The Bandwagon Model

Author

Dean A. Williams, Clemson UniversityFollow

Date of Award

12-2025

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

Committee Chair/Advisor

Dr. Andrew Hanssen

Committee Member

Dr. Matthew Lewis

Committee Member

Dr. Aspen Gorry

Committee Member

Dr. Yichen Zhou

Abstract

Professional sports teams are in the entertainment market where owners of teams invest in players with the hopes of converting their talents into wins, and in turn, added revenues for their team. To gain an understanding of the incentives that shape these team talent investment decisions, prior economists have created theoretical models of professional sports leagues that give predictions regarding the cost to acquire talent, and the winning percentage of teams from different market sizes. These models are then used to show how team talent investment decisions change once professional sports leagues implement policies such as first-year player drafts, salary caps, luxury taxes, and revenue sharing agreements. My doctoral dissertation adds to this literature by creating a model of a professional sports league where teams only make revenues on wins that impact their probability of making the playoffs. In doing so, teams are incentivized to either invest in enough talent to ensure a playoff berth, or to not invest in talent at all so as to not lose money on their investment. I demonstrate that this structure is appropriate by using attendance data from Major League Baseball to show that attendance fluctuates alongside the probability that a team makes the playoffs. Using a simplified two-team version of my theoretical model I am first able to show that smaller market teams will outspend larger market teams when they receive significantly greater quantities of talent from the first-year player draft. I then use data from Major League Baseball to prove that this prediction from my theoretical model holds true in an actual professional sports league. Next, I am able to show that implementing luxury taxes and salary caps in my model makes only a small difference in improving the balance of talent between the two teams. Finally, I show that sharing revenues between the two teams leads to the smaller market team being less willing to invest in talent, as they prefer to just collect the shared revenues generated by the larger market team.

Recommended Citation

Williams, Dean A., "The Bandwagon Model" (2025). All Dissertations. 4165.
https://open.clemson.edu/all_dissertations/4165