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Tollison and the Three-pointer

2017 October 17
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by Skip Sauer

Mark D’Antoni and the Houston Rockets are pushing the envelope on the three-ball, once again.  They shot 40 per game last year and “destroyed the record for most three point attempts by 23%.”  A loose target for this year is 50%.  The reason?  If you are good at shooting the three-ball and expected points are higher than with a two point shot, expected points scored will increase by moving “would-be” two point shots outside the three point line.  This is a form of basketball arbitrage explored 25+ years ago in papers by Robert Clement and Robert McCormick, and Kevin Grier and Robert Tollison.  D’Antoni is channelling his inner Tollison with this: “The league will keep changing until the expected points and all the different actions on the floor converge into a similar number,” Morey said. “I do not think we’re there yet.”

From a good story for opening night in the NBA by Ben Cohen in the WSJ.

P.S.  KPC channelled Bob Tollison over the weekend: “I told y’all so, again!.


EZ Angus and Bob Tollison, “Arbitrage in a Basketball Economy,” Kyklos, V. 43(4),  1990

Bobby McCormick and Robert Clement, “Intrafirm Profit Opportunities and Managerial Slack: Evidence from Professional Basketball,” In Advances in the Economics of Sports, ed. G. W. Scully, Greenwich CT., JAI Press.

From Russia with Love?

2017 October 12
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by Victor Matheson

American soccer fans are not the only ones who should be bemoaning the US’ elimination from the 2018 World Cup at the hands of Trinidad and Tobago last night. Russia, the host of next summer’s tournament, stands to pay a heavy price as well.

Hosting the 2018 World Cup will cost Russia in excess of $10 billion most of which is being covered by the federal government. The country is banking on an influx of tourists during the event to cover at least a portion of these costs. While the net number of new tourists arriving in a country during the World Cup is commonly exaggerated by the event boosters, the increase in tourists is still often substantial. In South Africa in 2006, the number of overseas visitors increased by roughly 200,000 while Brazil experienced an increase in over 1 million international arrivals during the 2014 World Cup, thanks in part to the strong performance of neighboring Argentina.

While the United States is not known as a particularly soccer-mad nation, in both South Africa and Brazil, Americans were one of the largest cohorts of fans. In South Africa, American tourism increased by 23,000 during the World Cup, behind only the UK and neighboring Botswana and Lesotho. In the Brazil, an impressive 98,000 additional people arrived from the United States during the World Cup trailing only Argentina. Honduras, the country likely to be taking the US’ place in Russia, sent at most an additional 5,000 tourists to Brazil during their appearance in the tournament in 2014. Panama, the other beneficiary of the USA’s collapse, sent only 2,000 fans to the Brazil.

Based on data from these previous World Cups, it is not unreasonable to conclude that the number of tourists arriving in Russia for the 2018 World Cup is likely to be somewhere between 20,000 and 90,000 lower with the United States’ spot in the tournament being filled by Panama or Honduras.

The South African government reported that the average World Cup visitor spent roughly $1,600 in the country during their 2006 trip. Applying this figure would result in direct losses ranging from $32 million to $144 million to the Russian economy. Most estimates of costs associated with a trip to Russia during the 2018 World Cup are significantly above the $1,600 figure resulting in net losses that could be two or three times these numbers.

All in all, Trinidad and Tobago’s Soca Warriors have accomplished something that the Trump Administration has been reluctant to do. They have imposed a very real and very costly sanction on Russia, albeit one that is even more costly, emotionally at least, for US Soccer fans.

Applying Economics Research

2017 October 11
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by Kurt Rotthoff

First off, Congrats to Richard Thaler for winning the Nobel Prize in Economics!


Another piece of useful research that is having an impact on sports: Robbie Butler, at The Economics of Sport, recently posted on “ABBA and The Penalty Kick”. This post focuses on a 2010 paper by Jose Apesteguia and Ignacio Palacios-Huerta which was published in the American Economic Review. In this study, Apesteguia and Palacios-Huerta use shoot-out data to analyze the odds of winning depending on if you went first or second.

As he points out:

In order to overcome this problem, UEFA have implemented the “ABBA” system. This has nothing to do with the Swedish Eurovision winners but instead alters the sequence of kicks.

The Football Association (FA) implemented this rule change at the 2017 Charity Shield. The governing body stated that if the game were to finish level after 90 minutes, a penalty shootout would follow that would be similar in structure to the tie-break in tennis.

Operationalised this meant “Team A” would take the first kick, followed by “Team B” taking the second and third penalty kicks. “Team A” would then return taking the next two penalties, and the sequence would repeat itself until a winner was found. Hence the “ABBA” sequence.

It is great to see sports economics research being applied to the leagues and I look forward to seeing if this change causes differences in outcomes as would be expected by the Apesteguia and Palacios-Huerta research.

The Downside of Baseball’s Data Revolution

2017 October 4
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by Skip Sauer

Most revolutions have a downside (see October 1917).  So too with baseball.  The use of data analytics in baseball has changed the game in important ways — where fielders are positioned, how batters swing (to avoid ground balls), and how pitchers pitch.  The result is more strikeouts, more home runs, and more mid-inning pitcher changes.  8.4 pitchers are used today in an average game, up from 5.8 30 years ago.  That’s a big change.  The pace of the game has slowed as a result, with an average of 5 minutes and 47 seconds between balls put in play.  These statistics are presented in a fascinating article, well worth a read, by Brian Costs and Jared Diamond in today’s WSJ:  The Downside of Baseball’s Data Revolution–Long Games, Less Action.  Last night’s wild card game between the Twins and Yankees was a case in point.  The game featured 11 pitchers (6 for the Twins, 5 for the Yankees, and took 3 hours and 51 minutes to come to a conclusion, ending after midnight.  No wonder that young viewers are such a small share of the tv audience.  Let the counter-revolution begin!

Are Athletic Departments like Wells Fargo?

2017 October 3
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by Kurt Rotthoff

Inside Higher Ed ran an article titled “Beyond ‘Bad Apples‘.” In the article John V. Lombardi, who is currently a Professor of History and Associate Director Libraries at the University of Massachusetts Amherst, commented in the article:

Lombardi, who led the LSU system, the University of Florida and the University of Massachusetts at Amherst (and their powerhouse teams) during his decades as a university president, equates the alleged behavior of the basketball coaches implicated in the FBI inquiry to the lawbreaking employees at Wells Fargo, who “think they’re promoting the interests of the institution or the company but really they’re not.”

It is wholly unsurprising that bad behavior is spilling out of a system with “so much money, ego, visibility and celebrity floating around,” Lombardi said — leaving “no question that we have to fix the systemic problem.”


My understanding is that he is implying that these bad actors think they are doing something beneficial for college sports, but they are not. However, I don’t think any of them are claiming they are doing something beneficial for college sports – they are just doing something beneficial for their team (assuming they will not get caught).

And as an interesting extension of this quote: I thought Wells Fargo got in trouble for bosses making their employees create false accounts through the incentive structure they created and office place culture. Is that correct? If that is a true statement, I find his statement, especially quoting a former leader of multiple educational institutions, even more intriguing. Is he implying that it is not the actors that are the problems, but rather the people telling the actors to do these things?

The future of American Legion baseball

2017 October 2
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by Phil Miller

My oldest son played American Legion baseball this summer.  It was our first experience with it and I was pleasantly surprised by the quality of play overall.  From my limited and certainly non-random observations, American Legion baseball quality seems to exceed that of the varsity games I have observed.

The most impressive team I watched was the team from Creighton Prep from Nebraska, the runner-up in this year’s American Legion World Series.  Unfortunately, for my son’s team, Creighton Prep was the first opponent in this summer’s Gopher Classic.

Pretty much every school baseball squad I’ve seen takes “ins and outs” before each game.  Typically, a coach hits ground balls to infielders who then throw to one of the bases (ins) while another coach hits fly balls to the outfielders who then throw the ball to a base or a cutoff man (outs).

Creighton Prep’s ins and outs were the most impressive I’ve seen.  From what I recall, one coach hit balls to the right side of the infield from the third base line while another coach hit balls to the left side of the infield from the first base line.  Yet another coach stood near home plate and hit to the outfielders.  Balls were criss crossing all over the place and the players fielded seemingly each ball flawlessly.

According to the Washington Post, American Legion baseball might be going the way of other sports.

For years, there has been just one option for high school baseball players looking to play in a decent summer league. They suited up for their local American Legion post, which played 40-some games in two months under the June and July sun.

Posts divvy up the local high schools to draw the best players and even accept returning college freshmen younger than 19. They pitch high schoolers on high-quality, team-oriented local baseball.

But “travel” or “showcase” baseball teams have steadily chewed away at the grasp the American Legion, the nation’s oldest veterans’ organization, held on summer ball. The Legion has lost 25 percent of its teams nationwide over the last 10 seasons, with some states losing close to 80 percent.

This year (2017), Minnesota boasted the most American Legion teams (357), Nebraska the second-most (295), and Pennsylvania the third-most (282).  California, on the other hand, has fewer American Legion teams (51) than North Dakota (67), Montana (65), and South Dakota (82). Texas (10), Florida (22), and Georgia (8) have fewer teams than Wyoming (38).

The article has a map of the US with each state colored with respect to the percent change in Legion baseball teams since 2008.  There is a block of states in the north which experienced no decline or growth: Idaho, Montana, Wyoming, South Dakota, and Minnesota.  New Mexico also experienced no decline or growth.  The northeast also had a handful of states with no decline or growth (New Hampshire, Connecticut, Maryland, and West Virginia).  Washington DC also shares this quality.

But in California, Texas, and Florida, populous states where year-round baseball can be played in many locales, there has been more than a 70% decline.

States like Florida, California, New Jersey and Oklahoma have lost nearly 80 percent of their teams since 2008, according to participation data.

New Jersey had 336 teams in 2008. This season, it had 51. Puerto Rico’s program shut down completely in 2012.

The article notes what is probably the most important reason: Legion ball, in general, wasn’t providing a service many players (and their parents) wanted.

Those “travel” or “showcase” teams, though, offer more face time before college and pro scouts, better competition and a more individual-focused game, where players can spend more time working on personal skills than sacrifice bunting, organizers say.

The competition faced by American Legion baseball will force it to respond.

Santa Anita Park and Racetrack Economics

2017 September 29
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by Skip Sauer

Today is opening day at Santa Anita Park.  Located at the foot of the San Gabriel Mountains, the “Great Race Place” is one of the most beautiful sporting venues in the world.  But the view looking forward is not so rosy.


Santa Anita Racetrack






Reporter John Cherwa presents some of the issues facing Santa Anita and American horse racing in today’s Los Angeles Times.  A “fix-it man,” Tim Ritvo, has been dispatched from the Florida headquarters of The Stronach Group, owners of several horse racing venues including Santa Anita.  Ritvo is quoted as saying “the problems are bigger than I thought,” and he clearly recognizes that the larger problem is industry-wide.  According to the American Racing Manual, the number of races run in the U.S. has fallen to 41,277 from its 1989 peak of 74,701, a decline of 44%.  The industry decline has been concentrated among smaller racetracks and slower horses, as alternative forms of gambling proliferated and diminished local demand for cheap racing.  Making matters worse, field size per race has fallen even faster than the number of races, from 9 runners per race in the 1950-1990 period to about 7.5 today.  Smaller field sizes make betting the races less attractive, generating lower betting handle and contributing to horse racing’s downward spiral.

Ritvo’s charge is to keep the industry’s slide from engulfing Santa Anita.  Tracks with top level racing and well-defined seasons — — Del Mar and Saratoga in the summer, Keeneland in the spring and fall — have been able to maintain their luster and their business despite horse racing’s headwinds.  But at Santa Anita, racing has been reduced from five days to four days per week, and Ritvo has introduced the possibility of concentrating the races even further, to three days per week.  Since racing is a time-intensive leisure activity, losing a Thursday card and replacing it with fuller fields of additional races run Friday through Sunday makes economic sense, at least at some level.  Thursday racing would not be a great loss to most stakeholders in racing, especially if a better product results from running when fans will be more attentive to the sport.

But Ritvo brought up one issue that has always puzzled this economist.  The norm in the U.S. is for tracks to provide stalls to horsemen for the horses that train over the racecourse.  There is not an explicit monetary cost to horsemen for the stalls; rather, the quid pro quo is that the track expects horses stabled on the premises to compete in the races there.  Incentive conflicts arise, however, when horses stabled at one track have better racing opportunities elsewhere.  Tracks respond to this with rules which limit the ability of horses to ship in and out in pursuit of optimal racing opportunities.  The is counterproductive from an industry perspective and contributes to lower field size and betting handle.  The incentive conflict doesn’t exist in British racing, where the horses are generally stabled at home and entered to race wherever they please, with no racecourse holding sway over that decision.

Ritvo is concerned that horses that train at Santa Anita often don’t race there.  This will be the case for the two favorites for the Breeders’ Cup Classic, Arrogate and Gunrunner, who are preparing at Santa Anita for the race that will be held at Del Mar in November.   Horses entered in graded stakes races are generally exempt from restrictions on shipping out to race, sensibly so.  But this case nicely illustrates the problem of a track bearing the costs of stabling for horses that don’t race often, if at all, during the afternoons.  The two mares who are favorites for the Breeders’ Cup Distaff also exemplify an industry-wide problem:  Forever Unbridled and Stellar Wind both plan to train up to Distaff without a prep race, having run only twice and three times respectively this season.  That’s a problem for racing too: can you imagine a world in which soccer fans got to watch Lionel Messi play just a few times each year?  No other sport hides its stars as much as American horse racing.

The problem of stabling horses for training that rarely race seems easy to address however.  As pointed out earlier, the problem is absent in places where horses are stabled in the home training facilities of their trainer.  It would be a non-issue here if American racetracks charged a fee that accounted for the costs of stabling.  Horsemen pay for the costs of shipping, feed, vet care etc., so why not make stabling costs explicit as well?  This would be a significant step towards minimizing the incentive conflict.  Moreover, the stabling fees could be funneled directly back into the prize money offered on raceday.  Pricing the resource properly, and adding to the incentive to race at the track seems such a simple solution to this problem.  It’s Econ 101.  But horse racing as an industry repeatedly exhibits a strong aversion to simple economic principles.  Perhaps that’s another reason contributing to its steady decline on the sporting scene.

Corruption in college basketball – a result of not using the price system to allocate player talent

2017 September 28
by Phil Miller

Like most other fans of college sports, particularly the money sports of football and mens’ basketball, I have grown accustomed to the sporadic scandals that seemingly pop up every year.  For instance

  • Assistant coach so-and-so gave impermissible benefits to such-and-such player.
    • Already happened.  The guilty party got a slap on the wrist.  Move along.
  • A booster of program X gave internships to several prominent athletes but had them do no work.
    • Already happened.  That national championship Program X won, yeah, we’ll pretend it never happened. Oh, and you, Program X, you lose a scholarship.  Move along.
  • Several football players at a major university got free shoes from a store in the mall.  That is an impermissible benefit.
    • Already happened.  Slap on the wrist, effectively.  Fans started calling the university Free Shoes U.  Move along.

But when one of my students told me about the latest scandal in major college basketball involving the arrests of coaches by the FBI, my first thought was “Whoa.  The FBI arrested coaches.  This isn’t a slap on the wrist by any means.  This is serious.”

Michael McCann, writing at Sports Illustrated, has an excellent take on some of the legal angles in this current corruption case, and he speculates on what the various parties involved might do as the case winds through the legal system.  But as for the genesis of this scandal, and most every other scandal that comes to mind, Mike hits the nail on the head: it didn’t have to happen.

 If the NCAA had adopted a system where players were compensated for their labor and compensated for the use of their name, image and likeness, perhaps all or some of these “under the table” payments would not have occurred. We’ll never know. But some will ask.

Therein lies the problem.  Football and mens’ basketball generate mountains of cash that run entire athletic departments (i.e. support the livelihoods of numerous people), but the athletes are effectively not compensated anywhere near the amount generated by their programs.  Yes, they get grants in aid (scholarships) which are incredibly valuable to some players.  But they can have no value whatsoever to some players, particularly those with a future in an elite pro sport league.

In college basketball, one 5-star recruit can be the difference between a run in the NCAA tournament and not making the tournament at all.  Talk about a valuable resource.

Elite athletic talent is a scarce resource and it must be rationed.  It’s not a question of “does it need to be rationed?”, it’s a question of how.  If it’s not rationed through a simple and efficient price system (i.e. by paying players some kind of salary more or less in line with their worth to their respective school – paying them “over the table”, as it were), then some other rationing system must be used.  One of the alternatives is payment “under the table”: i.e. corruption.


NCAA coaches charged with fraud and corruption

2017 September 26
by Kurt Rotthoff

Hmm, am I shocked? No, not really. However, I am a little shocked that it was the Feds that caught them.

Student-athletes are worth a lot of money to the schools and the brands that sponsor the schools. As such, we expect there to be a strong incentive for places to find ways to convince these student-athletes to go to their school (or brand). And schools have always done this through relatively inefficient means: nicer locker rooms, weight rooms, and other facilities; hiring personal chefs and personal trainers; and even paying professional coaches to leave the big leagues and come down to the NCAA to coach (recently Harbaugh, now at the University of Michigan).

ESPN reports that NCAA basketball coaches that have been arrested for paying money to get players to play for different schools. Athletic apparel companies (technically people working for them) are also claimed to have done the same thing, steering the athletes to schools that are represented by their particular brand.

So, although the NCAA claims that all these student-athletes are amateur, there are some getting paid (seeming large sums of money) to play at certain schools. This is another form of inefficient payment (and this time it is not legal). My biggest problem with this is the same I have with giving take-home quizzes: I give a take-home quiz and say you can study, but close all your notes before you take it. Those that are the most well prepared are most likely to take the quiz with their notes closed. Those that are the least well prepared are most likely to take the quiz with materials open (although this is not allowed). When this occurs, and some of those that were the least well prepared do well on the quiz, it incentivizes people to act more like that (keep their notes open when they shouldn’t be). Thus there are two issues: 1. Monitoring is hard. 2. The incentives lead more people to act inappropriately. Which is typically what we are trying to avoid in our society. So I given in-class quizzes, eliminating the monitoring problem (mostly) and taking away the ease of cheating.

So what would be a solution for the NCAA? Well, the easiest one would be to get rid of the inefficiencies. Right now the NCAA inefficiently pays student-athletes. Do college students want their own private chefs? I would like one, but I am not willing to pay for one; I would prefer the money over the chef (and I would venture to guess most, if not all, of these student-athletes would say the same thing). Thus the obvious answer is to pay the student-athletes. However, the NCAA has always come out against this to protect the amateurism rule. But doesn’t it seem ironic that the ones who vote on (and support) this rule the most have the most to lose? If athletes can get paid, they don’t need inefficient payments anymore – thus there would not be as many, or as highly paid, coaches and athletic directors (which are some of the main voting parties). This seems like a Bruce Yandle “Bootleggers and Baptists” argument (although it’s not clear there are any actual Baptists here, just people claiming to be Baptists).

Am I missing something?

Tax Deductible Two Part Tariff (at least the first part)

2017 September 22
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by Phil Miller

From the Chicago Tribune:

What I don’t understand, however, is the law that allows ticket buyers to write off 80 percent of their “preferred seating donation” as a charitable contribution for federal tax purposes.

That’s right. High rollers in the swankiest suites can subtract $4,500 from their taxable income, a benefit worth up to $1,782 off their tax bill, as though they had given that money to a soup kitchen or hurricane relief.

Put another way, for each such privileged fan, the federal government effectively provides a $1,782 ticket subsidy.


Now, normally, under tax law, if you get something in return for a donation to charity, you can only deduct from your income the amount of your donation above the value of what you’ve received. If you pay $500 a plate for a charity dinner, for example, and the meal is worth $50, you can only claim a charitable contribution of $450.

Pretty simple. Pretty obvious.

And, in the mid-1980s, when these preferred-seating donation scams first arose, the Internal Revenue Service issued a common-sense ruling that a mandatory donation linked to the purchase of seasons tickets was a quid pro quo and so not deductible for tax purposes.

Legislators representing schools in the powerful Southeastern Conference “went crazy,” said University of Illinois emeritus law professor John D. Colombo, a specialist in tax laws governing charitable organizations. And in 1988, Congress added subsection 170(l) to the IRS code that specifically allowed for an 80 percent deduction on donations to “institutions of higher education” that granted “the right to purchase tickets for seating at an athletic event.”

The pro sports analogy to this collegiate two-part tariff, at least here in the States, is the personal seat license (PSL).  Fans buy a PSL from a team which essentially gives them the right to buy season tickets to that team’s home games.  Would it be OK to allow PSL buyers to deduct 80% of the PSL price from federal income taxes?  Of course not, because there is no facade that pro sports teams are charitable organizations.

If an organization is classified as a “non-profit” for tax purposes, this only means that it is a non-profit in an accounting sense.  It does not necessarily follow that the “non-profit” cannot seek maximum economic profits.  It just means that they have to show a zero accounting profit on their books.

I think it is pretty clear that major college football (and basketball) programs, if not athletic departments in general, are profit-maximizers in the economic sense.  You can call them non-profits, charitable organizations, or whatever.  But just because they are non-profits for tax purposes does not mean they aren’t profit-maximizers.

Via Skip Sauer on Twitter