Friday, December 31, 2004

A Swiftian analysis of the subsidy issue 

Civic pride is the ultimate justification for subsidies these days. But both league rules and stadium contracts with public entities blunt the financial incentive for teams to win. This requires an adjustment, according to the University of Chicago's Allen R. Sanderson. If pride in a winning team is worth something to a city, then the shame that comes from getting beaten repeatedly requires an offsetting tax.

Sanderson's piece in the Chicago Tribune is a bit tongue in cheek, but it has plenty of facts to go along with the humor. And as a matter of logic, if you buy the civic pride argument for subsidy, you should also buy the civic shame argument for an offsetting tax!

Are the Patriots a model organization? 

I think they probably are, and hence worth studying.

There are a number of books out on the Patriots, which is a typical of a championship team. But Management Secrets of the New England Patriots is not your typical sports book. Author James Lavin has a PhD in economics from Stanford, where he studied "high performance work organizations." His book examines the Patriots' story from this point of view.

To get a sense of the book, check out this interview with Lavin by Doug Farrar of Seahawks.NET. One thing I did not know was the caliber of coaches that Belichick had assembled, and likely helped develop, on his staff in Cleveland, the job from which he was fired by Art Modell in 1995. They include Kirk Ferentz and Nick Saban, both subsequently honored as NCAA coach of the year. Belichick's success would seem to extend beyond the Patriots.

Also noteworthy is Lavin's analysis of the impact of offensive coordinator Charlie Weis leaving for Notre Dame. The complex schemes, and the fact that all information is openly shared in the Patriots organization (a core principle in Jim Collins' book Good to Great) leads Lavin to two predictions. First, that Weis' successor will come from within the organization (see Collins, again). Second, that the Patriots will continue to be successful after Weis' departure, because they are prepared for the departure of anyone, Belichick included!

You can read sample chapters of the book here, and purchase it in either paperback or pdf form. I did the latter (for a mere $7.20), and very much look forward to reading the entire book.

Thursday, December 30, 2004

Meet Randy Johnson 

Great story by Lee Jenkins in the New York Times.

There's the mean Randy:
Around Major League Baseball, he is considered a gruff and cranky character, as likely to scowl at a teammate who interrupts his pregame routine as he is to buzz a hitter who gets too comfortable in the batter's box.
And there's the nice Randy too. But mostly, you get the sense that there is a driven, committed Randy Johnson at the bottom of it all.

Story of a coach, and a country 

Many of you know about the shooting of soccer coach Luis Montoya in Colombia. But check out the details of the shooting as reported by Glenn Davis:
It should have been the greatest of holiday seasons for Luis Montoya, the former coach of one of South America's top teams, Once Caldas. Montoya, 47, led the small Colombian club to the Copa Libertadores title, defeating superpowers such as Santos, Sao Paulo and Boca Juniors.

More remarkably, his starting lineup consisted of purely Colombian players. Once Caldas' success showed to the rest of the provincial clubs on the continent that there is hope.

The victory also provided tremendous pride in the country and led Colombian President Alvaro Uribe to praise the accomplishment as a national morale booster.

After his team lost to Porto on penalty kicks in the Intercontinental Cup on Dec. 12, Montoya retired to spend more time with his wife and son. Eight days ago, Montoya was targeted.

His wife, Adriana Herrera, was followed home after withdrawing money from a cash machine. Montoya came to her aid outside the couple's home when he saw her being robbed.

Montoya was shot twice in the neck and is fighting for his life in the Clinica de las Americas hospital in Medellin.

Reports indicate he will be a quadriplegic and has suffered respiratory problems. Herrera reportedly had withdrawn the money with the intention of buying gifts for underprivileged children.

Two persons have been arrested in the case. One of the detainees, Luz Yepez, 31, is the wife of a policeman.
The wife of a policeman? Everyone knows that the lawless element in Colombia is significant, but if the law itself is made up of bandits, there would seem to be no hope for the place. Coach Herrera's story puts a face on a tragedy of a country.

Wednesday, December 29, 2004

Property rights and Mexican emigration 

On the surface, this story in the Houston Chronicle is about American retirees buying homes on the beach in Mexico. There are beautiful places in Mexico that would be attractive places to live. But an oddball law - foreigners were prohibited from owning property within 30 miles of the beach - and insecure property rights deterred Americans moving to Mexico. Now that is changing, in a big way.
Burros hauled construction materials up the jungle-covered mountain when Angela and Tom LeBrun began building their vacation home 15 years ago.

To survey their property overlooking Banderas Bay, the Dallas couple had to cling to tree branches as they climbed down the lush mountainside. Cobblestone streets now lead up to their colonial-style casa in the Conchas Chinas neighborhood, which is filled with luxurious homes and condominiums owned mostly by American retirees and vacationers.

Such Mexican beach resorts are so popular with retired Americans, baby boomers nearing retirement age and even middle-aged couples wanting vacation homes that condominium and housing developments are often sold out before construction is complete.

"It's grown by leaps and bounds," Angela LeBrun, 58, said about Puerto Vallarta as she sat on her bougainvillea-covered terrace.
What accounts for the change? In a word, NAFTA. More specifically, in the past decade, American companies have set up title insurance and mortgage companies across the border, bringing modern finance and more secure property rights to a country where they are in short supply. (My guess is that the oddball law was invalidated by NAFTA also).

The conventional wisdom is that Mexicans come to the US for better wages and employment opportunities. But at a deeper level, by emigrating they make a choice between poor and good institutions, both public and private. As the Chronicle article illustrates, when Mexican institutions improve, the flow reverses, and Americans emigrate to Mexico.

Wednesday, December 22, 2004

Happy Holidays 

I'll be travelling so blogging will be light. Many thanks to ESPN's Rob Neyer for naming this site his link of the month. I hope the mix of economics and sports has been informative and entertaining for new visitors, and that some of you will return when the blog is back in action.

'Tis the season to be jolly! Merry Christmas everyone.

Arena arms race 

New basketball facilities are being built on campuses across the country. Jeremy Rutherford's story in the St. Louis Post-Dispatch examines the trend.
Convenience is only one of the reasons that new arenas are popping at Missouri, Maryland, Texas Tech, Gonzaga and elsewhere around the country. Schools such as Oklahoma State, with a venue steeped in tradition, have elected to undergo major renovations. And others, like St. Louis University and Illinois, are gauging the costs of a new building with the ambition of setting a closing date soon.

It's becoming apparent that having one of these new facilities will give your program a visible campus treasure, maximize a university's potential revenue and help lure high-caliber recruits. Gone are the days of dreariness and decay creating a beloved ambiance at some of the older, more intimate buildings. These days, athletic departments are seeking amenities that will keep both players and fans more comfortable.
They aren't cheap, but they bring in millions of new revenue as well. Will Edmund Cameron's Indoor Stadium ever become a liability for Duke?

Tuesday, December 21, 2004

China - the new Japan 

In the mid-1980s media pundits of the Lou Dobbs variety promoted Japan Inc. as the world powerhouse. Japanese companies had steamrolled the auto and electronics industries, and had bought half of California with the loot. The U.S. economy was doomed.

These days, it is a rising China that has the gloom and doomers at work. As with most chicken littles, history is likely to prove them wrong.

Here are two little pieces of the puzzle which suggest that Yankee ingenuity is alive and well. First, Craig Newmark notes this perceptive New York Times story on Dell, the only significant PC company to manufacture in the U.S. But Dell is not the modern version of Zenith. (Some of you may recall that Zenith lapsed into a technological laggard, and sought to survive Japanese competition with the use of trade restrictions and antitrust suits. ) Here is Craig's synopsis of the Times' piece.
Among the amazing bits of information here:

--Five years ago it took two Dell employees 14 minutes to manufacture a computer. Now it takes one employee 5 minutes.

--Even at the peak of the Christmas rush, a new order received on the factory floor at 9 a.m. is typically complete and on a truck by 1 p.m. the same day.

--Last year, General Motors's president for North America visited Dell's plant to learn about its process.
Here's a second item on the same theme, from Andy Mukherjee at Bloomberg:
Concerns that an unstoppable Asian juggernaut is going to crush whatever is left of the U.S. textile and garment industries may be vastly overstated.

...While it's true that the Americas are at a disadvantage -- the hourly labor costs in the U.S. and Mexican apparel industries are $9 and $2.5 respectively, compared with 88 cents and 38 cents in coastal China and India -- wages are only one part of the equation.

Doomsayers are wrong, argues a study by the Harvard Center for Textile and Apparel Research, because they ignore a crucial fact: proximity.

Wal-Mart Stores Inc. and other U.S. chains prefer North and Central American and Caribbean suppliers who are closer to home for products like jeans and T-shirts that must be quickly replaced on store shelves as stocks run out.

"The Wal-Mart model that dominates the U.S. retail scene," says David Weil, a Boston University economics professor and a co- author of the report, "requires suppliers to replenish their products on a weekly basis." ...

Proximity is an important consideration in $61 billion of clothing imported into the U.S. under quotas, Weil says.

Why else would three-fifths of T-shirts sold in the U.S. be manufactured in Honduras, Mexico, El Salvador and the Dominican Republic, mainly using U.S.-made textiles, when Bangladesh and Thailand offer them for less? Ditto for denim trousers: The biggest U.S. jeans suppliers are Mexico, Costa Rica, Guatemala and Colombia, not any Asian country.
More on the Harvard study, including the paper (which I've not yet read) can be found at their website. Nice to see this sort of material break through the nonsense that is all too common in the MSM.

Remember this the next time you read a "chicken little" piece: a country with sound institutions, abundant capital and labor, and a bit of technological savvy will do just fine for itself. And trade will generally make things better, trade with China included.

That was quick 

Who caved? Based on this morning's top story in the Washington Post, it looks like Ms. Cropp caved big time:
D.C. Mayor Anthony A. Williams and Council Chairman Linda W. Cropp said last night that they had reached agreement on a stadium financing package that would satisfy Major League Baseball by guaranteeing construction of a permanent home for the Washington Nationals along the Anacostia waterfront.

Under the new proposal, which the 13-member council is to vote on today, the city will purchase insurance for potential cost overruns on the stadium and split the payments with Major League Baseball. Also, District officials will continue pursuing private financing for the project for several months. But Cropp said she will drop a requirement that 50 percent of the construction costs be paid for with private money.
Bizarre. The story suggests that the DC council will sign an agreement with MLB nearly identical to that negotiated by Mayor Williams. As for private financing, Ms. Cropp will walk around town with a tin cup and see what the private sector will donate to the cause. That doesn't breed confidence.

Or maybe Ms. Cropp will run for chief meter maid. Tony Kornheiser could have some more fun with that. When it comes to a farce, it's time to read a good comic.

Update: I agree with much of what Sally Jenkins says in this piece - I even agree with the letter Ralph Nader wrote to Bud Selig! But she paints Ms. Cropp as Joan of Arc, somehow ignoring the fact that for all the drama, the deal with MLB will be about the same as what was on the table last Tuesday. Sally Jenkins has been duped, along with a chunk of the district's voters. Chalk one up for the politicians.

Monday, December 20, 2004

Gisser on health insurance reform 

Have you ever wondered about the origins of the tax deduction for employer-provided health insurance? Here's a little gem from Micha Gisser in the WSJ letters section ($ ?) that explains this, along with a quick application of price theory to the problem. Professor Gisser is as skilled in the art of price theory as any economist who has walked the earth.

Gisser's concern is the recent essay by Cogan, Hubbard, and Kessler, which proposed making all health care expenditures tax deductible for anyone with at least catastrophic insurance coverage. Micha and I both endorse this proposal, given that tax deductibility of employer provided insurance is written in stone. Extending the deduction to purchases made by individuals would induce people to pare back insurance coverage towards catastrophic events only; i.e. what insurance is designed for in the first place. In an odd way, extending a tax distortion in this market is likely to produce salutary efficiency gains.

Here is the core of Micha's letter:
The tax deductibility of health insurance started during World War II when the federal government capped wages at a relatively low level that created labor shortages. Employers could not raise the frozen wages to compete for scarce labor, so they exploited a loophole in the tax law and covered workers' medical insurance with pre-tax money. Getting around wage controls during the war became a tax-advantaged benefit after the war, and now it is viewed as an entitlement of employment. Medical-care tax advantages are not a free lunch; they are financed by higher federal taxes. Revamping this huge tax distortion is politically unfeasible.

The economic problem lies in the fact that traditional medical insurance covers two dissimilar events, catastrophic and minor illnesses. Consumers' demand for catastrophic medical incidents is inelastic: a consumer will not use more of the heart-surgeon's services just because his out-of-pocket spending is zero. Consumers' demand for care for minor illnesses is elastic: it is inversely related to price. At the true high price a consumer would consult the medical encyclopedia and use over-the-counter drugs. At a low price (zero if her insurance pays the entire cost) a person would consume much more freely, mainly by making appointments with her doctor for every sniffle and headache. The problem with the prevailing health insurance is that the third-party payment of health-care bills insulates the consumers from the real costs of medical care services for non-catastrophic incidents.

The new Health Saving Accounts (HSA) law basically allows a consumer to set aside an account, say of $1,000, that is tax exempt, and can be used in the marketplace for sniffles and headaches at her discretion. If this year she spent only $300, she can use the remaining $700 for next year's sniffles, or save it for retirement. HSAs thus eliminate "moral hazard" by separating catastrophic from minor illnesses and injuries.
Reducing excess treatment of sniffles won't cure all of the problems with health markets, but it's a start.

Sunday, December 19, 2004

Did MLB push D.C. a little too far? 

Here are some quotes from Lori Montgomery's fascinating piece in today's Washington Post. Here's how it kicks off:
The long, dark spiral into chaos that engulfed the D.C. baseball deal began, ironically, with an act of goodwill.

D.C. Council Chairman Linda W. Cropp asked Major League Baseball to make concessions on a stadium agreement signed in September. Baseball officials agreed. The list of deal-sweeteners delivered to Cropp on Tuesday ranged from self-serving to substantial, such as allowing the District to seek some private financing for the new stadium.

Then the council came to focus on Item 7: If the city failed to build a ballpark for the former Montreal Expos by March 2008, it would have to pay the team as much as $19 million a year to cover lost profits.

From Major League Baseball's perspective, that was a big concession to the city. The stadium agreement places no limit on the city's liability if the ballpark isn't ready by 2008.

To certain council members, however, Item 7 looked like a hoax -- a big, fat thumb in the eye of an unsuspecting city. If baseball were offering to cap lost profits at $19 million, the members said, then $19 million must be exactly what baseball expected to receive all along. Besides, why should there be a late fee of any kind? The city's paying for the whole stadium.

Item 7 wasn't a concession, it was an insult, they contended. Cropp agreed and plunged the deal to bring baseball back to the nation's capital into crisis.
What was the purpose of Item 7? I don't buy the "concession" bit. To me, the item's presence suggests that MLB viewed the D.C. political situation as tenuous; that timely completion of a new stadium, even given an affirmative vote by the council last week, was no certainty. Perhaps the $19m clause was designed to address uncertainty on behalf of potential bidders for the franchise, and would thus increase the price that MLB could fetch for it.

White Sox owner Jerry Reinsdorf led the MLB's relocation committee, which handled this issue. Reinsdorf has a reputation as a hard bargainer, which is backed up by this vignette:
Last year, when Williams suggested that the city would be willing to build a ballpark by using two-thirds public funding and one-third of the money coming from the team, The Washington Post reported that Reinsdorf responded: "Two-thirds/one-third is fine. But three-thirds/no-thirds is more of what we had in mind."
Let me get this straight. MLB asked D.C. to build a baseball stadium. The modern baseball stadium is a specialized asset, the value of which can only be realized as a facility for major league baseball. And the city didn't even know who the owner will be. I'm sorry, that's just nuts, regardless of your stance on the economic impact issue.

Will MLB back off of their "no further negotiations" stance this week? My crystal ball says they are likely to offer some smoke and mirror schemes to stretch the definition of "private financing." Whether they truly give ground depends on how firm Ms. Cropp and the council prove to be. From the sound of the article, they are responding to the will of the voters in the district, Thomas Boswell and company not withstanding.

Friday, December 17, 2004

Jacksonville - an NFL town? 

David Whitely doesn't think so. He reports here on the Jaguars' decision to put a tarp over 10,000 seats, making it easier to "sell out" the stadium and avoid the NFL's blackout rule.
To sell out their stadiums, the other AFC South teams only sell a ticket to one out of every 33 people in their drawing areas. Of course, they also have more competition for the entertainment dollar.

The Jaguars need to sell a ticket to every 15th person in a five-county region, Weaver said. But they own Jacksonville, and the demographic dilemma had been there from the start.

The NFL wanted to explore/plunder new markets, however. It chose Jacksonville over St. Louis and Baltimore, neither of which has had a game blacked out since it got back a team.

Almost all of Jacksonville's games have been blacked out the past few years. That's what prompted the tarp redecoration. Instead of 59,000 tickets, the Jags will only have to sell 49,000 non-premium seats in order to have their games shown on local TV.
Interesting. Anyone sense that the Jags will be on the block when their lease expires at Alltel Stadium?

In an open system of leagues, teams from smaller burgs occasionally get good, generate enthusiasm, and go on a run. In the US system of league monopolies, a town essentially gets a short term lease on a team, then it gets auctioned off to the next town starved for the sport. Thanks to Tom Kirkendall for the link.

Religious holidays and gains from exchange 

I refer to Derby Day as a religious holiday. In this defense of Christmas celebrations, Dr. Krauthammer notes one of his: Opening Day at Fenway.
I personally like Christmas because, since it is a day that for me is otherwise ordinary, I get to do nice things, such as covering for as many gentile colleagues as I could when I was a doctor at Massachusetts General Hospital. I will admit that my generosity had its rewards: I collected enough chits on Christmas Day to get reciprocal coverage not just for Yom Kippur but for both days of Rosh Hashana and my other major holiday, Opening Day at Fenway.
Wow - those are great terms of trade. Life as a minority has its advantages too.

Thursday, December 16, 2004

The revenge of children 

Hugh at Three Bed Two Bath posted this interesting take on the D.C. fiasco:
When I was but a slip of a boy, my mother, as I remember, used to volunteer me for things along the lines of

"Yes, Mrs. Smith, Hugh would love to help you weed your garden."

Needless to say, I was of a somewhat differing opinion, and tried my darndest to get out of it. I usually wouldn't (get out of it, that is). But I knew that someday I'd be able to make my own decisions over who [whom?] I helped.

Substitute D.C. Mayor Anthony Williams for my mother, and the D.C. City Council for me, and the day has finally arrived.
For a sympathetic view of Mr. Selig and Co., read Greg at the Sports Law Blog. If MLB had not held an auction for public funds, the impact being a near dollar for dollar increase in the value of the franchise, I would agree with him. As it stands, I find Hugh's analogy to Mrs. Smith more compelling.

"swallow hard and make nice" 

That's Marc Fisher's suggestion to Major League Baseball, after the DC Council scuttled the stadium deal. That's wishful thinking to me - these guys have a long history of playing hardball.

Wednesday, December 15, 2004

DC Baseball? 

Doubtful, at best. The vilification of Linda Cropp is certainly in full swing though.

For edification, visit Eric McErlain's place if you haven't already been there. The measured, but firm response of MLB to the council's vote is covered here, where Eric cautiously predicts that baseball will "gather its marbles and go home."

I sense no apology coming from MLB for trying to pull a fast one on the citizens of DC. Recall, if you can, that the incoming DC council was elected on a "no stadium" platform.

Ms. Cropp may be opportunistic, and perhaps duplicitous. But it was Mayor Williams - and Commissioner Selig - that negotiated the preliminary agreement between DC and MLB, apparently against the will of DC's citizens. When the final chapter is written, they could well be the villains of the piece.

McErlain's comprehensive bibliography of media reaction is here. Go there if you have an hour to spend on the subject.

"Sabermetrics for football" 

Via Tom Kirkendall, I found this NY Times piece which discusses Aaron Schatz and the boys at Football Outsiders, David Romer, Bill James, Patriots' coach Bill Belichick, and others who are applying analytical methods to football. Uhh, scratch Bill James, though he's quoted as saying that the Red Sox front office "has great admiration for both what the Patriots have done and how they've done it."

Stadium politics in DC - no go? 

The Chairman of the DC City Council, the soon to be villified Linda Cropp, torpedoed the baseball stadium in DC last night. In what might have been a reasonable move six months ago, Cropp introduced an amendment requiring that 50% of the stadium's cost be covered by private financing.
Chairman Linda W. Cropp (D) shocked her colleagues after 11 hours of debate on a stadium package by offering the private financing amendment about 10 p.m., saying she was disappointed by recent talks with Major League Baseball.

The bill, which was approved on a 7 to 6 vote, gives Mayor Anthony A. Williams (D) until June to find the required private financing plan.
The private financing measure threatens the entire enterprise, since candidates elected on an anti-stadium ticket take office next month.

My take? Mayor Williams and MLB pushed their $600m subsidy plan without sufficient political backing, and Ms. Cropp is the fury that will haunt their hubris. Once amended, the stadium bill passed 10-3.

A perturbed Thomas Boswell notes this about the process by which MLB conducted the bidding for the Expos' new location:
The universal assumption was that the representatives of those cities -- such as Mayor Williams -- had the authority to speak for their towns and already had the backing and understanding of their city councils.

Obviously, Williams didn't.
Perhaps Williams should be the politician that is villified in the end. Regardless, I'm baffled by a system in which a measure passing by a 10-3 margin is produced at such a late point in the process.

As for the larger picture, I'm on the record as supporting a amendment to the U.S. Constitution prohibiting public subsidies for professional sports. Without such a restriction, politics will produce public subsidies and political intrigue. One thing subsidies and intrigue won't bring is a single more team, or a single more game for our enjoyment. That's the real shame in all of this.

Lawyers on steroids 

Legal Affairs is hosting a debate between two lawyers on the steroids issue. Paul Finkelman and Gary Roberts both have the credentials, and make sensible points. Here's a telling observation from Roberts, a chaired professor and director of the Sports Law Program at Tulane:
The fascinating thing about this whole episode is that the one group of people who ought to be most adamant about cleaning up the game so that players don't have to take steroids and risk their health is the players, yet that is the one and only group that so far has impeded instituting an aggressive regime that will allow players to compete without having to take these drugs. If the players are dumb enough to stand in the way of getting steroids out of baseball, let 'em. They are the only ones to be big losers.
Assuming that there are serious health costs to taking steroids, Roberts' point suggests that ultimately, it is in the players' interest to police themselves. But reaching that point from the current impasse is not easy. Finkelman's suggestion that players caught twice should be banned for life is an example of a proposed reform which could impede agreement. (Hello, Mr. Selig). Accurate testing with effective but fair remedial measures would seem to be essential requirements for players to want to test themselves.

Tuesday, December 14, 2004

Blodget and behavioral finance 

Henry Blodget, the former Merrill Lynch internet guru, now pens a column at Slate. His latest piece promotes the currently fashionable field of behavioral finance.

Blodget takes the obligatory shot at efficient markets theory - finance has "progressed beyond" the paradigm "which mistook people for robots." And where has the new field taken us? Blodget describes half a dozen cognitive errors which can influence investment decisions, and the results of some laboratory experiments which show that people are capable of doing really strange things. Ergo, investors are suckers, and the stock market is inefficient.

I find this part of Blodget's conclusion amusing:
People's natural tendency (here we go again...) is to view the conclusions of behavioral finance theorists as yet another indication of how dumb everyone else is rather than how handicapped we all are as we try to outwit the market and each other. But the biggest lie of the 1990s - the biggest lie of every bull market - is that investing is so easy that anyone can do it, that all you have to do to win is play. The reality, of course, is that only a tiny handful of people are dedicated and talented enough to overcome their DNA, confront the long odds, and come out ahead of the market averages, and they are as rare as world-class athletes.
Funny, I thought that efficient markets theory implied much the same thing!

This is part of a pattern. I recommend Belsky and Gilovich's book, Why Smart People Make Big Money Mistakes And How To Correct Them for an introduction to behavioral finance. But in the end, after discussing the mistakes we make when it comes to investing, Belsky and Gilovich's "corrections" are the same as the recommendations from Burton Malkiel! (in his classic, A Random Walk Down Wall Street). Don't time the market, minimize transactions costs, use index funds, and so on. The more things change, the more they stay the same.

BCS political fallout 

This is from the California state legislature, and is thus merely symbolic. But could it be a sign of things to come?
The Republican leader of the California Senate has introduced a resolution calling for the dissolution of the Bowl Championship Series.

..."The BCS has proven in its seven-year existence that it is a failure," Ackerman said. "It has failed at the expense of California and other Pac-10 teams that have lost millions of dollars in revenue."

..."Politicking and campaigning have no place in college athletics," he said. "Teams should be judged on their performances on the field and not by the success of their PR campaigns."

Monday, December 13, 2004

Designated hitter as moral hazard 

JC Bradbury's work on hit batsmen gets a nice mention in "The Year in Ideas" section of the New York Times Magazine. JC's paper, joint with Doug Drinen, is a compelling analysis of the factors that influence a batter getting plunked in baseball, and deserves the attention.

JC gave the paper at Clemson this fall, and the seminar discussion was a lively one. One of the originators of the "moral hazard" hypothesis in this application, Bob Tollison, was in the audience. The moral hazard idea is that, since pitchers don't hit in the American League, they do not fear retaliation like their counterparts in the NL. Batters get plunked more in the AL, and Tollison and his coauthors argued in a recent paper that moral hazard was the cause of it. Other economists, including Steve Levitt, took issue with the claim, noting that the DH was less costly to hit than a pitcher. They argued that this differential cost could account for the differential rate of hit batsmen between leagues, and argued on the basis of weak correlations that the threat of retaliation was negligible.

JC's paper provides a proper burial for this latter notion. He and Drinen use several years of play by play data and detailed information about the state of the game for every at bat. The data are unequivocal: retaliation exists. Batters get hit in clusters, not at random. And if you are the pitcher who hit an opponent in the prior half inning, watch out. Furthermore, the state of the game matters a great deal. Retaliation is more likely when it's cheap - when the run differential is high, when there is an open base, etc.

The paper is a great example of the value of detailed information allowing one to uncover strong relations which are obscured by aggregate statistics. Although JC came to Clemson waving Bob Tollison's banner, Bob and the rest of us left the seminar with the conclusion that Bradbury and Drinen had created their own. Whether moral hazard is the root cause of the differences they document between leagues is a second order question. What their work does beyond a shadow of a doubt is show that hitting batters is strategic - the probability of a batter being plunked varies according to the costs and benefits of doing so. As Pink states in the New York Times, Bradbury and Drinen have shown that "the laws of economics govern the diamond as well as the front office," and that's plenty good enough.

Scott Boras 

Jack Curry has an interesting profile of agent Scott Boras in today's New York Times.

It's neither a slam piece nor a puff job; it's more of a subtle description, one where the reader is left to ponder the facts and make up his own mind.

Here's an economist's interpretation. Boras does two things exceptionally well. First, he knows the numbers, and where his clients fit in the marketplace. In fact, Boras appears to be something of a maniac for information. His pager receives performance updates on his clients every thirty minutes, and summaries on his desk await his arrival each morning. The fancy notebooks he complies for teams interested in his clients are apparently ignored by them - "I'm not going to sign a guy because of something that was in a book" - but they are a signal that Boras is meticulously informed about his client's productivity relative to the market.

Second, Boras is a patient negotiator. This is an enormously valuable trait in a market where owners and GMs can act like kids in a candy store. Some dislike Boras intensely for taking full advantage of the market and its excesses, but it appears to me that the man does a damn good job. Unfortunately, that probably means that the Astros have seen the last of Carlos Beltran.

Thursday, December 09, 2004

Going bowling 

Stewart Mandel, on Texas overtaking Cal for a spot in the Rose Bowl:
According to USA Today, two coaches decided to move Texas up to No. 3 after last weekend's inaction. One already had the Longhorns No. 2! Cal picked up one third-place vote in the AP poll. Meanwhile, four coaches moved the Bears down to No. 7, two to No. 8, when last week none had them below No. 6. And unlike the AP voters, whose names and ballots were made public Sunday night, none of the coaches are held publicly accountable for their actions. Unbelievable.
If this were figure skating, it would be an international scandal!

Wednesday, December 08, 2004

A message for Justice Souter 

Lynne Kiesling has an interesting post on the wine case before the supreme court. She also has an appropriate response to a boneheaded observation made by David Souter: "bite me."

My state (SC) has recently emerged from the dark ages of monopoly in liquor law. For example, a 2003 law allows Ridge vineyards to send me fine zinfandel every five weeks or so. Yum. But shipments from out of state retailers are still against the law. Souter has the power to change that, but if he believes that liquor monopolies and their regulators protect the consumer, he's corked.

Man Utd takeover speculation 

The Econoclast finds the economics in Slate's coverage of the issue a bit dodgy. I concur, with one caveat. If "revenues don't materialize as expected," the likely cause is a reduced demand for tickets (perhaps due to a decline in team performance). An optimizing response, even under alternatives to the objective of profit maximization, would be to lower prices, not raise them as stated in Slate.

"An unmitigated disaster" 

This year's Nobel Prize winners have gathered in Stockholm, and are exchanging views among themselves and with reporters. The economics Nobelist, Ed Prescott, is no wallflower when it comes to stating controversial views.

The theme of this article is Prescott's view of the twin deficits - he dismisses the current controversy as politically motivated "yelling and screaming." But I found the remark below particularly amusing:
Speaking at Tuesday's news conference, one of the physics prize winners, Davis Gross of the United States, talked about scientists' passion for their work, saying: "Making money is perhaps fun ... but it's nothing compared with exploring nature."

Asked by reporters afterwards about the effects on economic growth if all people thought like Gross, Prescott said: "It would be an unmitigated disaster."
In the absence of people having different skills and differing tastes across various forms of knowledge, we'd be much poorer. But saying it that way doesn't get you in the newspaper!

Bonus babies 

Yesterday I listened to a radio interview with Clete Boyer, a 3rd baseman for the Yankees and Braves in the 1960s. Boyer was a good but not spectacular player, who perhaps did not live up to his potential.

In discussing issues of his day, Boyer explained the origins of the term "bonus baby." When Boyer signed with Kansas City in 1955 for a $35,000 bonus, he became one. At the time, the rule stipulated that any player receiving a signing bonus in excess of $8,000 must be on the major league team's active roster.

Young players on major league rosters who would otherwise be in the minor leagues developing their skills were thus known as "bonus babies." The bonus rule was the reason they were on a major league roster. One can imagine that journeymen ballplayers were not fond of this rule.

Obviously, the bonus rule limited competition to sign young players. Most teams would only burn one or at most two roster slots on a player who was not ready for prime time. Nevertheless, relative to today's standards, the rule led teams to "rush" players into competition with more experienced elders.

More interesting perhaps are the economic implications of the rule. First and foremost, the value of a wasted roster slot inhibited teams from competing for prospects. This has the unambiguous effect of reducing the size of bonuses. The rule thus imperfectly restrained the salaries of prospects from exceeding those earned by veterans with greater value, but for whom there was no effective competition due to the reserve clause. (As with NCAA rules which restrict cash payments to players, you can be confident that there was some cheating here too.)

A side effect is that the rule spread young talent more widely across teams. But the Coase (or in the case of baseball, Rottenberg) theorem implies that the effect on competitive balance was transitory at best. Once players were seasoned, the market would allocate the player where his value was highest. So the principal effect of the rule was not to balance competition, but to reduce player compensation.

Tuesday, December 07, 2004

Subsidy watch 

The Daily Illini talks with Professor Humphreys about his work on how professional sports teams affect local economies.

The Orlando Sentinel (registration required) carries a piece by radio commentator Evan Weiner, which combines economic reasoning and an array of facts about stadium subsidies across the country.

The Finance Professor discusses the issue in the context of an array of subsidies in New York State, prompted by the award of $66m to ....... Bass Pro Shops! I find it highly ironic that political forces can align to ban one big box store (Walmart) yet subsidize the arrival of another (Bass Pro Shops). And this is an empirical regularity - everyone knows about Walmart, but type "bass pro shops subsidy" into google and you'll be amazed at the results. Those redneck fishin' boys are highly skilled at securing funds from the public trough.

Monday, December 06, 2004

Bowl subsidies 

At a few hundred thousand per game, they are small potatoes. But then again, there's only one game a year, and some of them are downright meaningless. The bowl in Charlotte, NC may be next in line for a handout. Having the Tar Heels play in this year's game won't be a hindrance either.

Hurricanes and the high price of tomatoes 

Prices for tomatoes jumped 30% in October. Imagine the outcry if this were gasoline! Here's some background from the Star-Ledger:
Shipments are down because citrus and tomato crops were devastated in Florida when hurricanes Charley, Frances and Jeanne hit major farming areas in that state.

The storms effectively killed the harvest. Farmers replanted fields, but the new crop won't hit the market until late this month.

Hurricanes weren't the only problem.

Heavy rainfall in California and pest problems in Mexico combined to limit the number of tomatoes that could be shipped from those areas, said Gilmer, the Florida trade group spokesman.

"It's the perfect storm of three separate events to create a tomato shortage," he said.
The response? Among others, some McDonald's outlets are charging for ketchup packets, and Wendy's is putting tomatoes on their burgers only by request.

Sunday, December 05, 2004

Contrasting points of view 

Here's journalist Terence Blacker at The Independent, writing about blogs:
The acme of amateur achievement is the weblog -- thoughts, opinions and news items broadcast by an individual and with a potential audience of millions. . . .

More and more Americans, it is now being said, will gather news and views from their favourite blogger, no matter how mad, ill-informed and right-wing, rather than from a newspaper or the news on television. . . .

The approach has a sort of crazed egalitarianism to it, but it also suggests that more than just knowledge flows from professionals and their institutions in the age of the Pro-Am. The checks and balances and disciplines that keep intolerance in check may also go.
On the same subject, here's Nobel Prize winning economist Gary Becker and his coauthor Richard Posner, a renowned judge and legal theorist:
Blogging is a major new social, political, and economic phenomenon. It is a fresh and striking exemplification of Friedrich Hayek’s thesis that knowledge is widely distributed among people and that the challenge to society is to create mechanisms for pooling that knowledge. The powerful mechanism that was the focus of Hayek’s work, as as of economists generally, is the price system (the market). The newest mechanism is the “blogosphere.” There are 4 million blogs. The internet enables the instantaneous pooling (and hence correction, refinement, and amplification) of the ideas and opinions, facts and images, reportage and scholarship, generated by bloggers.
I don't know about you, but my bets are on the scholars. Reading Becker and Posner without the intermediary of a magazine or journal editor is just fine with me, thanks.

Blacker's remarks remind me of the loud-mouthed Thom Loverro, who least week referred to an economics professor as a "clown" who has "no clue" about a subject he's spent years studying. Ill-informed journalists are getting their comeuppance from the blogosphere, in spades. Hat tips to Volokh, The Daily Ablution, and Newmark's Door.

A Cleveland story 

Michael Wilbon, in the Washington Post:
Stadiums for the Browns and Indians, plus the Rock and Roll Hall of Fame, revitalized Cleveland's center city financially, culturally and psychologically. All those restaurants and bars and nightspots don't employ people permanently? Please.
George E. Jordan, in the Newark Star Ledger:
Nobody believed in this city's downtown more than Jeffrey Alpern, a third- generation clothier.

For years, he sat on committees, lobbied other shopkeepers and did all he could to restore the luster to one of the rustiest cities in the Rust Belt.

Then, it happened. A decrepit public market in the Gateway District disappeared. In short order came Jacobs Field, a throwback baseball stadium, and the swank basketball venue, Gund Arena. A few blocks away, the glitzier Rock and Roll Hall of Fame and a football stadium for the Cleveland Browns were the exclamation point.

Alpern and the rest of this city figured their fortunes had changed. What happened next serves as a warning to any city that bets on professional sports as a catalyst for urban redevelopment and neighborhood revitalization.

Today, the main streets in and around the Gateway are marked by empty office towers, vacant department stores and storefronts with "For Lease" signs. After spending $700 million to build the nation's most extensive sports infrastructure, this city finds itself in a familiar place: trying to fix a downtown abandoned by businesses and the middle class, with neighborhoods gripped by despair.

This fall, the city of 425,000, won a distinction many here didn't think possible a few years ago: It was named America's poorest city by the U.S. Census.

And Alpern? He moved his Gold Fish Uniform store from the Gateway District, two miles east to the fringe of downtown. The building boom displaced blue-collar families that shopped downtown. In their place came sports fans who pay $10 to park and go home after the game, he said.

"People were sold a bill of goods," he said in a recent interview in a showroom filled with work boots, parkas and blue security- guard uniforms. "What it did was implode the area around the arena. The concept was, 'Let's change downtown Cleveland to make it more comfortable for white suburbanites,' and they ruined it."
But what about "all those restaurants and bars and nightspots" that Wilbon wrote about?
On a Saturday afternoon game last month, budding superstar LeBron James lit up the Washington Wizards for 24 points, and the Cavaliers won 105-74. As the game clock ran out, fans poured from Gund Arena across a public plaza and headed directly into a parking structure. Some strolled through enclosed, heated walkways.

A block from the arena, only a handful of the crowd streaming toward parking lots stopped two blocks from the East 4th Street entrances at four mostly empty sports bars, doors open wide and jukeboxes blaring.

Within a half hour after the game ended, it was as though it never happened. The streets of Gateway were mostly empty.
In contrast to Wilbon, Jordan's piece looks like serious reporting. It is far from a one-sided polemic blast. There are positive aspects in Jordan's story, and he clearly states that the roots of Cleveland's economic woes go beyond the stadium spending binge of the 90s. But his account lands a telling blow to the notion that stadium building is a surefire catalyst for economic development.

Saturday, December 04, 2004

TV & Notre Dame 's head coach 

Columnists are having a field day with Notre Dame, in the wake of Tyrone Willingham's dismissal as head coach.

One wonders in these situations what is really going on. Here are two pieces which help cut through the fog. Skip Bayless defends Notre Dame, arguing that their mistake was in hiring Willingham, who Bayless has long believed to be an ordinary coach. Roy S. Johnson is less charitable towards the school. What stands out in his column is this observation on Notre Dame's exclusive TV contract:
Last December, NBC re-upped with Notre Dame, signing through 2010, despite seeing the ratings for Irish games plummet from an average of 6.2 million households in 1993 to just 2.63 million homes last season. Whether network officials grumbled this fall isn't known, but the potential impact of diminishing ratings could not have been far from the minds of those who decided Willingham's fate last week.
Interesting.

There is an important economic aspect of this issue. Notre Dame's history and tradition are unique - the contract with NBC testifies to that. But if Notre Dame fails to maintain its position as the Yankees of college football, the contract's value will evaporate. So the school will do whatever it can, and even risk allegations of racism, to cling to its perch at the top. But Notre Dame won't pay players (Holtz is long gone), and has not matched the competition in spending on facilities to attract top recruits.

The TV contract raises the stakes for Notre Dame, and the margin they are focused on is the coach. The head coach at Notre Dame stands to be the principal beneficiary of the TV contract, since the school must pay what it deems necessary to maintain the contract's value.

John Gruden makes $4m coaching the Tampa Bay Bucs. I used to regard talk of him returning to South Bend as ludicrous, but now I'm not so sure.

Friday, December 03, 2004

Kraft interested in Liverpool? 

According to this Telegraph report, the Patriots' owner is knocking on the doors at Anfield, but getting a chilly reception. The Brits seem mighty sensitive about American ownership. Witness the downright hostile and threatening response - nooses in the stands - to Malcolm Glazer's flirtation with Manchester United.

I don't blame the Brits, by the way. NFL ownership in the premier league makes reorganization according to the American monopoly model more likely. It is quite clear by now what the consequences are: subsidies please, or we're leaving town.

Glazer, by the way, has demonstrated the nerve to take this ploy to new lows. From Nick Louth at MSN Money:
Manchester, prepare! Glazer goes for the jugular. When he offered to buy the Buccaneers, he promised the Tampa authorities he would go halves on a new stadium with them. After getting control, he backed out of the deal, and gave Tampa two years to build it themselves or he would move the team to a city that would. Tampa caved in, and city taxpayers are still paying a half cent sales tax to fund the stadium’s construction.
I have no love for United or Liverpool, but I'm with their fans on this one. Keep American ownership out of English football!

New Jersey moves to legalize sports gambling 

A bill to make sports betting legal in New Jersey cleared a hurdle in the NJ assembly yesterday.

Two obstacles remain. First, voters must give their blessing in a referendum. That would be an interesting campaign, as MLB, the NBA, NCAA, and NFL would become politically involved, and claim the moral high ground. I share the Sports Law Blog's cynical view of that prospect.

If the referendum passes, a 1992 Federal law - the Professional and Amateur Sports Protection Act - made sports gambling illegal in any state that had not allowed it at that time. New Jersey would have to win a court challenge to the Sports Protection Act.

The story above mentions that legal opinion is divided on whether New Jersey would succeed in striking down the law. I think they've got a fighting chance. The law allows sports betting in 4 states (Delaware, Montana, Nevada, and Oregon). To restrict neighboring states from doing the same certainly violates the spirit of federalism. Whether the law is improper under the Commerce Clause is the legal question. Would a statute limiting automobile production to Michigan and Tennessee pass muster? I doubt it, and the argument that sports gambling is sufficiently distinct to make this a federal issue seems weak. In any event, the legal challenge could be as interesting as the democratic one.

New Jersey's initiative follows a well established trend in gambling legislation. The state budget is $4 billion in arrears, and raising taxes is politically costly. Spending money is politically beneficial, hence legislators resist expenditure cuts, and search for new sources of revenue when times are tough. Opening the state's economy to new forms of gambling and taxing them is a common political solution. The pattern has been repeated many times, as I discuss in this paper. (An early version of it can be obtained from my web page if you don't have university access to the publisher's site).

Thursday, December 02, 2004

A bad week for good economists 

Ray Battalio passed away yesterday. Ray was an innovative scholar, one of the first experimental economists. His lab was unique in that it employed animals - rats and pigeons - to study demand elasticities and search for conditions that might lead to Giffen goods.

I met Ray just once, and he confirmed all the good things that I'd heard about him over the years. By all accounts, he was a wonderful man. A eulogy page has been set up here. The page is empty now, but appreciations will be posted there soon.

It's been a bad week for good economists.

Who's the idiot? 

The mating ritual between MLB and the D.C. council has been bizarre, to put it mildly. Tuesday's vote on the council - a 6-4 squeaker with 3 abstentions - looks like the penultimate step in approving public financing of the new stadium. Rejection - tantamount to calling MLB's bluff - would have been an interesting result. What if the council had said "sorry, the price is too high. But here's some land, and we'll invest in public transport so crowds can get to the games." Would MLB pack up the team and move it across the Potomac? Probably, but they'd risk exposing their base motives, and the potential political ramifications might be costly.

Columnist Thom Loverro looks at the scene a different way. The vote allows Selig to arrive in town without having to declare that he's "an idiot." The mayor and the council chair don't have to walk around town wearing "idiot signs." But for having the courage to state the facts in this political maelstrom, economist Brad Humphreys gets Loverro's idiot award. Humphreys knows as much about the economic impact of stadiums as anyone in the country. But to Loverro he's a "clown," a "pencil necked geek" with "no clue" about "the economic benefits" of sports stadiums. And in the ultimate put-down, he works at the University of Illinois.

I don't know what to make of newspaper columnists. Their craft may appeal to the masses, but ignorance is a poor trait to put on display. For those of us who have bothered to think through the stadium subsidy issue, Loverro has declared himself to be a major league idiot.

Wednesday, December 01, 2004

Ode to a good guy 

Bernard Saffran's "Recommendations for Further Reading" was my favorite section of the Journal of Economic Perspectives. Any issue might be bereft of articles that would interest me, but Saffran's list was always full of interesting things to read. Unfortunately, Saffran has passed away. Arnold Kling describes the man behind the column in this Tech Central Station piece. One sensed from his writing that this was a guy you'd love to have a conversation with, and Kling's piece confirms it.

Kling notes that Saffran's "column was a predecessor of today's web logs, in that it provided rich links to a variety of interesting material." That's a useful observation itself, and gives me more confidence that what bloggers are doing will have lasting value. I think I'll raise a glass to the first econ "blogger" tonight.

Lilliputians on the warpath? 

The task of mammoth sporting organizations like the NCAA, which attempts to govern athletics at places with interests as distinct as Michigan and MIT, and England's Football Association, which must deal with both the Manchester Uniteds and Accrington Stanleys, can be hopeless at times. The interest of monied institutions and small sporting clubs are often at odds. This story in today's Telegraph reflects those tensions. It reports that 1/2 the clubs outside the Premier League want the FA to be replaced by a government regulator.
Alan Keen, MP, chairman of the football group, said it was worrying that 40 per cent of the clubs surveyed were worried about their financial futures.

He called on the FA to listen to the views of the smaller clubs and take action before they face going out of business.
The article suggests that Mr. Keen would like to place shackles on the Premiership. He'd make a fine Lilliputian, don't you think?

The Telegraph piece is worth reading if you are interested in governance problems in sport.