A Model Promotion and Relegation in League Sports
Journal of Economics and Finance Volume 36, Issue 2, Pages 303-318, April 2013
Kurt W. Rotthoff, Ph.D. Department of Economics and Legal Studies
Sports leagues in different parts of the world are set up in different ways, some as open leagues and some as closed leagues. It has been shown that spending on players is higher in open leagues (Szymanski and Ross 2000 and Szymanski and Valletti 2005). This paper extends these studies, finding that sports leagues that practice promotion and relegation will have unambiguously higher aggregate spending on player talent than closed leagues. This will lower profits in the open league, but increase fan welfare.