league model and competitive balance Flashcards
What is lump-sum revenue sharing, and how does it affect competitive balance?
Big-market teams transfer a lump-sum payment to small-market teams; it redistributes resources but does not change the marginal cost of talent.
What is a hard salary cap, and how does it influence team spending?
A strict limit on team spending where exceeding the cap is impossible, ensuring competitive parity.
What is an un-redistributed luxury tax, and how does it affect high-spending teams?
A tax imposed on teams exceeding a spending threshold, increasing the marginal cost of talent but without redistributing funds.
How does a redistributed luxury tax impact competitive balance?
A tax collected from high-spending teams is redistributed to lower-spending teams, helping reduce financial disparities.
What is the effect of a luxury tax combined with a poverty subsidy?
High-spending teams pay a tax above a threshold, while low-spending teams receive subsidies to encourage investment in talent.
How does the number of competitors affect engagement in individual sports?
More competitors can increase engagement but may discourage weaker participants if competition is too extreme.
What are the effects of different prize structures in individual sports?
A single grand prize increases competition among top contenders, while equal prize distribution promotes broader participation.
What incentives drive athlete performance?
Athletes are motivated by economic incentives (prizes, sponsorships), psychological factors (prestige, reputation), and rule structures (ranking systems).
How could expanding the College Football Playoff impact revenue and competition?
Expansion could increase revenue and improve competitive balance but might dilute the prestige of playoff qualification.
What is the invariance proposition, and what are its key conditions?
It states that talent allocation in a free market is independent of initial rights assignments if player rights are clear, transaction costs are low, and financial exchanges are allowed.
How does the invariance proposition apply to player allocation through a draft?
Talent allocation will self-correct over time, as teams trade draft picks and players to optimize performance.
How does the invariance proposition apply to unrestricted free agents?
Players sign with teams that value them most, leading to the same allocation of talent as if they entered through a draft.
What happens when two teams have identical market conditions and objectives?
Both teams will acquire the same level of talent if they have identical market sizes and cost structures.
How does a win-maximizing team’s talent acquisition compare to a profit-maximizing team?
Win-maximizing teams acquire more talent because they prioritize talent over financial constraints.
How does a team’s behavior change if it shifts from profit maximization to win maximization?
If a team shifts to win maximization, it will acquire more talent than it did under profit maximization.
How do win-maximizing and profit-maximizing teams differ in ticket pricing?
Win-maximizing teams charge higher ticket prices than profit-maximizing teams because of increased demand for talent.
What happens when one team has a larger market size but identical cost structures?
The team with a larger market size will acquire more talent.
What happens when one team has lower talent costs but identical market sizes?
The team with lower talent costs will acquire more talent because it can spend more efficiently.
Under what conditions does competitive balance become more equal?
Competitive balance is more equal when the large-market team is a profit maximizer and the small-market team is a win maximizer.
How does total talent acquisition affect league popularity?
Higher total talent acquisition increases league popularity by improving competition and fan engagement.
Why are leagues with more win-maximizing teams generally more popular?
Leagues with more win-maximizing teams are more popular because they allocate more resources to talent acquisition.
How does higher total talent acquisition impact ticket sales and fan engagement?
More talent acquisition leads to higher ticket sales and stronger fan engagement.
How do lump-sum revenue sharing policies reduce disparities?
Transfers revenue from large-market to small-market teams to reduce disparity without affecting marginal costs.
What is the effect of a hard salary cap on team talent spending?
Prevents excessive spending by capping salaries at a fixed limit, ensuring parity.
