The Economics of Professional Boxing Contracts

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Abstract
This article analyzes the characteristics and incentive effects of contractual practices in professional boxing. A boxer’s “purse” is linked to past rather than contemporaneous performance, thereby creating an incentives problem. Although consumption-smoothing considerations alleviate this problem, savings act as further insurance, and the likelihood of moral hazard increases. Observation of a boxer being poorly prepared for a fight after earning a very large purse is consistent with this prediction. These disappointing outcomes are likely driven by the absence of a strategic principal in the boxing market and by the prevalence of “casual” boxing fans.

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