Key takeaways
- Think of promotion and relegation as a membership rule: in an open league, a club's division is earned each season rather than owned.
- Expect the bottom of an open league to be as competitive as the top, because finishing low has a cost rather than a reward.
- Read drafts, salary caps and revenue sharing as the closed league's substitute for relegation — tools to keep competition balanced when membership is fixed.
- Remember that a reverse-order draft rewards a bad season, which is why closed leagues add lotteries to blunt the incentive to lose.
- When judging a league design, ask what it does to the incentives of the teams at the bottom, not just the teams at the top.
Promotion and relegation is a membership rule: at the end of each season, the lowest-placed clubs in a division drop to the one below, and the highest-placed clubs from below move up. A league that works this way is called an open league, and in soccer (association football) it is the norm across Europe and South America. A closed league has fixed membership instead — no team goes down, however badly it plays — and uses other tools, such as drafts, salary caps and revenue sharing, to stop the same teams winning every year.
The two designs answer the same question — how do you keep a competition competitive? — in opposite ways. One punishes failure by removing it; the other compensates for it.
How an open pyramid works
An open system is a pyramid of divisions joined by promotion and relegation places. Results in one division decide where a club plays the next season, so the structure can be climbed from the bottom — and fallen down from the top.
England's top flight shows how the mechanics sit inside a league's own constitution. The Premier League describes itself as a company whose shareholders are its 20 member clubs at any given time, plus The Football Association with a special share. At its annual general meeting at the close of each season, "the relegated clubs transfer their shares to the clubs promoted into the Premier League from the Football League Championship." Membership, in other words, is literally handed over.
How many clubs change places, whether some places are decided by play-offs, and what happens to clubs further down are details each competition sets for itself. The principle is the same everywhere: the table at the end of the season decides next season's division. How soccer league tables work covers how those positions are calculated.
A worked illustration
Picture a 20-club division that, by its own rules, relegates the bottom three. With five matches left, the club in 18th place is two points from safety. Every match it wins is worth three points in a race that decides whether it plays in the same division next season. The club in 20th, further adrift, still has everything to play for: a late recovery is the only way to stay up. Nobody near the bottom gains anything by losing.
Open and closed leagues side by side
| Open league | Closed league | |
|---|---|---|
| Membership | Earned each season | Fixed; teams keep their place |
| New teams arrive by | Promotion from below | Expansion — the league admits a new franchise |
| Finishing last means | Relegation to a lower division | Typically a high pick in the next draft |
| Main balance tools | Promotion, relegation, prize money and how revenue is shared | Drafts, salary caps, revenue sharing |
| Incentive near the bottom | Win to survive | Can reward losing, unless a lottery blunts it |
Two details in that table deserve a closer look. Closed leagues grow by expansion, which brings its own mechanics — expansion drafts explained covers how a new team is stocked. And open leagues are not free of redistribution either: the Premier League says its competitive balance is "maintained through the equitable distribution of revenue".
It is a design choice
Neither model is a historical accident that the other side forgot to fix. In a chapter on East Asian leagues, researchers Brad Humphreys and Nicholas Watanabe describe leagues choosing between them: one basketball league "adopted a North American closed league model like the National Basketball Association (NBA)", while many of the region's soccer leagues "adopted promotion and relegation ladders like professional football leagues in Europe and South America". Japan's J-League, they note, created a two-tier system in 1999, with the top league renamed J1 and the second tier J2.
So the short answer to "why is there no relegation in US sports?" is that North American leagues follow what these researchers call the North American closed league model — the NBA is the example they cite — and a closed league solves its balance problem with different tools.
The incentive problem at the bottom
This is where the two systems differ most sharply.
In a closed league with a reverse-order draft, the worst team gets the best pick. That is good for balance — talent flows to the weakest teams — but it means a team already out of contention improves its future by losing more. How draft lotteries work explains why leagues randomise the top of the order to soften that incentive, and why a lottery can reduce it but not remove it.
Relegation runs the incentive the other way. Losing does not earn a better pick; it costs a place in the division, along with everything that comes with it. A club near the bottom of an open league has every reason to try to win. The price is a heavy one — a relegated club spends at least a season in a lower division — which is why a rebuild-or-retool decision is so much riskier in an open league than in a closed one.
What the economics literature says
Economists often analyse leagues as contests: teams invest to win prizes, and the league's rules decide how prizes are shared. Stefan Szymanski's review in the Journal of Economic Literature uses that framework to analyse the distribution of prizes, revenue sharing, salary caps, draft rules and other restraints, drawing heavily on a comparison between North America and Europe.
Promotion and relegation adds a link between divisions that closed leagues do not have. In a contest model of a top division and a second division, Dietl, Grossmann, Hefti and Lang found that what happens below spills upwards:
- a stronger second division that offers a bigger league prize leads to a more balanced top division;
- a stronger second division whose clubs become more cost-efficient has the opposite effect;
- a higher second-division prize leads to lower investment but higher profits in the top division;
- more efficient second-division clubs mean lower investment and lower profits at the top.
The practical point is that in an open system the top division cannot be designed in isolation: the strength and rewards of the division below are part of its competitive balance. The authors draw policy implications for how leagues are organised; the findings come from a theoretical model rather than from data on a particular league.
Should closed leagues adopt relegation?
Framed as a design question, the trade-offs are clear even where the answer is not. Relegation would remove the main reward for losing that reverse-order drafts create, and give late-season matches at the bottom real stakes. It would also expose every member's investment to the risk of dropping out, and it would turn a league's second tier into part of its competitive structure, as the spillover research shows. A closed league that kept its draft while adding relegation would be sending two opposite signals to its worst team at once.
In a GM game
These incentives are the raw material of franchise and GM modes. Salary cap basics for GM games covers the closed-league toolkit from the manager's chair. In Pro Football GM Club Soccer, you draft an XI position by position, a simulated season comes back as wins, draws and losses under the game's own rules, and club management adds formations, squad depth, transfers, contracts, fitness and season progress; the guide to soccer formations covers the squad thinking behind it. Football Career Soccer XI Sim follows a single fictional player through transfers and contracts instead. Neither game is affiliated with any league, and neither forecasts real results. For league formats and rules, start at the soccer hub; our GM and career titles are under sports career and GM games.
Good to know
Frequently asked questions
How does promotion and relegation work in soccer?
What is the difference between an open and a closed league?
Why is there no relegation in US sports?
Does relegation stop teams from tanking?
Sources
- About the Premier League (opens in a new tab)Premier League — accessed
- The History and Formation of East Asian Sports Leagues (Humphreys and Watanabe), in The Sports Business in The Pacific Rim (opens in a new tab)Springer, via PubMed Central — accessed
- The Economic Design of Sporting Contests (Stefan Szymanski, 2003) (opens in a new tab)Journal of Economic Literature (American Economic Association) — accessed
- Spillovers in sports leagues with promotion and relegation (Dietl, Grossmann, Hefti and Lang, 2015) (opens in a new tab)Scottish Journal of Political Economy, via ZHAW digital collection — accessed
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