It is believed that briefly introducing the theory of sport economics is highly useful before starting any discussion about sport economics. Academic works in the field of sport economics started with Rottenberg in 1956. He discussed the reserve clause in the baseball league. The teams had the chance to extend the contract of players for one more year although the contract of the player expired.That means players ceased to be a free agent.
Mobility of players have restricted and monopsony is created in the labour market to sustain competitive balance in the league.It is argued that without reserve clause, rich big city teams would buy all the best talent and competitive balance could be effected. As a result, interest of spectators would fall and revenues of all teams diminish. Rottenberg (1956) claimed that reserve clause is not needed to sustain competitive balance in the league.
He believes that distribution of the players would be more or lessequal under the free agency if the teams are profit maximisers. According to Dobson and Goddard (1998), Rottenberg sees the main effect of the reserve clause system is tolower the salary of the players.Another cornerstone work was published by Neale in 1964. He used an example of aheavy-weight champion who wants to maximise his profits. The champion needs astrong contender to raise interests of people and profits because doubts aboutcompetition arouse interest.
He underlines that a sport contest is a joint production of the competitors. Although companies of any industry want a monopoly position to control the market and maximize their profits, monopoly is the worst thing for sport teams and athletes in terms of interest of people and making profit (Neale, 1964).The analyses of Rottenberg (1956) and Neale (1964) can be more accurate in the profit maximiser North American sport model. However, European sport model is utility maximiser rather than profit. The comparison of North American and European sport models is needed to understand the peculiarity of the field.