1. Introduction
A major concern for managers of team sports leagues is simultaneously maintaining the
competitive balance between the teams comprising the league, and remaining competitive
with respect to other leagues. The latter requirement is necessary in order to remain able
to attract talented players who are raised or playing in other leagues. The former
requirement is realized if the distribution of talents among the teams is relatively
homogeneous. Traditionally, league managers have sought to safeguard competitive
balance within the league by controlling the market for players. For instance, in the
European football leagues it has long been common practice to assume the clubs to be the
owners of players they have under contract. Even after a contract expired players were
not entitled to play for another club without permission of their former club. This club
was even allowed to demand financial compensation for a change in club by a former
player. This practice ended with the so-called 1995 Bosman judgment by the Court of
Justice of the European Union, ruling that transfer fees after the expiration of a contract
were an obstacle to the free movements of workers, one of the fundamental rights upon
which the European Union is based.
Another mechanism to maintain competitive balance is by proportional redistributing
revenues from ticket sales or broadcasting rights. The ‘small’ clubs are thus being
prevented from getting poorer. This practice has been common in the major US sports
leagues (Szymanski, 2003), but in the economics sports literature its effectiveness has
been questioned. According to the so-called invariance principle (El-Hodiri and Quirk,
1971) the distribution of talent among clubs will be biased towards the big clubs, and
measures to curb free mobility of players, like the transfer fee systems in European
football, are ineffective for safeguarding competitive balance. The principle of free
mobility then should be weighed more heavily as it prevents owners of competitions to
abuse their monopsonistic power towards the players and the consumers.
Zymanski and Késenne (2004) even go one step further by arguing that redistribution
towards the weak drawing teams will blunt the incentives for team owners to compete,
since the returns to winning are reduced. In the same vein Palomino and Sakovics (2004)
argue that in an environment where different leagues compete for the top star players, it is