The valuation of athletes as risky investments: A theoretical model

Halm Kedar-Levy, Michael Bar-Ell

Research output: Contribution to journalArticlepeer-review

17 Scopus citations

Abstract

The desire to hire the best athletes and coaches in order to maximize team performance necessitates generous compensation contracts, which in turn increase the risk of financial distress or even bankruptcy for team owners. Indeed, one of the largest expense items in the budget of professional sport teams is the remuneration of players and coaches. Yet an investment made today in a given team yields an uncertain income in the future because team profitability depends on the uncertain performance of each player and the synchronization among players - both influenced by the coach. We present a formal theoretical model that assesses athletes' valuation and accounts for the aforementioned factors. The optimal compensation schedule is determined empirically by regressing expected performance measures of each player with the aggregate team performance. Once the optimal schedule has been determined, the expected rate of return for the owner is earned at the lowest possible risk.

Original languageEnglish
Pages (from-to)50-81
Number of pages32
JournalJournal of Sport Management
Volume22
Issue number1
DOIs
StatePublished - 1 Jan 2008

ASJC Scopus subject areas

  • General Decision Sciences
  • Orthopedics and Sports Medicine
  • Physical Therapy, Sports Therapy and Rehabilitation
  • Organizational Behavior and Human Resource Management

Fingerprint

Dive into the research topics of 'The valuation of athletes as risky investments: A theoretical model'. Together they form a unique fingerprint.

Cite this