Articles
A Note on Externalities and Revenue Sharing in Sports Leagues
Revenue sharing is a pervasive policy in professional sports leagues. While it is usually justified as promoting competitive balance, previous work has shown that it actually worsens balance in models where equilibrium outcomes are determined by contest success functions and when the league’s goal is to maximize aggregate revenue. This paper offers an alternative justification for revenue sharing in such settings—namely, to balance two offsetting externalities: the “rent-seeking externality” and the “spillover externality.” The first reflects the “race” to be first, and the second captures the value fans attach to overall league quality.
Keywords: revenue sharing, externalities, contest success functions, competitive balance
JEL Codes: L83, Z2, Z28
The Effect of Endorsers’ Sports Results on Their Sponsors’ Performance: The Shark Fin Effect
While previous studies have focused on the value of the endorsement contracts at the moment they are signed, the performance during the contract has drawn limited attention, and the few studies focusing on this period have produced inconclusive results. To fill this gap, we hypothesize that the tournament type and the athlete’s level of sports elitism can influence this “sport results-business performance” relationship. The inclusion of the tournament type fills a gap in the literature as most studies have examined the potential effects of endorsement strategies without observing the different levels of tournaments within a particular sport. Guided by brand equity theory and equity theory, we argue that while a greater prize won corresponds to higher stock returns, there is a certain point of “sports elitism” on part of the athlete, after which a greater prize leads to lower stock returns. Empirical results from tennis tournaments support these arguments.
Keywords: celebrity endorsement, sponsorship, brand equity theory, equity theory, firm value
It Takes Two to Tango: Assessing UFC Entertainment Through Fight of the Night Bonuses
This paper investigates the elements of fighter performance that lead an MMA bout to be considered the “best” of the night, using data on UFC Fight of the Night bonus award decisions over 15 years of events. Promoter preferences toward particular bout positions on the event card are also examined as well as the influence of crowds due to the exogenous shock of the COVID-19 pandemic. Findings suggest a meaningful difference between performance factors
that generate entertainment value relative to those that tend to score points with the judges. They are also supportive of behavioral influences such as recency bias and crowd effects on promoter decision-making.
Keywords: bonuses, COVID-19, crowd effects, entertainment, Fight of the Night, mixed martial arts (MMA), recency bias, Ultimate Fighting Championship (UFC)
Optimal Strategies in the Penalty Kick Game in Soccer: A Model That Allows Players to Wait
This paper formalizes the game between the goalkeeper and the kicker at the time of a penalty kick in soccer. The likelihood of a goal/save depends on the kicker’s shot direction, intensity, and precision. We model those characteristics as functions of the agent’s decisions: They can either “wait and see” some signals about the opponent’s move or instead choose to “precommit” to a particular action. For a group of professional players, we calibrate our model using data from 1,083 penalty kicks and find their optimal strategy at the time of the event. We compare those predictions with the data and conclude that these players’ behavior was not always optimal. Deviations from optimal play are particularly frequent for the goalkeepers in our sample.
Keywords: optimal strategies, precommit, wait and see, penalty kicks, soccer
JEL codes: Z20, C72, L83, C23