REVENUE SHARING IN PROFESSIONAL SPORTS LEAGUES

We employ a model of n heterogenous profit‐maximizing clubs to analyze the impact of revenue sharing in professional sports leagues on competitive balance. Revenues of each club depend on absolute quality, relative quality and on competitive balance itself so that our model captures much of the preceding literature as special cases. We show that revenue sharing always increases competitive balance if clubs differ only with respect to the impact of absolute quality on revenues. On the contrary, revenue sharing reduces competitive balance if only clubs' relative qualities play a role for revenues or if only two teams are considered.