Due to profit maximization in closed leagues (las norteamericanas), investment in sporting talent is only undertaken if it increases revenues more than costs. Unlike big-market teams, small-market teams lack profit incentives to build up competitive teams that will maximize league revenues; this is another manner in which big market-teams subsidize small-market teams in the closed leagues (Fort & Quirk, 1995). Promotion-relegation and win-maximization drive teams into an arms race – or a rat race à la Akerlof (1976) – in which each team attempts to recruit the best players to improve its relative strength compared with opponent teams; the latter, in turn, are led to overbid. The problem is that such investments in talent are socially efficient only if they upgrade the absolute (and not only relative) quality of teams (Lazear & Rosen, 1981), which cannot be taken for granted. Since there is only one (or a few) winner(s) in the arms race who can recoup their investment costs, an open league is always under the threat of generalised cost inflation of salary and transfer fees, all the more so because the latter is not slowed down by a profit maximization objective. Most big teams are doomed to be in the red in a deregulated open league.
The most striking empirical observation is that competitive balance is worse in closed than in open leagues (Buzzachi et al., 2003 & Table 1), contrary to the expectations of the theoretical model. Empirical testing of the standard model for open leagues is at its beginning, but it appears that revenue concentration on a few big teams neither deteriorates league competitive balance nor game attendance (Szymanski, 2001). Those European soccer leagues which have abandoned TV revenue pooling with revenue distribution are the most unbalanced (Andreff & Bourg, 2006).