Inter-league competition for talent vs. competitive balance

We analyze the distribution of broadcasting revenues by sports leagues. We show that when the teams engage in competitive bidding to attract talent in an isolated league, the league’s optimal choice is full revenue sharing (resulting in full competitive balance). In contrast, when the teams of several leagues bid for talent, in equilibrium the leagues choose a performance-based reward scheme. We thus provide an explanation for the differences in revenue sharing rules for national TV rights used by the U.S. sports leagues (full revenue sharing) and European football leagues (performance-based reward).