Transforming talent into performance: Efficiency heterogeneity, strategic behavior, and welfare in sports leagues

Understanding why some sports clubs consistently outperform others despite similar financial resources remains a central question in sports economics. This paper develops a contest-theoretic model of a sports league in which clubs differ in both their financial capacity and their efficiency in transforming player talent into on-field performance. Each club chooses its optimal level of talent investment under either profit-maximizing or win-maximizing objectives. The model explicitly distinguishes between two types of heterogeneity-market size and efficiency, allowing us to study how these asymmetries jointly shape equilibrium talent demand, competitive balance, and welfare. The results reveal that profit-maximizing clubs may reduce talent investment when efficiency improves, while win-maximizing clubs respond in the opposite direction. Efficiency differences also affect large and small clubs asymmetrically, with small clubs often expanding investment under conditions in which large clubs contract. Welfare implications depend critically on league orientation: in profit-oriented leagues, welfare improves when small clubs are less efficient and large clubs are more efficient, whereas the opposite holds in win-oriented leagues. By integrating contest theory with the literature on club efficiency, the paper demonstrates that efficiency heterogeneity is not inherently detrimental. Under certain conditions, it can yield strategic advantages and even enhance league welfare, offering new insights for both academic research and league policy.