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date: 16 May 2021

Abstract and Keywords

This article describes how the theory of contests is applied to professional team sports leagues. It presents the traditional Tullock contest and explains some basic properties of the equilibrium. It then addresses the applications of contest theory in sports. It shows how the assumption of flexible vs. fixed talent supply depends on the league under consideration and how it influences the equilibria. The relationship between competitive balance and social welfare is considered. Finally, it illustrates why many clubs tend to “overinvest” in playing talent in many team sports leagues. It is noted that an exclusive focus on competitive balance may result in inefficient policy conclusions. Due to the contest structure, team sports leagues carry the risk of over-investing in playing talent. The contest theory is a suitable instrument to analyze team sports leagues from a theoretical point of view.

Keywords: contest theory, professional team sports leagues, Tullock contest, competitive balance, social welfare, playing talent

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