Thursday, March 31, 2005

The gambling tsunami 

Let's start with some stats from Fox Butterfield's article in today's NY Times:
In Rhode Island, South Dakota, Louisiana, Oregon and, most of all, Nevada, taxes from casinos, slot machines at racetracks and lotteries make up more than 10 percent of overall [state government] revenues, according to a new report. In Delaware, West Virginia, Indiana, Iowa and Mississippi, gambling revenues are fast approaching 10 percent....

Gambling accounts for 13.2 percent of South Dakota's revenue, according to state figures.
Those are some pretty impressive figures to me. Granted, these are mostly small states, but regardless, that kind of money is hard to pass up.

What's causing states to tolerate and tax gambling now, when they ignored the option forty years ago? There are several factors, but here is my single-cause explanation. The current gambling wave stems from the growth of government - increasingly high demand for government services is the driver - and the higher taxes which are the unavoidable consequence of government spending. As these taxes increase, the option of replacing high taxes on income or property with sin taxes looks more and more favorable. Furthermore, once your neighbor gets in the act, the gains from taxing gambling in your state increase as well. Here's a snip from the article that depicts these forces in action:
Not only has gambling revenue surpassed the corporate income tax in Rhode Island and enabled the state to avoid raising its income tax, gambling also helps teach children, pay for medical care for the poor and repair roads.

But Rhode Island, too, faces competition. There is concern that Massachusetts, the source of many customers at Rhode Island's racinos, will legalize slot machines at its own racetracks, and within an hour's drive of Providence, the large Indian-owned casinos in Connecticut are expanding.

"We're in a Catch-22 situation, with our third-largest revenue source being surrounded by these other gambling facilities," said Senator Montalbano, a Democrat.

So Senator Montalbano proposed legislation last week that would allow the new owner of Lincoln Park, Rhode Island's largest racetrack, to increase its 2,543 video slot machines by 1,750 in exchange for a $125 million investment to upgrade the aging track.
In the near term, if my hypothesis is correct, we can expect more of the same. The economic fundamentals won't reverse unless the demand for more government is somehow checked, and I just don't see that happening.

I've written and lectured a bit on the political economy of this phenomenon. You can view some slides (ppt) here and a paper (pdf) here, a final version of which appeared in Managerial and Decision Economics.

Markets in Everything - Sports Style 

I borrowed the title of this post from the good folks at Marginal Revolution. From the San Francisco Business Journal:

There's an active market in charter seats, the 15,000 lifetime licenses that the
Giants sold to help pay for the ballpark. A two-month survey of recent sales of
seat licenses show that many have increased in value -- and a few generated
bigger returns that stocks, gold or even San Francisco housing would have done
over the same period. Some seat licenses are being marketed at more than double
their original price.

The San Francisco Business Times' study is hardly scientific: It consists of 31 separate sales listed on Craigslist.org, an online marketplace that is the most active site for Giants seat license sales. In some instances, fans were trying to resell their seat licenses at a discount. And the prices don't include the full season tickets that licenseholders have to purchase every year to retain those rights.
...
The Giants' seat license program contrasts with the experience of the Oakland
Raiders
, the only other Bay Area team with seat licenses. Raiders fans paid
up to $4,000 for the right to buy season tickets when the team returned to
Oakland from Los Angeles in 1995. But Raiders games did not consistently sell
out, leading to a shortfall in seat license sales. Those seat licenses expire
after the 2005 season and Oakland and Alameda County are meeting with the
Raiders to decide what to do with the program.
...
Like most real estate sales, location appears to be a major factor in resale value. Seats farther from home plate are more likely to sell at a discount. Take section 234, which is beyond left field. That's where Tom Cannon said he had four charter seats for several years. When he decided to sell this year, he said he lost several thousand dollars.

There are also several auctions going on at Ebay for PSL's (personal seat licenses), mostly for PSL's from various football teams. According to the article, the Giants don't help those who want to sell of their PSL's, but they are considering setting up something online to help these secondary transactions take place. The Giants already have a similar online marketplace set up to help their season ticket holders sell their unused tickets. This system contrasts with how ticket scalping is treated (see the note at the bottom of the page).

Wednesday, March 30, 2005

Unfair Labor Practices 

The NHL has filed an unfair labor practice complaint with the National Labor Relations Board. Here is an ESPN.com story. Here's a Washington Post story. At issue is an alleged NHLPA directive that said any players who choose to become replacement players would forfeit the benefits they have received during the lockout. According to this website for the NLRB, an example of union actions that violate the Wagner Act is "Threats to employees that they will lose their jobs unless they support the union's activities." While the union hasn't threatened its members with loss of jobs, they have allegedly threatened them with loss of income.

Another issue that hasn't formally been pursued is the union's telling player agents that they risk being decertified if they represent replacement players. If true, both of these actions are attempts to limit the ability of teams to hire substitute resources.

Reducing the use of substitute labor (scabs) is a common practice in many unions considering that a major component of the elasticity of demand for any resource is 1. the ability for the firm to substitute resources for union labor in the production function and 2. the elasticity of supply of the substitute resources. Replacement players and union players are very close substitutes, so the union would put more effort in trying to limit their availability. The threats to the player agents seems to be an attempt to increase the opportunity costs of becoming a replacement player (I've got to use a non-certified agent, quite possibly a less-talented one, or I've got to represent myself).

If the union can control the elasticity of demand for its labor, that's good for the union. But if it does so illegally and gets caught, that's bad for the union.

Tuesday, March 29, 2005

Quote of the day 

Gary Williams, on today's basketball players:
The toughest thing about being a coach these days is going from recruiting mode to coaching mode.... You spend two years telling a kid how great he is, how he's all this and all that. Then, on the first day of practice, you have to tell him he can't play defense, he needs to learn to give the ball up and he doesn't play hard enough. It doesn't usually go over very well.
This is taken from John Feinstein's article in today's Washington Post, "Not as Good, and Yet, Better Than Ever." Feinstein makes the argument Brian did earlier, that the tournament is more competitive because the distribution of talent in college has changed. Coach K agrees, at least implicitly:
In 1999, Duke arrived at the Final Four with the same record Illinois currently has: 36-1. Everyone anointed those Blue Devils as one of the great teams in history. Mike Krzyzewski laughed at the notion.

"Are you kidding?" he said. "My 1986 [NCAA runner-up] team would kill this team. That team had four seniors and a junior starting. This one starts one senior and four of our top six are freshmen and sophomores. Now, if they all stayed, maybe they'd become great. But they aren't going to."
Good stuff, as usual, from Feinstein.

Luckiest Man 

Jonathan Eig, author of the new book, Luckiest Man, has a column on the final years of Lou Gehrig's life featured in today's WSJ. Eig's work is based on letters between Gehrig and his doctor, Paul O'Leary.

Gehrig lived for two years after his farewell day at Yankee Stadium, when he proclaimed himself "the luckiest man on the face of the earth." But as Mr. Eig notes, Gehrig was far from lucky. ALS - "Lou Gehrig's disease" - is a grinding, debilitating illness which progressively robs the body of its ability to function.
The letters record the details of Mr. Gehrig's condition, his aches and pains, and his desperate efforts to find a cure. With his medical records permanently sealed, the letters stand as the only record of his dying days.

The letters also help complete a picture of a man who has been widely misunderstood. In his lifetime and in the six decades since his death, Mr. Gehrig has been portrayed as a wooden figure, a gentle giant who stared down fastballs and a deadly disease with the same quiet calm. But Mr. Gehrig was far more complex than his public image.

On the field, he was one of the greatest first basemen the game has ever seen, a powerful figure whose career spanned the Yankee dynasties of Babe Ruth and Joe DiMaggio. Off the field, self-doubt dogged him. He lived with his parents until he was 30 and often invited his mother to accompany the Yankees on road trips. He cried in the dugout when he thought he had disappointed his manager. He had confidence in his physical powers and not much else.

As ALS took its grip and Mr. Gehrig's muscles melted away, however, he displayed new strength. In his most private moments, writing letters he must have assumed no one but his doctor would see, he showed the sort of courage that had for so long eluded him.
The Journal also provides a public link to one of Gehrig's letters (pdf) from early in the period. It is optimistic and eloquent, perfectly in keeping with the iconic image of Gehrig's farewell speech.

Driving 4 Life, a charity founded by Tom Watson, Bruce Edwards, and Clemson's Jeff Julian, funds research seeking a cure for ALS. I posted on Jeff's story here last year. These guys - Gehrig, Edwards, and Julian - had a rough go with ALS, but managed to brighten people's lives despite their condition. Here's hoping for a bit of luck to come the way of the researchers, and the people currently suffering from this disease.

The Minors, Basketball Style 

The National Basketball Developmental League is expanding.
NBA Commissioner David Stern announced today that the National Basketball Development League has awarded teams to four Southwest U.S. cities for the 2005-06 season. The teams will be owned and operated by Southwest Basketball, LLC, led by former Indiana Pacers general manager David Kahn.

...

The NBDL teams in Albuquerque, N.M., Austin and Fort Worth, Texas, and Tulsa, Okla. join the Florida Flame (Ft. Myers) as teams independently owned and operated in the league. The Asheville Altitude (N.C.), Columbus Riverdragons (Ga.), Fayetteville Patriots (N.C.), Huntsville Flight (Ala.) and Roanoke Dazzle (Va.) are owned and operated by the NBA.
Brian blogged here about the quality of relative competition in the NCAA's top division. He notes that the NBA picks the talent from the right tail of the talent distribution leaving the fat part of the distribution and the left tail for the teams in the NCAA. The NBDL expansion will likely cause a further erosion of the right part of the distribution, enhancing the quality of relative competition within NCAA's top division. But is this better for the NCAA? Will the enhancement of relative competition improve whatever it is that the NCAA tries to maximize?

From the NCAA's point of view, enhancing the quality of relative competition from lopping off the talent at the big-time programs surely must be different than enhancing the quality of relative competition from improving the talent at the Woffords and Davidsons of the world.

Monday, March 28, 2005

Examining the Production Function in Mexico City 

The U.S.' showing in Mexico on Sunday disappointed me as a soccer fan. As an "analyst," I'm willing to place some of the blame on tactics, broadly defined, but not quite as much as several journalists have (see Soccernet's Marc Connolly) or Skip (see Monday's post). Sports outcomes depend on labor (effort; ability) for a given set of players, technology (tactics; player combinations), and other production influences such as the environment with altitude foremost in this case. It appeared to me that all of these played a role that may have been decisive if holding the other factors constant.

As economists, our inclinations often steer away from physiological explanations toward those involving decision making. For instance, the effects of age on labor or managerial performance have received little attention among economists -- a Southern Econ Journal article by Skip and a Review of Economics & Statistics article by Ray fair notwithstanding. The effects of altitude matter and matter a lot where the reduced air pressure may reduce oxygen uptake by 10 to 20 percent. For the 8 starting outfield players who flew in from Europe at the beginning of the week, a few days of training in Colorado Springs while suffering jet lag hardly acclimatized them for the 7500 feet of Mexico City. The record of other CONCACAF teams against Mexico offers evidence of altitude's importance. (Side note: One of the ongoing challenges to the U.S. in CONCACAF road games is the variability of environment -- tropical humidity and mud in central America, altitude in Mexico, chewed-up surfaces in the Carribbean.)

The U.S. pushed forward in the first 20 minutes with a surprising amount of possession. Soon after, the U.S.' legs no longer won the 50-50 balls or marked Mexican players as they had early on, increasing space for attacking Mexican each trip down the field. By the 30-minute mark, a close-up of Claudio Renya clearly showed his struggle for air during a dead ball situation. When Mastroeni and Bocanegra came off midway in the second half, both looked gassed. The lack of playing time for many U.S. players also factors in. Only about half of the U.S. starters are currently logging significant minutes for their clubs (or have not been until the past game or two in Renya's case).

The altitude and conditioning factor does not negate Arena's decisions as contributors. Skip and and my main soccer advisor at WKU thought the tactics too passive. No doubt, the first half formation with Johnson alone up front, Donovan on the wing, and Beasley as a central attacker defies easy explanation. Playing for a tie might be the answer, but the statements of players and Arena before the game and the first 20 minutes don't reconcile with it. Maybe Arena became overly concerned with the lack of possession against Mexico in past games and wanted to expand midfield play. If so, he played a strategy likely to be dominated against a team that can stand with any in the world in their midfield possession prowess.

Beyond the tactics, Arena's player selections left some question marks. Berhalter is a solid defender especially against air-oriented opponents like Germany or Poland, but given Mexico's quickness and proclivities, a more mobile player such as Cory Gibbs makes sense. Also, Arena has put Clint Mathis in the doghouse. Whatever one might say about Mathis' sense and committment, it is in venues such as this one where he has shown the ability to pass, score, and compete in a way that escpapes the likes of Landon Donovan (see ESPN Soccernet article -- The Golden Boy?). At leasting putting Mathis on the Bench and bringing him on at the beginning of the second half would make more sense than Ralston or Noonan, who are nice players but have never shown Mathis' abilities against high-level competition.

Coaching in the NBA revisited 

David Leonhardt, author of the NY Times article on coaching tenure in the NBA, kindly wrote and pointed out an observation in his piece that I overlooked:
The pattern holds in almost any important category of coaches. Winning black coaches have been replaced sooner than winning white coaches on average, and experienced black coaches have served shorter tenures than experienced white coaches. The same is true among losing coaches, among rookie coaches and among coaches who played in the N.B.A. and those who did not.
Clearly, something is going on. This does not rule out the hypothesis advanced in my earlier commentary, but it causes me to consider an alternative. Suppose the league office exerted pressure on teams to hire a minority coach, i.e. someone other than the team would have picked absent the pressure. The match would not be as good as when hiring was unrestricted, and tenure might be shortened as a result.

As an economist, I have an innate preference for this hypothesis over the "mistaken belief" hypothesis advanced earlier. It may be in the league's interest to promote diversity among coaches, but individual teams care little about their contribution to it. The league can put pressure on hiring, but firing is another matter. I would like to see the results of tests between these and other hypotheses on the tenure of coaches in the NBA.

History repeats itself: 0-22-1 

Was yesterday's game at the Azteca Stadium - a 2-1 defeat to Mexico - Coach Bruce Arena's Waterloo? There can be little doubt that the failure of the US to create chances was due to the tactics chosen by the coach. Mexico were skillful, aggressive, and intimidating. The Americans sat back, were passive, and poorly organized. Advantage Mexico.

The marking was awful on Mexico's two goals late in the first half. The post-match commentary suggests the US defense lost it's concentration on the two goals due to fatigue - oh dear! In retrospect, I think Arena made too much of the altitude factor, and too little of the attitude.

Mexican Coach LaVolpe boasted that "for 90 minutes, there was only one team on the field." LaVolpe is as poor a sport as the contemptuous Cuahutemoc Blanco (LaVolpe was sent off, and Blanco could have been), but unfortunately he's right. The Mexicans played the Americans off the pitch, and the scoreline would have been much worse but for outstanding saves by Casey Keller.

The manner in which Arena sent out the US team didn't give them half a chance. Let's hope he can right the ship against Guatemala on Wednesday night.

Foul Strategy? 

Law Professor, Steven Lubett, of Northwestern University has posed the following question (via Alex Kozinsky) about optimal strategies for committing fouls near the end of basketball game:

With about 12 seconds to play in the first overtime of the regional final, Michigan State made two free throws to take a 3 point lead. Kentucky in-bounded the ball under its own basket.

Why didn't Michigan State commit a foul in the backcourt? That would give Kentucky two free throws and no opportunity to attempt a 3 point shot. Even if they make both, the ball returns to State with a one point lead and a chance to run out the clock, which by then would be down to about 8 seconds. Instead, Kentucky made a last-gasp 3-pointer and sent the game into another overtime. Then the same thing happened in the second overtime. About 14 seconds to play and State with a 4 point lead. They let Kentucky make an uncontested layup -- and the announcers kept saying "State won't foul." Of course they wouldn't foul on the shot, but again, why not foul in the backcourt?

Stated more generally: teams that are behind usually foul to get the ball back. Why don't teams that are ahead (by 3 or more points) do the same? The strategy of fouling while ahead seems to have obvious advantages in the waning seconds of a close game, but I don't think I've ever seen it done. Does this tell us something generally about strategic innovation? or am I just missing something?

I must admit, I wondered the same thing when I saw the highlights.

Sunday, March 27, 2005

National Pastime 

Stefan Szymanski and Andrew Zimbalist have written a new book coming out on April 1st called National Pastime:
In National Pastime, Stefan Szymanski and Andrew Zimbalist examine how organizational structures have made Major League Baseball a profitable business (notwithstanding common claims made by the owners) while soccer leagues around the world struggle to break even. They weave a rich variety of stories, anecdotes, and photos into their account of how these games became businesses, and how these businesses have adapted to the demands of fans. The authors show how early administrators of baseball and soccer leagues were influenced by the parallel developments of each sport and, in particular, how the concept of the league was invented by American baseball and transplanted first to English soccer, and then to the rest of the world.

Zimbalist's Baseball and Billions was one of the first books that I read on sports economics and it was one of the primary reasons I became interested in doing research in this field. Szymanski's writings have helped economists understand design issues in sports. I look forward to reading this book.

Thursday, March 24, 2005

0-21-1 

That's the record of the US national soccer team in Mexico City. The reign of futility may end on Sunday however, when the US plays its World Cup qualifier against Mexico. This USA Today story provides some clues why this could happen.

History is a guide, but current fundamentals matter more. The skills of the US team are better than they've ever been, both in talent and organization. First, the talent:
With young stars such as Donovan and DaMarcus Beasley playing in top European pro leagues, newcomer Eddie Johnson, who has scored seven goals in six career games, and veterans Claudio Reyna and Kasey Keller, the USA's talent and depth have never been better.

"I giggle sometimes when I look back and I see lineups we played in 1999 and 2000," Arena says. "I look at those lineups and I say those players would never step on the field today for U.S. Soccer.
The US players are not the best in Europe - save the emergence of Beasley with PSV Eindhoven - but representatives from Mexico are far more scarce. Advantage US.

Next, organization:
"0-21-1? It really doesn't mean anything to me," U.S. midfielder Landon Donovan says. "We really have this belief that we should have a good chance to win when we go anywhere in (North or) Central America and the Caribbean. First of all, we're better prepared than we've ever been."

For the last two weeks the team's Major League Soccer players have trained at high altitude; the squad's European-based players, in the midst of their seasons, joined the group this week in Colorado Springs. The only previous time the USA trained extensively at high altitude before playing in Mexico was in 1997, also the only time it has gotten a point.

..."I don't think any of our players will be fully acclimated to this altitude because there is not enough time," U.S. coach Bruce Arena says. "I think that is also the case with the Mexico players. Let's not kid ourselves, they don't have players that are necessarily acclimated fully to playing at 7,000 feet. I think that it will be the case for both teams."
Arena's ego looks a mile high to me, but he's smart, and you can't fault the results. Further, his management skills appear to fill the players with the belief that they can win. I don't know much about the Mexican coach and their organization, but I find it hard to believe they've made as much progress as the US in recent years. Again, advantage to the US.

History does imply that the US players will receive a nasty reception from their neighbors. So this won't be a stroll in the park. But recent matches have seen the balance of power shift decidedly towards the US. I hope the results on Sunday confirm that this is a new era for the US team, and can't wait to watch (1pm ET, ESPN2). It likely will be rough going, but my fingers are crossed that we'll see the best of the beautiful game.

Tuesday, March 22, 2005

NCAA Competition 

Gregg Doyle of CBS' Sportsline writes

The gap between the No. 1s and No. 16s continues to shrink, reaching an all-time low this season. In 1998, the No. 1s' average margin of victory was 42.3. In 2001 it was 37. In 2002 it was 29.8. Last year it was 25. This year? Down to 15.5. Three games were decided by 12 points or fewer, another first.
I've seen and read similar things regarding #5 v. #12 and so on. Whether these figures reflect a real narrowing of the differences in teams or not is still open to question. Assuming that the differences are narrowing, the drain of players at younger ages to the NBA has likely played a role.

The earlier movement of players to the NBA reduces the advantage of top teams in two ways. First, it increases the uncertainty in recruiting. If I'm a coach at a top program, do I go after the best high school players, as I would have ten years ago, only to see them opt for the NBA, or play a year or two and skip to the NBA, or do I try to recruit very good players likely to stick around longer? The other influence is based on the distribution of talent. If talent follows a bell-shaped distribution, then the top programs pick off the players at the extreme upper "tail" of talent leaving other programs to pick less talented players. A reduction of the players at the upper end means that top teams must pick from lower skill levels where there skill distribution is not so rare -- the "fatter" part of the bell. In other words, there are a lot more good players in the upper 10 percent of skill level than in the upper 1 percent. When the upper 1 percent (or whatever) is lopped off, the big boys do not have the same advantage.

Coaching tenure in the NBA 

From the NY Times***:
Over the last decade, black N.B.A. coaches have lasted an average of just 1.6 seasons, compared with 2.4 seasons for white coaches, according to a review of coaching records by The New York Times. That means the typical white coach lasts almost 50 percent longer and has most of an extra season to prove himself.
This fragment of evidence does not imply white racism, and in theory, might imply the reverse. The economic theory of discrimination implies that, should owner tastes favor their own race, the employment of other races will be lower and their productivity higher. This implication is confirmed in an 2002 paper in the American Economic Review by Goff, McCormick, and Tollison (although it is secondary to the main point). Their paper documents the time path of slugging percentage among baseball players in an era when integration replaced a segregated system. Initially (in the Robinson/Doby era), the slugging percentage of black players was significantly higher than white players, but the stats converged as clubs tapped the entire pool of talent in both races.

One third of NBA coaches are black, which suggests that both pools of talent are being utilized extensively. The Times article does not discuss results on the court (at least on the first page). But it does say this:
Of the 14 N.B.A. coaches who have held jobs for at least five seasons since 1989, only one has been black - Lenny Wilkens, in Atlanta, from 1993 to 2000 - despite the fact that teams began to hire black coaches in large numbers in the late 1980's. The three active N.B.A. coaches with the longest tenure are all white, and they have been in place for about a decade on average.
I was a huge Lenny Wilkens fan when I was going to school in Seattle. He won the NBA title there, and his Supersonic teams were a joy to watch. But that was a long time ago. His record since, is not anything to write home about. The latter day Lenny Wilkens may be the poster child for reverse racism - i.e. giving the black coach the edge in a job search - in today's NBA. A mistaken belief that a coach's skin color might motivate his players would explain both sub-par performance and short tenure among black coaches in the NBA.

Update: The entire article is loading now, and near the end we find this observation:
Both black and white executives said they had no doubt that the situation had improved, though, and the records bear them out. Over the last decade, blacks have been hired to coach good teams just as often as whites have, based on teams' records in the season or partial season before a new coach took over. In the 1980's and the early 1990's, white coaches got significantly better jobs by this measure.
Interesting. I'd like to see the data on current winning percentages.

***The article is a three pager, and as is customary for the NY Times, getting to pages 2 and 3 is a nightmare. Maybe tomorrow.

Monday, March 21, 2005

Computers and student learning 

That's the title of a recent paper by Thomas Fuchs and Ludger Wossmann of the University of Munich. Here's the news item from the Telegraph that directed me to it:
The less pupils use computers at school and at home, the better they do in international tests of literacy and maths, the largest study of its kind says today.

The findings raise questions over the Government's decision, announced by Gordon Brown in the Budget last week, to spend another £1.5 billion on school computers, in addition to the £2.5 billion it has already spent.

Mr Brown said: "The teaching and educational revolution is no longer blackboards and chalk, it is computers and electronic whiteboards."

However, the study, published by the Royal Economic Society, said: "Despite numerous claims by politicians and software vendors to the contrary, the evidence so far suggests that computer use in schools does not seem to contribute substantially to students' learning of basic skills such as maths or reading."
Here is part of the paper's abstract:
We estimate the relationship between students' educational achievement and the availability and use of computers at home and at school in the international student-level PISA database. Bivariate analyses show a positive correlation between student achievement and the availability of computers both at home and at schools. However, once we control extensively for family background and school characteristics, the relationship gets negative for home computers and insignificant for school computers. Thus, the mere availability of computers at home seems to distract students from effective learning.
This could be driven by a "U.S. effect" (we underperform in education, and have lots of computers per capita), but I buy the result. Several years ago I promised my sons computers if they did well in school. They did, so I bought two computers.

The boys use them intensively - as music libraries, radios, and instant messaging devices (fortunately, they haven't caught the blog bug). I'm constantly imploring them to turn off their machines and pick up a book. The UK government's billions are likely to become - like my thousands - a wasted investment in education.

I could not find the paper at the Royal Economic Society's home page, but it is available in working paper form at SSRN.

Sunday, March 20, 2005

Judge Posner on Drugs 

If you do not look at the weekly postings on the Becker-Posner Blog, you are missing some great writings from two notable scholars. At the end of Posner's posting, he has a "by-the-way" about steroids and athletics, which has already provoked some interesting discussions in the comments section of their blog.

Oddly, one of the strongest cases for prohibiting drugs is the use of steroids by athletes. The reason is the arms-race character of such use, or in economic terms the existence of an externality. Ordinarily if a person uses a drug that injures his health, he bears the full costs, or at least most of the costs, of the injury. But if an athlete uses steroids to increase his competitive performance, he imposes a cost on his competitors, which in turn may induce them to follow suit and use steroids themselves, provided the expected costs, including health costs, are lower than the expected benefits of being able to compete more effectively. There is no offsetting social benefit from an across-the-board increase in athletes’ strength. Football games are no more exciting when linesmen weigh 500 pounds than when they weigh 200 pounds; and baseball would be totally unmanageable if every player could hit every other pitch 1000 feet.

Posner is correct that taking steroids is like a prisoners' dilemma game, but I expect it is not a zero- or negative-sum game. Fans love bigger and stronger performances, and it is quite likely that the renaissance of baseball has been due, in part, to the rising slugging average that in turn was due, in part, to steroid use. If so, then if baseball's ban on steroids is effective, fan interest in baseball might tend to drop off a bit over the next few years.

Saturday, March 19, 2005

Betting on the Tournament 

From the Washington Post:
The roughly $80 million wagered on the NCAA tournament in Las Vegas represents a minute fraction of the total betting on college basketball's championship, dwarfed by the estimated $2.5 billion staked with neighborhood bookmakers, in office pools and, increasingly, over the Internet with offshore sports books based in the Caribbean and Costa Rica. The betting in Nevada's sports books also is the only legal way to bet on the tournament. And periodically, it's targeted by members of Congress, the NCAA and college basketball's most esteemed coaches, who feel it should be outlawed.

Betting on college sports threatens the integrity of the games, in the view of Bill Saum, the NCAA's director of agent, gambling and amateurism activities. At worst, it exposes college athletes to pressure from criminal elements conspiring to fix the outcome of games. At its most benign, it sends mixed signals about the propriety of gambling, whether on sports, slots, poker or pool.

The decision to shave points comes down to a balancing of its marginal benefits and marginal costs. What drives the fear of folks like Bill Saum is the lack of salaries paid to players - salaries commensurate with the revenues generated by their games. The payment received by a player who shaved points is a component of the marginal benefit of point shaving. In addition to the penalties already in existence (jail time, etc) if colleges paid each player, say, $15,000 a year, they increase the marginal costs of point shaving (if a player shaves points and gets caught, in addition to the other penalties already out there, he will lose his $15,000 yearly salary). It would also make it more expensive for gamblers to have players shave points. Moreover, since players would be more likely to police themselves, some of the resources put towards monitoring gambling activities could be put to other uses.

Outlawing the gambling is not the answer. Doing so will most likely just drive it offshore and underground, which could very well make the problem worse.

Competition for Fans 

The Baltimore Orioles are no longer just competing on the field with other teams, they are competing with the Washington Nationals for fans. They are offering additional tickets to the O's home opener against the A's to their season ticket holders and they are also targeting luxury suite packages to small businesses. From the Baltimore Sun:

Other perks offered as part of the Orange Carpet program include the ability to buy additional tickets at a reduced rate and early entry into Camden Yards to watch batting practice.

Marc Ganis, president of Chicago-based SportsCorp LTD, said what the Orioles are doing is good business.

"The Orioles have to be more cognizant that there is competition in the marketplace," Ganis said. "Fans are going to vote with their wallets.

"That's where customer service comes in. That's where offering perks and special benefits comes into play.

"It doesn't matter if it's a baseball team or a supermarket or a bank or an airline. They've all got to participate in a world like this."

...

"Everyone will put a full-court press on their suite sales until they get to 'x' point," he said. "Then, these suites become like hotel room nights, just like your ticket inventory. Once the night passes, you're out that revenue. So better to get out ahead of it and get creative."

Many people mistakenly think of competition between firms as some sort of zero-sum game - a game where the gains of the winner exactly offset the losses of the loser. But this notion of competition forgets a very important piece of the puzzle that benefits greatly from competition: the consumer.

Friday, March 18, 2005

Ticket Scalping:
Welsh Rugby Union 

This article typifies the usual mainstream media writing about ticket scalping, indicating that most journalists have little or no understanding of the concept of opportunity costs and gains from trade. [thanks for BrianF for the pointer]

Saturday's showdown at the Millennium Stadium has been a sell-out for weeks with official ticket prices ranging from £14 to £42.

But scores of tickets can be bought on internet auction sites at hugely inflated prices. One ticket has even been advertised on one site at £2,000.

Rugby fan Kevin Jones from Laugharne in Carmarthenshire said: "How do these people, who are not true supporters of their country, get the chance to have tickets when they have no intention of going. "The people selling the tickets are only out to make a profit."

I have heard and read this type of argument so often, it is nauseating. Carefully put, the objectors to scalping are saying that someone else is willing to outbid them and they want to get the ticket at face value or less even though others would value it much more. It's the standard, "You've got it and I want it" motivation.

But here is an interesting wrinkle that I've seen before, but only rarely. People who buy scalped tickets face higher risks -- people might very well sell counterfeit or stolen tickets. Buyers of these tickets could end up out of luck.

"There were people who left the game against in England in tears because they had bought tickets that were stolen and had to leave."

Stadium manager Paul Sergeant also warned against buying tickets from touts or over the web.

"You're going to get your fingers burnt, " he said. "You run every risk of buying tickets that are either forged or stolen.

"My advice is if you haven't got a ticket either stay at home or go and watch it in the pub."

Another option for reducing these risks is to buy scalped tickets only through reliable scalpers, like travel agencies that put together "tour" packages.

Thursday, March 17, 2005

Turning Backs on the Grapefruit League 

From the New York Times (free membership required):
Here by the shores of Lake Lulu is the training camp of the Cleveland Indians, a 1960's ballpark so intimate that fans rest elbows and beers along the outfield wall to watch the game. But when city officials look at the waterfront park these days, it's not the baseball that makes their Floridian hearts flutter. It's the prime real estate.

Where the Indians hone pitches, shag flies and steal bases every March, Winter Haven wants boutiques and restaurants, big-box chain stores and a recreation complex. It is not the only town to ponder turning its back on the boys of spring, hoping to reap a profit more tangible than the joy of baseball fans for just six weeks a year.

Port Charlotte has already said goodbye to the Texas Rangers and has closed the door to other teams, while Sarasota County is resisting the building of a new stadium for the Cincinnati Reds. When reporters asked Gov. Jeb Bush last month whether he could find money to fend off Arizona's latest incursions into spring baseball, he offered a tepid "We'll see," adding that the state had other priorities.

Florida without spring training used to be unthinkable, but the unsentimental fact is that it costs a lot, and places like Winter Haven have turned cynical about the benefits. It took $1.2 million to run Chain of Lakes Park last year, but revenues totaled only $520,000, according to the city. The difference came out of Winter Haven's general fund, a subsidy for baseball that Mayor Mike Easterling said could not continue.

The opportunity costs of spring training are getting a wee bit large for Floridian officials. But Arizona is calling:

Amid this uncertainty, Arizona is beckoning. Last month, that state - which, with 12 teams, is fast catching up as a spring-training mecca - announced a plan to lure teams from Florida. Slade Mead, a former Arizona state senator who is leading the effort, told The Arizona Republic in February that the Indians, Reds and Orioles topped Arizona's wish list. He was not so blunt in a recent phone interview but said his state intended to convince several Grapefruit League teams of its superiority.
But government officials in Florida don't care, and it's a signal that the Arizona officials should take into consideration.

Wednesday, March 16, 2005

Battle over TV Rights 

Peter Angelos and Major League Baseball officials are still duking it out:

The control of broadcast rights to the Baltimore-Washington region is at the center of talks between Major League Baseball and Baltimore Orioles owner Peter Angelos, according to sources familiar with the negotiations. The issue is holding up final agreement on the compensation package that baseball will give Angelos for the financial impact that the Nationals would have on his team.

Until the compensation package is agreed upon, the Nationals cannot make a deal with a local television outlet, forcing Nationals President Tony Tavares to lose valuable marketing and promotional opportunities.

"While we understand what a difficult issue this is, we are highly frustrated at the amount of time it has taken to bring this to a resolution," Tavares said.

Angelos assumed the broadcast rights to the Baltimore-Washington region, extending from the Pennsylvania border to North Carolina and from West Virginia to Delaware, when he bought the Baltimore club for $173 million in 1993. After moving the Expos from Montreal to Washington last fall, baseball wants to recast the Orioles' broadcast region to accommodate the Nationals.

If he were dealing with any other team, Angelos would seem to have the upper hand in this negotiation - but he's not dealing with just another team here. He's dealing with a team owned by Major League Baseball itself, and we might expect Big Daddy to throw his weight around to bring one of his children in line. But then again, Major League Baseball officials aren't dealing with just any owner here:
Baseball has been reluctant to unilaterally redistrict the Orioles' broadcast region, fearing a messy lawsuit by Angelos, who made a fortune as one of the nation's most successful trial lawyers. Top baseball officials believe they would ultimately prevail in a suit by Angelos, but they are trying to avoid it nevertheless.
It isn't about who wins or loses, it's how much it will cost to win. And if you know how to play the game, you can drive those costs up. Angelos knows all this as well, and will use this to get as much as he can out of the negotiations.

Stadiums and Super Bowls 

There is slight hint of political strategy in this trail of evidence, don't you think?
The last two Super Bowls were played in new stadiums, in Houston and in Jacksonville, Fla., and two of the next three, in Detroit and in Glendale, Ariz., will be in new facilities.
The story reports that NFL owners are expected to award the 2010 Super Bowl to New York, on the condition that the proposed stadium for the Jets is operational by the 2009 season. The story also states that the Jets have offered $100m for the development rights above the West Manhattan railyards, where they would build the stadium. But two other bidders for these rights have emerged, one at $600m (Cablevision) and another at $700m (TransGas). These bidders apparently believe the property is more valuable as a site for office buildings and residences. Hmmmm.

Could the mirage of "economic impact" lure New York City into selling these rights for 1/7 of their market value? The NFL appears to be highly skilled in such endeavors. Stay tuned.

Tuesday, March 15, 2005

Tournament Structure (More Wasted Time!) 

In the spirit of contributing to the economic drain from the NCAA Tournament that Skip noted, I wanted to consider its structure. This year has been the exception for the lack of complaining about who got in and who did not. In my view, that's a good thing because it detracts from the real problem in the Tournament's structure -- the seeding.

Problem 1: there is a huge difference in playing teams seeded 15 and 16 versus those seeded 12 and 13. Teams seeded 1 (and to a lesser extent 2-seeds) get to play one practice game and three real games to reach the final four versus other teams that must play four genuine opponents. That "gimme" game is a huge advantage over the field.
Problem 2: the difference in teams seeded 5-12 is relatively small. Comparisons between the fourth best SEC team and the third best Big 10 team or between a second-tier major conference teams and top a "mid-major" team are are often in the eye of the beholder. They are not very consistent from year to year, and the psuedo-statistics like the RPI only give a feel of science to a huge lack of information.
Problem 3: good teams from bad conferences who always get the 15 or 16 seeds really never have a realistic chance to win a game. Holy Cross takes Kansas and Kentucky to the wire but really gain nothing for it.

Below, I propose a small modification to the tournament that would address these problems while continuing to give preference to the best teams from the best conferences -- a prerequisite for any realistic structure since the tournament is really by and for the major conferences.

Step 1: Assign seeds only for teams in the 1-4 slots. This will be (almost) exclusively the best teams from the major conferences. That way, they do not play each other until deeper into the tournament.
Step 2: For the 48 remaining slots, hold an initial round of 96 teams, where matchups are decided by random draw. This attacks the problem of making imprecise distinctions by treating the rest of the field as essentially equivalent. It also gives good teams from historically bad conferences a realistic chance to win a game.
Step 3: Take the 48 winners from Step 2 and assign them to the remaining slots. I would prefer a random draw. An alternative that gives more preference to the 1 and 2 seeds would be to place the 8 lowest rated teams against the 1 and 2 seeds and then randomize everyone else. (Geographic issues could be worked into the draw also.) Either way, the 1-4 seeds do not have to play each other early, but the 1 seeds do have to play genuinely competitive opponents rather than scrimmage games against overwhelmed opponents.

Even with these flaws, interest in the Tournament is huge (as Skip notes). The lessons from this for other sports leagues is a topic I'll address down the road.

Cancel the tournament 

We all know, from various booster "studies," that the reason for building stadiums and the like is for the economic impact of having a sports team in town.

But if it's the economy that matters, consider the impact of March Madness on worker productivity:
A recent study by New York-based global outplacement firm Challenger, Gray & Christmas Inc. estimated the three weeks of the tournament will end up draining $889.6 million from U.S. companies.

That's because workers -- including college basketball fanatics and casual participants in office betting pools -- will spend an "inordinate amount" of time monitoring their favorite teams.
And with advances in communications technology, it's only going to get worse:
In 2003, Internet-monitoring software maker Websense Inc. estimated that college hoops fans spend about 90 minutes a week on college basketball Web sites during the tournament.

"That figure has the potential to jump significantly this year, as workers have the opportunity to watch games right from their desks," said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.
We must put a stop to this madness!

Hat tip: Yoni Cohen (a major source of wasted time).

$2 million for failing 

Virginia's basketball team finished last in a very tough ACC this year. The consequence?
Pete Gillen's seventh season as the men's basketball coach at the University of Virginia proved to be his last, as he and the school agreed Monday to a $2 million buyout of the remaining six years on his contract. The deal ended weeks of speculation that Gillen would not return.
Wow - you get $2 million for failing these days! To be successful then, the desire to succeed must be really fierce. Like Coach K - fierce.

Race, Preferences, and the NFL 

A new paper by Aldrich, et al., "Do People Value Racial Diversity? Evidence from Nielsen Ratings," has been distributed electronically by B.E.Press. The paper is available online to subscribing institutions, but guest access is also available.

When I read the title, I had no idea the paper referred to television ratings for Monday Night Football.
ABSTRACT: Nielsen ratings for ABC's Monday Night Football are significantly higher when the game involves a black quarterback. In this paper, we consider competing explanations for this effect. First, quarterback race might proxy for other player or team attributes. Second, black viewership patterns might be sensitive to quarterback race. Third, viewers of all races might be exhibiting a taste for diversity. We use both ratings data and evidence on racial attitudes from the General Social Survey to test these hypotheses empirically. The evidence strongly supports the taste-for-diversity hypothesis, while suggesting some role for black own-race preferences as well.
My priors: I'll be surprised if these results stand up to scrutiny, but I can live with them if they do. For now, though, I just don't see many Monday Night Football fans saying, "Oh, there's a quarterback of a different race from mine in the game tonight, so I think I'll watch football instead of CSI Miami."

Sunday, March 13, 2005

Paris' Olympic Bid 

Paris officials are bidding for the 2012 Olympic games and their bid has a novel slant to it. From the Los Angeles Times (membership required):
In part because Paris has its would-be Olympic stadium, Paris organizers have opted for an unusual twist, one that may play a key role in the July 6 vote for the 2012 Games: 13 of the structures that would go up for a Paris 2012 Olympics are temporary pavilions.

The use of such temporary venues is in keeping with a 2003 IOC study that noted the soaring costs of Games-related building as cities increasingly view the Olympics as a catalyst to fast-track urban regeneration.

Beijing will spend more than $30 billion readying for the 2008 Games. Athens spent more than $10 billion gearing up for 2004, and now is confronting the bill.

...

For $225 million, according to detailed financial records that the five cities have supplied to the IOC, Paris would deliver temporary venues for basketball, boxing, weightlifting, table tennis, wrestling and taekwondo, handball, fencing, equestrian and modern pentathlon, archery, triathlon, cycling, beach volleyball, baseball, softball and the start of the marathon.

For $225 million, Madrid would build a permanent tennis center.
Here is a post by Skip on the Athens aftermath. One thing that matters to International Olympic Committee members is leaving a legacy - not an Athens-type legacy.
The Paris proposal has sparked debate within Olympic circles about what the IOC calls "legacy," the idea that the Games should leave a mark on a city without leaving behind "white elephants," meaning sports facilities — as in Athens — that sit empty after the glamour of the Games has faded away.

All five bid cities insist they will produce no elephants. All five profess a dedication to legacy.

Tessa Jowell, the British cabinet minister responsible for the London bid, said, "It is not enough to just want to stage the Olympics because it is a fabulous festival of sport.

"There has to be more, a clear intention to leave something positive, even magical, behind when the athletes depart.".
Any bidder who does not "profess a dedication to legacy" will not do well in the selection process. In any case, more often than not, these Olympic proposals are going to produce more "white elephants" than magical legacies. This is what happens when government officials put forth tremendous resources to generate, termed at its very best, a supposed short-term boost. People get a collection of publicly-owned sports facilities, but without a clear distinction of who owns them and who is going to maintain them. In essence, people get a reverse tragedy of the commons with similar results: urban decay. Parisian officials' bid is a novel attempt to minimize this effect on their city.

Danny Gardella & the reserve clause 

Danny Gardella was banned from major league baseball for playing in the Mexican League in 1946. He is remembered, and rightly so, for the legal battle that stemmed from his ban. Richard Goldstein's obituary of Gardella is in today's NY Times, and worth a place in your notebook.

Gardella's ban was part of a "group boycott" imposed by Commissioner Happy Chandler. The object of the boycott was to protect the reserve clause in a period where the potential for player movement among rival leagues was significant. Gardella sued Chandler and baseball over the boycott. The case was dismissed in 1947, based on the precedent that "baseball was not commerce," from the Supreme Court decision in the Federal League case of 1922. That case, the source of baseball's immunity from anti-trust law, stemmed from an earlier boycott of players who had signed with teams from the Federal League.

By that time however, the courts had recognized that the Federal League decision was shaky, and baseball risked having the precedent overturned if it took the case to the limit. Gardella's appeal of the dismissal was successful, and baseball ultimately settled the case rather than risk a full trial.

Gardella's contribution on the diamond of major league baseball was modest - he hit 18 home runs for the Giants in the war year of 1945, and failed to stick with a club after that. But his lawsuit was a significant guidepost for players in their struggle to eliminate the reserve clause. Like Goldstein, I'll give Danny Gardella the last word in this post:
"I feel I let the whole world know that the reserve clause was unfair," he said. "It had the odor of peonage, even slavery."

Head Coach Ticket Scalping 

Minnesota Vikings head coach Mike Tice's decision to scalp his complimentary tickets to Super Bowls is, to put it mildly and diplomatically, curious. Why would a coach put his head coaching career at risk in such a way, especially considering the way his teams have performed?

In an interview posted Thursday night on Sports Illustrated's website, Tice said he sold some of his 12 Super Bowl tickets in January to a broker for more than face value. Tice previously has acknowledged collecting tickets from players and reselling in bulk while an assistant coach, but said he discontinued that practice when he became the Vikings head coach in Jan. 2002.

Scalping tickets is a violation of NFL policy and is subject to a penalty determined by NFL Commissioner Paul Tagliabue.
There's the requisite "everybody does it" defense. In a Beckerian moment, I thought that his decision to scalp was based upon some sort of comparison of expected marginal benefits and expected marginal costs (including the probability of getting caught), but then there's this:

Citing advice from his attorney, Tice refused to comment when contacted late Thursday night by the Star Tribune. Since declaring Wednesday morning that he would have no further comment on the issue, Tice has been quoted extensively on the subject in two national publications.

In both cases, Tice said he believed the interviews were conducted off the record. Conversations with reporters are on the record unless the source states explicitly otherwise prior to speaking. Both reporters, ESPN's Chris Mortensen and SI's Don Banks, said Tice did not make the request until after the interviews were conducted.

The scalping and his talking are just two things in a line of decisions that seem "curious," especially for a head coach in the NFL. I've wondered about the way he thinks since he first became coach of the Vikings when he created the "Randy Ratio" and publicly said that 40% of the passes were to go to Randy Moss. In doing so, he tried to suck up to his most talented (and most troubled player) and he tells his opponents a great deal about the upcoming gameplan.

Saturday, March 12, 2005

Anecdotal evidence on substitution 

We at thesportseconomist have argued until we're blue in the face that the absence of a sports team in town will shift spending on entertainment, rather than stop it all together. Here's some anectodatal evidence to that effect, from Denver:
Emblazoned on the side of the Zamboni gliding across the ice at Magness Arena this hockey season is a corporate logo for Ciber Inc.

The computer consulting company, whose top executive is wild about hockey, beefed up its sponsorship of the University of Denver team when it seemed the lights would go out for the Colorado Avalanche.

All the university's hockey games are selling out, while over at the gift shop that sells jerseys, sticks and other merchandise, sales are three times higher than normal.

From a financial standpoint, the stars are aligned for DU.

After failed labor talks, National Hockey League players never hit the ice this season, meaning the university is the only game in town. Some spending that would have gone to the Avalanche has flowed into DU's athletic program instead.

The lockout comes on top of a national championship last year for DU. This season, the Pioneers are rolling along, hosting Michigan Tech in a playoffs showdown this weekend.

It's tough to put a number on the financial impact of the canceled NHL season and the DU team's banner year, but both factors have brought in lots of extra dollars to the sports program.

Thursday, March 10, 2005

Coca Cola Promotion:
Will It Work? 

According to Sports Illustrated (item #10 on this list),

Coca-Cola began selling some 200 million specially designed cans offering U.K. soccer fans a chance to win the equivalent of $479,000 in transfer funds for their favorite English or Scottish team. The winning fan's club will be given the money to spend on the player or players of its choice, while the fan will pocket another $19,000.
Let's assume that soccer clubs are profit maximizers. Let's also assume that dropping an extra $479K on them will have no effect on the marginal revenue product of an extra unit of playing ability. It follows, then, that this gift would have no effect on their spending on players other than some cosmetic designation of, "We used the money to hire player X," meanwhile shuffling other payroll funds into their profits somehow. That's the standard textbook answer. If spending the money on better players would bring more fans to the games and increases revenues enough to cover the incremental costs, then the team should have been doing it anyway, if it is a profit maximizer.

So why do I not necessarily believe the textbook answer?

  1. What if owners of UK soccer teams are not profit-maximizers? It is possible that giving them more money to spend on players will increase the owners' utility from having a better team. This would be a standard income effect for consumption models, assuming that team wins are a normal (vs. inferior) good.
  2. What if the team would like to hire more talent, and what if doing so would increase the team's profits, but what if the team is in a precarious financial position and is unable to borrow the money? That is a lot of "what ifs". I suppose it is possible the information costs are so high in the capital markets for professional soccer in the UK that some potentially good investments might get overlooked. But I doubt it.
  3. I'm ignorant? Maybe, but not of basic profit-maximizing models. Maybe Coca-Cola has detailed accounting monitoring specified as a condition of the prize, to make sure the club spends the extra money on player talent. I'm skeptical.

Sports Illustrated loves the promotion, calling it "Cool sports promotion of the week".

Imagine winning the chance to help your favorite team acquire real players to help on the field.

I expect it is a profit-enhancing promotion for Coca-Cola. But to the extent that the winning fan's team is a profit-maximizer, the promotion will not do much to affect that team's talent acquisition decisions, with the proviso that major league sports teams are likely not completely driven by profit-maximization.

Instead of the Sports Illustrated imaginings, try this: Imagine you own the team favoured by the winner of the Coca-Cola lottery. You hold a big press conference/celebration when you receive the cheque [UK and Cdn spelling] for nearly half a million US$. You might even give the fan a season's pass. Then what do you do with the money? You can't just pocket it, if for no other reason than that it would look bad. So you have to make some expenditures on players that have the appearance of resulting from this windfall.

In other words, this Coca-Cola lottery is going to have some effect on the acquisition of player talent by the lucky team, but most likely for only a short time (long enough for the owner to cut back on player expenditures elsewhere in ways that are not obvious). Because appearances matter, the promotion will have some effect, even for profit-maximizing teams; but the effect will probably be short-lived.

Wednesday, March 09, 2005

Skill in Making MB=MC 

On Yahoo! Charles Robinson writes about life in the NFL:
... as cold as it may sound, those moves are exactly why the Patriots have become the epitome of league success. They know when to cut players who are on the verge of slowing their momentum or capsizing their salary cap. Some might call such budget crunching hypocritical for a franchise that fashions itself on the "team" concept, but it's simply smart business and a sacrifice for the good of those who remain.

[Ty] Law, even at full health, isn't worth $12 million in a single season. [David] Patten is a No. 3 receiver, and not worth the "featured wideout" salary that the Washington Redskins offered. Phifer had deteriorated into a role player, and his spot was better suited for someone who could be groomed into a future starter. [Troy] Brown, as vital as he was in 2004, is beyond his prime and would have played a reduced role last season had it not been for injuries, particularly to the defensive secondary where he played as a nickel back.
The implicit economic lesson of decisions based on marginal benefits and marginal costs is simple enough. The application can be tricky because we do not know the future value of a given individual with certainty, so mistakes are made. Beyond uncertainty, skill in application is not uniform across teams and GMs. As the article notes, the Patriots have excelled in the application of the principle in recent years.

One aspect of the decision that the Patriot's leadership grasps better than some others is "teamness" of football production. To be successful, teams must have a mix of good and very good players. However, they may reshuffle the precise mix to achieve success. Tennessee's GM, Floyd Reese, put it this way, "I would rather have 5 good players than one star and four average players."

The value of the "star" player differs across sports based on the impact that a single player can have on overall performance. In basketball where the influence of only 7 or 8 players matters a lot, one star can spark a championship (The Pistons win was an anomaly in this regard). In football 40-50 players impact results in a variety of ways. Parting company with Randy Moss or Ty Law is just not the same as parting company with Tim Duncan. Baseball falls in between, but I will save that for another day.

Tuesday, March 08, 2005

Athens aftermath: predictable, but sad nonetheless 

The following speaks for itself. From The Age:
When Greece hosted the Balkan indoor athletics championships two weeks ago, the obvious location was one of many state-of-the-art indoor facilities built for the Athens Olympics last year.

But the championships were held instead at a second-rate hall with a leaky roof in Peania, half an hour's drive from the capital.

The out-of-town and out-of-sight venue illustrates the sorry legacy of the Athens Olympics, hailed at the time as a triumph.

Almost none of the spectacular 36 purpose-built stadiums, which cost more than EUR3 billion ($5 billion), have been used since.

Most have remained shut since last September while ministries and local authorities squabble over ownership and the Government ponders their post-Olympic use.

Even the vast main Olympic complex with its surrounding parks and sports fields is closed to the public.

Built in record time and at a cost well beyond the estimates, dozens of venues and other works face the consequences of what critics say was ill-planned and hasty work.

With no ownership or management plan in place, there is no real maintenance to secure the venues from decay.

Broken glass at the Galatsi indoor arena, serious drainage problems on the marathon route, leaking windows at the indoor hall of the main complex and damage to the Peace and Friendship Stadium are among problems the Government has to tackle.
The aftermath of the Olympic games, across the globe, is a sorry record indeed.

Monday, March 07, 2005

Life and death in university administration 

University of Colorado President Elizabeth Hoffman resigned today. The proximate cause, according to media reports, was the scandal in the football program. Hoffman took a big risk trying to fix the football fiasco while keeping Coach Gary Barnett on the payroll. Then the Ward Churchill imbroglio arrived on the Buffalos' reservation, with the storm over the football program still brewing. Hoffman did not hire either man, but she is taking the fall for their failures.

I'm on the record as supporting her decision to retain Barnett, while keeping him on a short leash. It might have been the right decision, but it was risky for her, politically incorrect, and it ultimately cost Ms. Hoffman. A risky decision, the Churchill skeleton coming out of the closet, and the power of modern media - that's the perfect trifecta, and a recipe for a resignation.

On the other side of the coin, here's what happens when you do fire a coach who also walked up to if not over every NCAA line: Washington & the NCAA agreed today on a $4.5 million settlement in the Neuheisel case. The NCAA is on the hook for $2.5 million, which is further evidence that the organization, shall we say, lacks competence. UW takes on the rest, which makes me wonder how much I should continue to give to my alma mater.

Incidentally, UW's decision is similar to one my current employer (Clemson) made fifteen years ago. Both schools cowed to the NCAA and the media, firing a head coach over what appear to be trivial infractions.* Both decisions wrecked very good football programs. But the episode at Colorado shows how costly it can be to buck the conventional wisdom and make the decision - absent the media pressure and all that comes with it - that you think is best for your school.

Life in the fishbowl that is university administration is no picnic, regardless of what academia's critics would have you believe. These people have a tough job. Somehwat ironically, I think Betsy Hoffman was up to it, but got beaten by a bad roll of the dice.

Notes:
*In Clemson's case, the immediate infractions were for sweatshirts and trips to the Pizza Hut given to recruits, although more serious allegations had led to probation a decade earlier.

My take on the Bain offer* 

The Bain offer (now $3.5 billion) to turn the NHL into a single entity league is intriguing, but will fail for the exact same reason that the NHL is bleeding red ink: owner hubris.

Owners overspend** on talent because they want to win, and want to win big - i.e. to take down the Stanley Cup, or what have you. That's why they bought the team in the first place. They've gotten rich, have money to burn, and burn it on a) purchasing a sports team, and b) paying for player talent. But competition for players makes the latter quite expensive, hence the move towards salary caps in North American leagues. The salary cap is most accurately viewed as a collective policeman: a device to keep the hubris of (N-1) owners from increasing the cost of hubris on the part of the Nth owner.***

Getting a majority of ego-driven men to agree on a league-wide buyout seems unlikely to me. They are in the game for the sport first, the cash second.

There is a scenario I can imagine in which the Bain proposal might fly: if a sufficient number of the fat cat owners are really hurting badly. Some might be Art Modell types. The type whose initial purchase is now dwarfed by the money in the game, need supplementary cash to remain involved, and sell their soul in the process. There might been one or two high-flyers wrecked in the dot-com crash. Or perhaps a corporate group or two (a la Disney) who've been taught a lesson about the economics of owning a sports club. The fact that the sport is temporarily defunct helps too. So there may be a quorom of owners looking for an exit.

If the Bain group has done its homework, and there are enough cash-strapped, disaffected sportsmen among NHL ownership, the proposal has a chance of succeeding. But this would require that a breakaway from the remaining holdouts is feasible, and that some of the glamour clubs be on board. In the absence of that, a single-entity league would get creamed by a rival league willing to pay players what they are worth. The NHL would become akin to MLS, and we'd watch the best players playing elsewhere, as we currently do in soccer.

Notes:
*I'm late to the party here, but have been prodded by my circle of two readers to comment, so here goes.

** Overspend means relative to a profit-maximizing standard.

***Collective action by owners naturally focuses on keeping the costs from component b) down, in order to raise the costs of component a). In other words, the salary cap is not about controlling costs, per se.

Sunday, March 06, 2005

Success, and failure 

This weekend brings two lengthy discussions on the causes of poor performance. At SI, Paul Zimmerman examines historical NFL dynasties - e.g. the 60s Packers, 70s Steelers, 80s Forty-Niners, and 90s Cowboys - looking for clues which might predict a decline in performance of the Patriots.

It's an intriguing examination. Though Zimmerman ultimately comes up empty, that is a result in itself. Aging players, head coaches with happy feet, and loss of the will to win appear to be factors in prior eras. None of these seem poised to knock down Belichick's Patriots. Zimmerman doesn't make the analogy, but it seems to me that the Patriots are most like the Forty-Niners, who had a great quarterback, an innovative coach, and a sustained run of excellence, which continued even when they were surpassed by the Cowboys. If the analogy fits, the Pats have quite a few good years ahead of them.

At the other end of the scale are baseball's Tampa Bay Devil Rays. Mark Topkin gives them the treatment in today's St. Petersburg Times.

The Devil Rays have compiled "one of the worst cumulative seven-year records (451-680) of any expansion team." Lack of management experience may be one reason they got off on the wrong foot:
While the Rays stocked their inaugural roster with veteran players, they fielded too many rookies in key management positions. The owner, Naimoli, had never owned a sports team; the general manager, Chuck LaMar, had never been a general manager; the manager, Larry Rothschild, had never managed. Of the six department-leading vice presidents on the 1998 staff, only one had done his same job before.
The original partnership agreement made Naimoli managing general partner, a role that "automatically renews itself annually." Oops. Naimoli owns just 15% of the team, but 100% of the mistakes: "nothing can be done without his approval, and his reach seems to extend everywhere." He sounds like Steinbrenner without the cash.

Naimoli's former partners gave up last May and sold their interests to New York investor Stuart Sternberg for $60 million. They would surely have received a good bit more had they been able to remove Naimoli from control of the organization. Beware of the perpetually renewing clause!

Friday, March 04, 2005

What is it Worth to a City to Host the MLB All-Star Game? 

Major League Baseball has announced that San Fransisco will host the 2007 All-star game.

It is likely to bring lots of visitors to San Fransisco, most of whom will spend lots of money there, some of which will be respent within the community setting off a minor multiplier effect. For more on the economic impacts of these one-time event see my paper, "Bread and Circuses".

Will it really bring in 250,000 visitors?

Mayor Gavin Newsom, who also attended the news conference, said he thought
All-Star weekend would bring about 250,000 people to the city and could have a
financial impact of more than $80 million for San Francisco.

Will each of the visitors really add over $300 in new spending to the economy? I can imagine that some might spend thousands on hotel rooms and high-end meals, but these numbers must be wrong. Why would so many go to SF just to see the All-Star game when no more than a quarter that many can be admitted to the game? What, if anything, am I missing? Is the Mayor exaggerating the expected numbers? Or is there a typo in the original article?

Wednesday, March 02, 2005

Accounting for NASCAR Tastes 

NASCAR's Daytona 500 ratings point toward another year upward year for the sport. Although I follow NASCAR a bit, I'm not much of a fan. Three out of the four colleagues around my office are big fans. One fits the stereotypical profile -- a Georgia boy, educated but "redneck" at heart. The other two illustrate NASCARs broadening appeal. They both hail from the midwest. One is older with a business executive background. The other is younger and played college basketball.

What lies behind NASCAR's meteoric rise? One Michigan sports writer defines it by what it is not -- urbane, pouting superstars, unionized, and the like. An econ-oriented spin (thanks to Lancaster, Becker , Stigler) similar to the writer's explanation starts by noting that people do not really gain value directly from goods and services. Instead, at the broadest level, consumers value things such as entertainment and health (these might be broken down into smaller parts). They combine goods and services offered in markets with their own skills and time in producing and consuming items to generate entertainment, heath, and so on. These producing and consuming skills reflect a person's innate abilities, environment, and effort spent building them. NASCAR taps into the consuming skills of mid-America. Whether highly educated or not, the background and environment of these folks does not incline them toward the NY Times crossword puzzle, foreign films, or the ultra-urban offerings of the NBA. Instead, NASCAR fits them like hockey fits Canadians. During the 1980s and 90s, the financial wherewithall of these millions of Americans grew enormously and funded the market purchases of the NASCAR product.

In many ways, this is the reporter's story in econ-speak because many of the specifics related to "consuming skills" and the "environment" are hard to quantify. One relatively concrete aspect that may link NASCAR package to the consuming skills of mid-America is the weekend-based schedule that the circuit shares in common with the NFL -- another sport whose following has continued on an upward track. The Saturday (Busch)-Sunday (Nextel) race schedule fits mid-American lifestyles. In contrast, the 82-game + infinite playoff system of the NBA is all over the place in terms of days and times. I wonder what the NBA might gain by going to a reduced number of games, emphasizing, say, a Tuesday-Friday or a Friday-Sunday-Wed schedule. Some TV and league executives sometimes think that wall-to-wall is best but NASCAR and the NFL suggest a different way of linking with consumers.

Tuesday, March 01, 2005

Goons & Civil Suits: What Are the Damages? 

Temple University basketball coach, John Chaney, ordered one of his bench players to engage in rough play during a game against St. Joseph's.
John Chaney was suspended for the rest of the regular season by Temple on
Friday for ordering rough play by one of his players, who proceeded to foul out
in four minutes against Saint Joseph's and broke an opponent's arm.

Suppose the victim, John Bryant [see here, registration required], can/will sue Chaney, Temple, and the offending player. What would be appropriate compensation? Has the broken arm materially affected the victim's chances of being drafted by the NBA? If so, by what change in probabilities or by what order in the draft? How much lower will his salary be as a result of the broken arm? And what is the effect on expected other income as well? And the real kicker: how big will/should the punitive damages be?

With the suit against Todd Bertuzzi by Steve Moore, it is reasonable to expect more such suits. I wonder if this case might be one of the next.

[Thanks to Tom at Houston's Clear Thinkers for the pointer; he suggests "the liability phase of that civil case is a dead cinch winner for the injured player," which is what started me thinking about the possible damage award.]

Free Stanley 

I read about this group, Free Stanley, in this morning's Wall Street Journal here (subscription req'd). Three Canadian hockey fans from Edmonton want the trustees of the Stanley Cup to award the cup to some non-NHL team. According to the Free Stanley website, the mission is:

Free Stanley's mission is to make sure there are Stanley Cup playoffs this hockey season. We love the Stanley Cup playoffs and we love the Cup. We believe it is the best trophy in all of sport, and it should not be denied to the best hockey team is playing this season. If there is no NHL season the Stanley Cup should then be awarded to the best hockey team in Canada, which was Lord Stanley's original intent for the Cup.
But the problem, according to the Wall Street Journal article is this:
Even so, the chances of reviving the Stanley Cup this year are slim. The cup's trustees maintain that the cup won't be awarded this year because the NHL season was canceled in February. Under a 1947 agreement between the trustees and the NHL, the league controls the competition for the Cup.
This reminds me of the calls for baseball fans to become free agents in order to get their teams to pay more attention to their interests. But because fans interests are so dispersed, these calls go unheeded. Will Stanley's cup be freed? Stay tuned, sports fans.