Soft budget constraints in European and US leagues: similarities and differences

Storm, R.K. and Nielsen, Klaus (2015) Soft budget constraints in European and US leagues: similarities and differences. In: Andreff, W. (ed.) Disequilibrium Sports Economics. Competitive Imbalance and Budget Constraints. New Horizons in the Economics of Sport. Cheltenham, UK: Edward Elgar, pp. 151-174. ISBN 9781783479351.

Abstract

Kornai’s soft budget constraint (SBC) approach provides a useful framework, which is highly relevant for understanding the economics of European professional sports leagues. However, it has not hitherto been used in a comparative analysis of the European and North American sports leagues. This chapter offers a novel perspective on professional sports leagues that transcends the traditional profit versus win (utility) maximizing distinction by applying the SBC approach. Europe’s win (utility) maximizing teams usually face softness by surviving resounding and/or frequent losses, whereas the budget constraints for North American franchises appear ‘hard’. But are the American pro franchises in fact facing hard budget constraints and the survival characteristics of hardness? This chapter gives a brief interpretation of the European context by using the framework of the SBC approach, while further seeking to adjust and apply it to the American context. It points out that even though the American pro leagues are profitable compared to the European ones, many of the European characteristics are in fact at play in the US, revealing an existence of softness in both league types. In order to better understand the similarities as well as the well-known differences across these two traditionally opposed contexts, a new matrix of team sports economics based on the SBC ideas is developed, supplementing existing research and giving new insights into the peculiar economics of professional team sports.

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