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Keywords:

  • competitive balance;
  • hedonic wages;
  • human capital investment;
  • production functions;
  • team sports
  • D2;
  • J3;
  • J4;
  • L1;
  • L2

ABSTRACT

This paper investigates the relationship between playing success and commercial success in team sports. Utilizing a data set relating to the English Premier League that combines both financial measures and indicators of playing skills and performances, our empirical analysis is based on three behavioural equations. Our analysis indicates that on-field success can be directly related to players’ skills and abilities and that revenue is positively related to on-field success. Wage expenditure is also shown to systematically reflect player skills and performances. One interpretation of this evidence is that investment in players’ skills and ability buys on-field success, with richer teams becoming ever richer and able to maintain or even build upon success by spending more on players than less successful clubs. To the extent that richer clubs are successful in their objective there is a causal link between revenue earned and competitive imbalance via investments in players. The implications of this tendency within a league are discussed in our conclusion, which also considers the potentially wider implications of our study as they relate to the evolution of firm size and issues of market share.