The Economics of Promotion and Relegation in Sports Leagues: The Case of English Football

In most of the world, professional sports leagues use a promotion and relegation system, in which at the end of each season the worst teams in better leagues are demoted while the best teams in weaker leagues are promoted. The research reported in this essay examines the economic effects of promotion and relegation, using data from English football (soccer), one of the oldest and most successful group of professional leagues in the world. The crucial findings are: players tend to earn higher wages in promotion and relegation systems; promotion and relegation apparently has a net positive effect on attendance (teams gain more from promotion than they lose from relegation); and the effect of promotion and relegation on competitive balance is ambiguous, with the negative effect arising because the system inevitably places some teams in leagues for which they have no realistic chance to afford a winning team, thereby causing teams to spend less on players during their (brief) stay in a higher league than they spent while trying to be promoted from as lesser league. The paper concludes with an analysis of how promotion and relegation might be implemented in North American leagues.