EVENT: The Economics of Winner-Take-All Markets: Evidence from Youth and Professional Tennis

Abstract: Despite the enthusiasm displayed by parents for their athletic children to pursue professional sports careers, Rosen and Sanderson (2001) state that odds of succeeding in the “big leagues” are “vanishingly small" even though data are not available to actually calculate the probabilities. We have assembled such a dataset for professional tennis, linking the performance of all internationally-ranked 14 & under, 16 & under, and 18 & under players born from 1977 to 1985 and their subsequent pro outcomes. Annual gini coefficients of prize earnings among top players over time document the winner-take-all nature of professional tennis. Only a miniscule portion of players earned higher net incomes than did average college graduates, namely a thin slice of the top ranked 18 & under players and top ranked players who are a year or two younger than their peers. Whereas Frank and Cook (1995) argue that long-shot efforts to become sports superstars lead to socially inefficient under-investments in education, Rosen and Sanderson (2008) conjecture that people are not reckless risk-takers but respond to feedback over time about their relative performances. We test these contesting ideas by estimating if young players’ pro career decisions are based on expected future earnings.