Market Size, Pay, and Performance

Abstract

The authors construct a general model of fan behavior and team revenues to study compensation and competitive balance issues in professional sports. Baseball data from 1995 to 1999 support the model's prediction that market size and expected team performance interact to positively and significantly affect the marginal value of extra wins. Ceteris paribus, baseball teams in the largest markets will value a given player six times more than those in the smallest. Within each market, achieving contending status can raise a player's value sixfold. Based on these findings, simple revenue sharing should depress player salaries but may not enhance competitive balance.