Some researchers argue that revenue sharing is like socialism in that it removes the incentive to...

Some researchers argue that revenue sharing is like socialism in that it removes the incentive to outperform rivals. Do you agree with this statement? Why or why not?

Expert Solution

Some researchers argue that revenue sharing is like socialism in that it removes the incentive to outperform rivals....AGREED

In professional sports leagues, revenue sharing is a common league policy. This has traditionally been used as a tax-like method for the purpose of redistribution revenues from rich to poor teams in professional sports leagues. It is important to maintain the financial stability of the league to ensure that teams had opponents to play games against and capability to stave off the threat of rival leagues. It acts as a motivation for a league to adopt revenue sharing for the encouragement of the financial stability and minimize the credible threats of rival leagues. Moreover, had significant welfare gains, obtained at little cost, which generate the positive effect.

Revenue sharing enhances league welfare by decreasing the variance of local revenues around the league average, however lowers welfare by transferring revenue from teams above the league average to teams below the league average, thus decreasing the negative skewness. Revenue sharing at the team level reduces the variance of local revenues, thus reduces risk. This has beneficial effects for team owners because a low risk can decrease the capital costs of new facilities for teams that it intends to finance a portion or all of new facilities; and low financial risk improves the team's market value when potential buyers are risk-averse.

Rahul Sunny answered 1 year ago

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