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Pay-Tv Versus Free-Tv: A Model Of Sports Broadcasting Rights Sales



In contrast to the U.S., European coverage of top-selling sports tends to move to subscription-TV. The literature provides several explanations for this distinct development in the U.S. and Europe: The TV sports market in the U.S. is characterized by substitution effects due to the existence of other major sports, economies of scale due to the existence of networks covering all of the U.S., and FCC legislation restricting entrance of subscription-TV networks. We present a model which is consistent with the arguments above and points to an additional explanation: If the league sponsors' willingness to pay increases with higher viewer ratings, incentives for a sports league to air its games on free-TV become stronger. Differences in the valuation of such payments might be a factor explaining the different development across the two continents. In order to increase welfare, policymakers should tailor free-TV networks' advertising restrictions to maximize viewer ratings while still ensuring free-TV networks' competitiveness in the market for broadcasting rights. Additionally, increased competition in the sports broadcasting market will increase welfare.

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