Media revenue sharing as a coordination device in sports leagues

Because sports clubs jointly produce sports competitions, the quality of these competitions is determined by the talent investments of all clubs involved in them. Operating as legal cartels, sports leagues may try to coordinate talent investments in order to maximize profitability. In this paper I analyze the ways in which sharing mechanisms for collective media revenues may serve this goal when demand comes from differentiated consumers. Performance-based sharing turns out to be an inefficient sharing mechanism for the league. Such inefficient cartel behavior may be rationalized as the result of bargaining with asymmetric outside options.