Revenue Sharing in Professional Sports Leagues as a Hedge for Exchange Rate Risk
Professional sports leagues that feature teams in different countries with different currencies are exposed to exchange rate uncertainty and risk. This is particularly evident for three professional sports leagues that feature teams in the United States and Cana-da. We construct a simple model of a profit-maximizing team that earns its revenue in one currency and meets its payroll obligations in a second currency and participates in a league-imposed revenue-sharing plan. Team profit can increase or decrease due to movements in the exchange rate based on a simple condition. Revenue sharing reduces the exposure to exchange rate uncertainty and risk. Hedging is possible for a single team by adjusting its payroll, but not likely. Some elementary calculations suggest this previously unrecognized benefit of revenue sharing is substantial for baseball’s Toronto Blue Jays.