Owning the Mona Lisa: the Influence of Changes in the Rules of Sport Organisations on the Value of Players
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Owning the Mona Lisa: The influence of changes in the rules of sport organisations on the value of players Dissertation zur Erlangung des Doktorgrades an der Fakultät Rechtswissenschaft der Universität Hamburg vorgelegt von Jean-Christian Drolet aus Roberval Hamburg 2011 Erstgutachter: Prof. Dr. Thomas Eger Zweitgutachter: Jun. Prof. Dr. Leyens Tag der mündlichen Prüfung: 25. April 2012 © Jean-Christian Drolet, 2011 To Annika Table of content Acknowledgements ................................................................................................................. VI Introduction .............................................................................................................................. 1 I. The goal of this thesis.......................................................................................................... 2 II. The method. .................................................................................................................... 3 Chapter 1: The evolution of professional sport organisations ............................................. 7 1.1. The economic structure of professional sports ................................................................ 8 1.1.1. The product of sport .................................................................................................. 8 1.1.1.1. The game ........................................................................................................... 8 1.1.1.2. The championship or beyond the games ......................................................... 10 1.2. What do leagues actually do? ........................................................................................ 12 1.2.1. The “team goods” of sport ...................................................................................... 12 1.3. The economic nature of sport leagues ........................................................................... 14 1.3.1. Sport as a multi-plant firm in a Natural Monopoly market .................................... 15 1.3.2. The league as a joint venture .................................................................................. 16 1.3.2.1. The single entity doctrine ................................................................................ 17 1.3.2.2. The single entity doctrine in sports ................................................................. 18 1.3.2.3. The single entity doctrine in the EU ................................................................ 19 1.3.2.4. The end of the joint venture ............................................................................. 19 1.3.3. The cartel ................................................................................................................ 20 1.3.3.1. The consequences of cartelisation of sports .................................................... 21 1.3.3.2. Why not break up the cartel and let the market do the job? ............................ 22 1.4. The genesis of professional sport leagues ..................................................................... 24 1.4.1. Barnstorming ........................................................................................................... 24 1.4.2. The tournaments ...................................................................................................... 24 1.4.3. The Leagues ............................................................................................................ 25 1.4.3.1. How professional leagues started .................................................................... 25 1.4.3.2. England and the case of soccer ........................................................................ 26 1.4.3.3. Major League Baseball .................................................................................... 29 1.4.3.3.1. The birth of the National League ...................................................... 30 1.4.3.3.2. Closed leagues .................................................................................. 31 I 1.5. The coop league? ........................................................................................................... 32 1.6. Conclusion ..................................................................................................................... 33 Chapter 2: Competitive Balance or Uncertainty of result .................................................. 35 2.1. The need for uncertainty ................................................................................................ 35 2.2. The Louis-Schmeling paradox ....................................................................................... 35 2.2.1. Holes in the paradox ............................................................................................... 37 2.3. What is uncertainty of result in a professional sport league context? ........................... 41 2.3.1. Game competitive balance ...................................................................................... 41 2.3.2. Championship competitive balance ........................................................................ 41 2.3.2.1. Single season standard deviation ratio ............................................................ 42 2.3.2.2. Championship variance balance ...................................................................... 44 2.3.3. The Blue Ribbon Panel on Baseball Economics definition .................................... 44 2.4. Competitive Balance and its effect on players .............................................................. 47 Chapter 3: The determination of value in professional team sports ................................. 49 3.1. The situation as it stands now for determining the value .............................................. 50 3.2. The value of teams ......................................................................................................... 50 3.2.1. The market value of teams ...................................................................................... 51 3.2.2. The publicly traded corporation in sports ............................................................... 53 3.2.3. US teams, publicly traded corporation and their value ........................................... 54 3.3. The sportsman owner ..................................................................................................... 55 3.3.1. The leveraged syndicate .......................................................................................... 56 3.3.2. The sportsman owner and the leveraged syndicate ................................................. 56 3.3.3. The empirical problem with the sportsman owner ................................................. 57 3.3.4. European soccer and the sportsman owner ............................................................. 59 3.4. What the value of sports teams really is about .............................................................. 59 3.5. Determining the value of professional sport players ..................................................... 60 3.5.1. Determining the player’s value with the revenue function of the team .................. 60 3.5.2. The willingness to pay for the services of a player ................................................. 61 3.5.3. The surplus of teams and its influence on the willingness to pay for players ........ 62 3.5.4. Multiple years contracts .......................................................................................... 64 3.6. The definition of value of a player for the purpose of this work ................................... 64 Chapter 4: The effect of a change in the rules of the game on the value of players ......... 66 4.1. The rules of the game .................................................................................................... 66 4.1.1. Definition of the rules of the game ......................................................................... 67 II 4.2. Changes in the rules of the game ................................................................................... 70 4.2.1. Radical changes to the rules of the game ................................................................ 70 4.2.1.1. The introduction of the forward pass in football ............................................. 71 4.2.1.2. The effect of radical changes to the rules of the game on the value of players ...................................................................................................................................... 72 4.2.1.3. Conclusions on radical rules changes .............................................................. 73 4.3. Mild rule changes .......................................................................................................... 75 4.3.1. Definition of mild rule changes .............................................................................. 75 4.3.2. Justification for mild rule changes .......................................................................... 75 4.3.2.1. Safety of the participants ................................................................................. 76 4.3.2.2. The interest of spectators ................................................................................. 76 4.3.2.3. Lowering the mound to get higher scores in Major League Baseball ............. 77 4.3.2.3.1. Effect of the lowering of the mound on individual offensive statistics ..... 78 4.3.2.3.1. Is the lowering of the mound the only explanation? ................................. 78