monash_2187.pdf (758.17 kB)
Player sales, trade of players and draft choices and competitive balance
journal contributionposted on 2017-06-07, 05:48 authored by Booth, Ross
This paper examines the profitability of Australia's four major banks, covering the time period 1985 to 2001. The level of profitability achieved by the banks across this period is determined and individual components of the profit rate examined. The contribution of efficiency gains and growth in non-interest income to profitability is discussed and the extent to which these gains have been passed on to consumers is measured. Apart from a period in the early 1990's banks have been able to maintain a relatively consistent level of profitability. However, the maintenance of these levels of profitability following on from their Player Sales, Trade of Players and Draft Choices and Competitive Balance;Sports economists such as Fort and Quirk (1995) argue that in professional team sports leagues in the US, if team owners try to maximise profits, unbalanced trades of draft choices and players can provide a substitute for cash sales of players and therefore also undermine the effectiveness of a player draft in increasing competitive balance (evenness of competition). This theoretical paper extends the authors' model by analysing the effect of cash sales and trades in a league where team owners are win maximisers (that is, try to win as many games as possible subject to breaking-even financially), such as in the Australian Football League (AFL) where clubs are predominantly member-owned. In these circumstances, cash sales will undo the effects of a player draft only if wage levels are relatively high, and then only partially. Where the cash sale of player contracts is banned, it is shown that if wage levels are relatively high, unbalanced trade of player talent can act as a (partial) substitute for cash sales when team owners are either profit maximisers or win maximisers. The role of a salary cap in preventing unbalanced trades is discussed, and whether the circumstances that would lead to unbalanced trades in a league of win-maximising teams should be of concern.