in the interest of each and every league to provide its teams the incentives to bid a high
price for the top talents compared to foreign teams. A performance-based distribution of
revenues provides such incentives.
However, an aspect that has been relatively undervalued is that most migration of players
in European football has been in the direction of the ‘big’ leagues, i.e. England, Spain,
Italy, and, to a lesser extent, Germany. After the Bosman ruling the small leagues tried to
hold on to their talents by offering them long-term contracts (Fees and Muehlheuser,
2003a and 2003b), but in the end the best talents of the small leagues are playing in those
big leagues.
While within one league a decline of competitive balance tends to be corrected one way
or another, between leagues such an automatic correction mechanism does not seem to
operate. Free mobility of players will be inefficient if the marginal loss of the small
sending league is larger than the marginal benefit of the big receiving league. However,
interestingly, free mobility of players can under special circumstances also lead to
inefficiently low migration flows from the small to the big leagues. In particular, this is
the case when talents have to be trained before they can play in the league.
It is relatively straightforward to demonstrate along the lines of the classic Boadway and
Flatters (1982)-paper that in case ‘big’ and ‘small’ leagues co-exist as is the case in
European football, migration flows can turn out to be inefficiently large (or, sometimes,
small). Intervention from the federal (football) authority is therefore necessary in order to
restore efficiency. These interventions can be financial measures like redistributing
revenues from the big and rich leagues to the small and poor leagues. In this circumstance
an ‘old-fashioned’ transfer fee system can provide a correction to inefficient migration
flows of football players. In case migration is too large, these transfer fees are
comparable to the equalization transfers in the fiscal-federalism literature (see Boadway,
2004, for an overview) from better-off to less well-off jurisdictions. If the number of
talents in each league is exogenously given, transfer payments for the emigration of
talents correct an inequitable distribution of welfare across leagues. In general, the
optimal transfer fee rate is a positive function of players’ capability, a negative function