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Superstars' Wages in Collective Sports

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Superstars' Wages in Collective Sports MASARYK UNIVERSITY FACULTY OF ECONOMICS AND ADMINISTRATION Superstars’ wages in collective sports MASTER THESIS Mgr. Matej Drozd Brno, 2016 MASARYKOVA UNIVERZITA Ekonomicko-správní fakulta ZADÁNÍ DIPLOMOVÉ PRÁCE Akademický rok: 2015/2016 Student: Mgr. Bc. Matej Drozd Obor: Veřejná ekonomika a správa Název práce: Superstars’ wages in collective sports Název práce anglicky: Superstars’ wages in collective sports Cíl práce, postup a použité metody: Theory suggests that an imperfect substitution of consumer preferences combi- ned with technology capable of duplicating an artist’s performance leads to out- sized rewards for a few superstars in mass entertainment businesses. This phe- nomenon is observed in the national sport leagues, where the best-performing sportsmen earn far higher wages than the average among their teammates. This thesis discusses the increase in wage inequality in the collective sports over the past decades. It includes empirical analysis testing whether superstars’ high wages can be attributed to the spread of communication technologies, which enable suppliers to reach a larger number of consumers. The application of results to different segments of economy will be discussed and motivate the policy debate on the justification of superstars’ wages. Rozsah grafických prací: Podle pokynů vedoucího práce Rozsah práce bez příloh: 60 – 80 stran Literatura: LUCIFORA, Claudio a Rob SIMMONS. Superstar Effects in Sport: Evidence From Italian Soccer. Journal of Sports Economics, 2003, roč. 4, č. 1, s. 35-55. HALL, Stephen, Stefan SZYMANSKI a Andrew S. ZIMBALIST. Testing Causality Between Team Performance and Payroll: The Cases of Major League Baseball and English Soccer. , 2002, roč. 3, č. 2, s. 149-168. ROSEN, Sherwin. The Economics of Superstars. American Economic Review 71, American Economic Association, 1981, s. 845-858. The wages of winstaking measure of the many myths in modern sport. Edited by David J. Berri - Martin B. Schmidt - Stacey L. Brook. Stanford, Calif.: Stanford Business Books, 2006. xiii, 282. ISBN 0804752877. MANASSEA, Paolo a Alessandro TURRINI. Trade, wages, and ‘superstars’. Journal of International Economics, 2001, roč. 54, č. 1, s. 97–117. Vedoucí práce: Mgr. Martin Guzi, Ph.D. Pracoviště vedoucího práce: Katedra veřejné ekonomie Strana 1 z 2 Datum zadání práce: 25. 5. 2015 Termín odevzdání diplomové práce a vložení do IS je uveden v platném harmonogramu akademického roku. .................................. .................................. vedoucí katedry prof. Ing. Antonín Slaný, CSc. děkan V Brně dne: 1. 5. 2016 Strana 2 z 2 Declaration Hereby I declare that this paper is my original authorial work, which I have written on my own. All sources, references and literature used or excerpted during elaboration of this work are properly cited and listed in complete reference. Mgr. Matej Drozd Advisor: Mgr. Martin Guzi, Ph.D. iv Acknowledgement I would like to thank Martin Guzi for his words of advice, professional leading and for giving me the opportunity to realize this thesis by agreeing to be my advisor. My deep gratitude belongs to all my lecturers from our faculty for their pedagogical work as well as for their patience and professionalism. Last but not least I would like to thank my family, friends and colleagues for supporting me, helping me, listening to me and standing by me during all my studies and writing of this thesis as well. v Abstract The aim of this thesis is to describe the superstar effect in collective sports. In collective sports there are individuals who are earning significantly higher salaries than other players. We are explaining this phenomenon using a superstar theory which we are further developing. The thesis explains why the technology is the main factor for the superstar effect. To confirm our theoretical assumptions we have analysed data from three sport leagues (English Premier League, National Hockey League and Major League Soccer) and by constructing econometric models we have observed that the empirical analysis supports the theory. vi Keywords competition, income, internet, popularity, salary, sport, superstar, technology, television, wealth vii „Football is very well remunerated at this level. It’s like we live in a bubble. With respect to the rest of society, we earn a ridiculous amount.” Juan Mata, Manchester United Midfielder, earning £140,000 per week, in interview for the Spanish TV programme Salvados viii Table of Contents Introduction ........................................................................................................................................ 1 Chapter 1. Nature of winning ...................................................................................................... 2 Chapter 2. Economics of Superstars ............................................................................................ 5 2.1. Theoretical framework ....................................................................................................... 5 2.2. Superstar theory in a closed market ................................................................................... 6 2.3. Case study: Pelé, Ronaldo and the satellites ...................................................................... 7 Chapter 3. Major achievements in sports ..................................................................................... 9 3.1. Individual competitions ...................................................................................................... 9 3.1.1. Boxing ........................................................................................................................ 9 3.1.2. Tennis ......................................................................................................................... 9 3.1.3. Golf .......................................................................................................................... 10 3.2. Collective competitions .................................................................................................... 10 3.2.1. Football (Soccer) ...................................................................................................... 11 3.2.2. Formula One............................................................................................................. 11 3.2.3. Baseball .................................................................................................................... 12 3.2.4. American Football .................................................................................................... 12 3.2.5. Basketball ................................................................................................................. 13 3.2.6. Ice Hockey ............................................................................................................... 13 3.2.7. Rugby ....................................................................................................................... 13 3.3. Sport support and public funding ..................................................................................... 14 Chapter 4. Spread of multimedia and rise of wages .................................................................. 15 4.1. Technology and wages ..................................................................................................... 15 4.2. Spread of television .......................................................................................................... 15 4.2.1. Development of satellite TV .................................................................................... 16 4.3. Rise of the Internet ........................................................................................................... 18 4.4. Sports broadcasting .......................................................................................................... 20 Chapter 5. English Premier League, MLS and NHL ................................................................. 22 5.1. English Premier League ................................................................................................... 22 5.1.1. Financial structure of the Premier League clubs ...................................................... 24 5.2. Major League Soccer ....................................................................................................... 26 5.3. National Hockey League .................................................................................................. 27 Chapter 6. Data collection for empirical analysis ...................................................................... 30 6.1. English Premier League ................................................................................................... 30 6.2. Major League Soccer ....................................................................................................... 31 ix 6.3. National Hockey League .................................................................................................. 33 6.4. Television and internet ..................................................................................................... 36 Chapter 7. Models from the empirical analysis .......................................................................... 37 7.1. Results .............................................................................................................................. 37 Conclusion .......................................................................................................................................
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