Parity in professional sports when revenues are maximized

There are two major hypotheses regarding the talent distribution among the teams that would maximize the total revenues in a sports league; dominant teams versus parity. This paper examines the revenue structure of National Football League and proposes policy recommendations regarding talent distribution among the teams. By using a unique, rich data set on game day stadium attendance and TV ratings we are able to measure the total demand as a function of involved teams' talent levels. Reduced form regression results indicate that TV viewers are more interested in close games, on the other hand stadium attendees are more interested in home team's dominance, in other words stadium demand and TV demand work against each other. We therefore propose a policy that promotes slight parity among the teams where big market teams have a slight advantage over the others. Total revenues of the league are maximized under such policy. (C) 2014 Elsevier B.V. All rights reserved.