Bidding for Talent in Sport

• Authors: Roberto Burguet.
• BSE Working Paper: 112138 | April 16
• Keywords: sports leagues , club objectives , revenue sharing
• JEL codes: D43, J31, L13, L22, L83
• sports leagues
• club objectives
• revenue sharing

We present a realistic and novel micro-structure for the market for athletes in league sports. In our trading mechanism the clubs bid for individual players, internalizing the effect that a player not hired might play for the competition. For inelastic talent supply, our (wage-minimizing) equilibrium supports the Coasian results of Rottenberg (1956) and Fort and Quirk (1995): talent allocation is independent of initial “ownership” and revenue sharing arrangements. When talent supply is elastic, revenue sharing decreases the aggregate amount of talent hired. This negative effect on the talent level may be efficiency enhancing when the competition for talent results in excess talent being hired. For the first time in the literature, we carry out our entire analysis using a newly formulated, unified club objective, incorporating both pecuniary and non-pecuniary benefits.