The Sugar Daddy's Game: How Wealthy Investors Change Competition in Professional Team Sports
ISU Working Paper No. 128
24 Pages Posted: 16 May 2010 Last revised: 3 Mar 2011
Date Written: October 6, 2010
Abstract
Professional sports leagues have witnessed the appearance of so-called "sugar daddies" - people who invest enormous amounts of money into clubs and become their owners. This paper presents a contest model of a professional sports league that incorporates this phenomenon. We analyze how the appearance of a sugar daddy alters competitive balance and social welfare compared to a league with purely profit-maximizing club owners. We further show that the welfare effect of revenue sharing in a sugar daddy league is ambiguous and depends on the degree of redistribution and on whether the sugar daddy invests in a small or large club.
Keywords: Competitive balance, contest model, social welfare, sports leagues, sugar daddy
JEL Classification: L83, L2, D43, C72
Suggested Citation: Suggested Citation
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