Sharing in Sports Leagues

Abstract

This article uses a three-stage model of noncooperative and cooperative bargaining in a free agent market to analyze the effect of revenue sharing on the decision of teams to sign a free agent. The authors argue that in all subgame perfect Nash equilibria, the team with the highest reservation price will get the player, that revenue sharing will not alter the outcome of the game unless the proportion taken from high revenue teams is sufficiently high, that a revenue-sharing system that rewards quality low-revenue teams can alter the outcome of the game while requiring a lower proportion to be taken from high-revenue teams, and that the revenue-sharing systems can improve competitive balance by redistributing pivotal marginal players among teams.