REVENUE DIVERGENCE AND COMPETITIVE BALANCE IN A DIVISIONAL SPORTS LEAGUE

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Abstract

The North American model of resource allocation in professional sports leagues is adapted for English (association) football. Comparisons are drawn between the equilibrium allocations of playing talent under objective functions of profit maximisation and win percent maximisation subject to a financial constraint. Empirical revenue functions are reported for 1926–1999. These indicate a shift in the composition of demand favouring big-city teams and an increase in the sensitivity of revenue to performance. An analysis of match results in the FA Cup suggests an increase in competitive imbalance between teams at different levels of the league's divisional hierarchy, as the theory suggests.

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