Saturday, April 30, 2005

Upsets and Blowouts in Tournaments 

Here is the abstract of a paper in the most recent version of Economic Inquiry on upsets and blowouts in tournaments:
In equilibrium play of a two-round tournament, we find that underdogs exert more effort in the opening round whereas favorites save more effort for the final. Ability differences are therefore compressed in the opening round so upsets are more likely and amplified in the final so blowouts are more likely. Measures that reduce the need to strategically allocate effort make for a more exciting final but a less exciting opening round. Consistent with the model, introduction of a rest day between matches in the NCAA men's basketball tournament increased the favorite's victory margin in the semfinals by about five points.
The paper is "Early Round Upsets and Championship Blowouts" by Rick Harbaugh and Tilman Klumpp of Indiana University. Here's a link to the paper from SSRN. Here are some of Brian's thoughts on the NCAA basketball tournament's structure.

Friday, April 29, 2005

On steroids: "there oughta be a law" 

When I was a kid, and my parents got together with their parents, I'd listen to their conversation on the news of the day. When the talk would turn to the transgressions of one or more miscreants, as it inevitably did, they'd often utter the following: "there oughta be a law." This was a lazy idiom that, literally interpreted, implied my folks wanted the legislature to do something, to rid society of the apparent problem.

That phrase stuck with me, because much of the time, it didn't make sense. Sometimes the misdeed had already been sanctioned by the lawmakers, and sometimes it was just foolishness that a law had no hope of influencing. But the phrase was informative in terms of positive political economy: when people talk amongst themselves about the apparent evils of the world, they express a desire to be rid of them: "there oughta be a law." You-know-who has his ear to the ground, of course, and on hearing that, he tells the people that he will fix things.

Congress is doing exactly that with the steroid issue, with legislation slated to be introduced "in the next two to three months." One might grant that the politicians are well-intentioned on this, but nevertheless it is hard to imagine that what they fashion will be an improvement on what the leagues would do on their own. Greg's take at the Sports Law Blog (in an odd reversal of the norm) is more cynical than mine:
Perhaps Congress has discovered that professional sports is a major untapped source of campaign contributions. You certainly can expect some campaign money to be flowing in to the Capital in the next few months, as certain legislators have floated the idea of taking the testing for performance-enhancing drugs out of the hands of the leagues and placing it into their own.
The proposed legislation is not making much news however, and in the eyes of John Perricone at Only Baseball Matters, that's a scandal in itself. Scandalous or not, Congress getting into the act is, unfortunately, all too predictable. For whatever reason, the people like their politicians to make laws, and make them they will, whatever the consequences.

It will be interesting to see if the leagues can manage their way out of this pickle. As Greg suggests, it might take a bit of payola, in one form or another.

Thursday, April 28, 2005

Collegiate Football Divisions 

From the New York Times (registration required):

For more than 30 years, major college football teams have been labeled Division I-A by the National Collegiate Athletic Association, distinguishing them from Division I-AA teams, which play a lower-cost, and lower-profile, version of the game.

In time, exacting membership standards were established for universities to stay in Division I-A, including a requirement that every team average at least 15,000 in home attendance or be relegated to Division I-AA. At the end of last season, that regulation should have caused the expulsion of several universities that did not meet the attendance cutoff.

But at a meeting this week, the N.C.A.A. Division I board of directors will most likely save those programs by repealing or drastically modifying the requirement.

Talk of changing or eliminating the requirement has set in motion a series of related proposals to change other rules, including permitting more games between I-A and I-AA teams to count toward eligibility for bowl games and to do away with the designation I-AA.

These proposals, and a measure to allow a 12th regular-season game in college football, make up a weighty agenda for the Division I board of directors, who are to meet tomorrow in Indianapolis. "It could be a pretty energetic meeting," Robert Hemenway, the board chairman, said. "And I've learned not to predict how the board will act."

The 15,000 minimum attendance restriction places a constraint upon teams. Softening the constraint or removing it altogether provides an incentive for non 1A programs to seek entry into this division.

This (Phil - the maximum scholarship requirement (85 in 1A and 63 in 1AA)) has not stopped a significant number of universities from abandoning I-AA for I-A in the last few years. Some leaders of I-AA conferences say the watering down or elimination of the attendance requirement would increase the migration to I-A and devalue I-AA football. So when the Division I board of directors first began talking about changing the attendance requirement in January, a caucus of commissioners from I-AA conferences persuaded the N.C.A.A. to propose a series of compromise measures meant to appease I-AA members.
There are further ripple effects for divisions farther down the NCAA ladder. As programs migrate from 1AA to 1A distinction, teams from other divisions such as former D2 programs like Northern Colorado and South Dakota State migrate in to 1AA.

According to the article, the following items are up for discussion: 1. allowing a 1A team to count one victory against a 1AA team towards bowl eligibility each season (for the most part, the current rule allows a 1A program to count 1 victory against a 1AA program every four years. See page 10 of this NCAA rule book); 2. allowing 1 game against a 1AA opponent to count towards the minumum number of home games (each 1A team is required to have 5 home games each season); 3. scrap the 1A and 1AA designations and reassign each program into divisions with respect to each programs intentions to play in one of the current 1A bowl games or in the current 1AA playoff.

The last proposal raises some interesting questions. The perenially high-level 1A programs (the Texases, Michigans, and the Florida States of the country) and the perenially low level programs of 1AA are not likely to switch. But the "marginal programs" - the Middle Tennesee States, the Eastern Michigans, and, heck, maybe even the SMU's and Hofstras of the country are the interesting ones. What will these programs choose? Do programs lock themselves into a division with their initial announcement of intent? If not, how often do programs get to reannounce their intent? What effect will this have on conference allignments in the two divisions? Lastly, what will the divisions be called?
"We just don't want to be called I-AA," said Doug Fullerton, commissioner of the Big Sky Conference, one of the top I-AA leagues in the nation. "Even though it only applies to football, I-A schools recruit against us and call our basketball teams and track teams I-AA programs. They're not, but people and recruits might understand that better if we had a new term that was football specific."
A rose by any other name... . It's still not 1A football, and as long as there are separate divsions, recruiters will exploit the separation if it provides a recruiting advantage.

Getting to the Derby on two-a-days 

George Steinbrenner's Bellamy Road became the favorite for the Kentucky Derby when he ran off with the Wood Memorial in spectacular time. But now the Derby plot has a twist - Afleet Alex came back from a lung infection to blow away the field in the Arkansas Derby.

That performance was an eye-catcher, and now his trainer's innovative way of preparing the horse is getting some attention. Unlike most horses, Alex gallops twice a day most mornings, and has extensive walks before dawn and during the afternoon. Tim Ritchie adapted the method from his training days in three-day event competitions. It's too time intensive and costly to use with the ordinary claimer, but when you have a Derby horse you spare no expense. Interesting move. Jennie Rees has the story.

Wednesday, April 27, 2005

Things are Getting Interesting in the North Star State 

Tensions ran high at a meeting Tuesday regarding the proposal for the new Twins stadium that I blogged about here. Here is a Minneapolis Star-Tribune article on the meeting.

One day after being formally unveiled, the newest proposal for a stadium for the Minnesota Twins had a turbulent hearing Tuesday in Hennepin County as opponents argued that the $478 million project was being rushed toward approval without public input.

Though a slim majority of the County Board is believed to support the project, the seven commissioners postponed an initial vote on the 42,000-seat stadium for at least one week. The delay followed a two-hour session in which a familiar throng of supporters and opponents -- many of whom have long debated the merits of a new baseball stadium -- alternately praised and criticized the plan.

"I'm not surprised by it," Commissioner Mike Opat, a lead negotiator on the project, said afterward. "It's a big step." Opat said stadium supporters would have to wait to see whether a majority of the commissioners would vote for the project.

But Commissioner Linda Koblick, who objected to the attempts to give the plan a quick approval, said after the meeting it probably had enough votes to move forward.

"When does the public get to weigh in on this?" Koblick asked.

As I mentioned in this post, if the Twins and some Hennepin County supporters have their way, voters won't get to weigh in. Tom Powers from the St. Paul Pioneer Press weighs in:

I don't care if they build a ballpark or not. But if they are serious, the best way to get it done is to keep the people — and their elected representatives — out of it. It's absurd to call for a referendum on the .15 percent Hennepin County sales tax that would help pay for the facility.

Listen, my tax dollars are put toward a lot of crap that I don't like. Nobody asked me first. The citizens of Hennepin County should swallow the tax and keep quiet about it. It's a tiny amount. And they'll reap a disproportionate amount of the benefits, anyway, including job growth and an economic boost.

So citizens are only supposed to voice their opinions at election time? Other than that, put up and shut up?

Long-time readers of this blog know the general consensus of economists on this subject. Just for fun, what do Dennis Coates and Brad Humphreys have to say about this job growth and economic boost?

“Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy,” Humphreys and Coates wrote in a report issued last month by the Cato Institute in Washington, D.C. The institute commissioned the professors to study the economic impact of a deal proposed by Anthony Williams, the mayor of Washington, D.C.; under terms of the agreement, the Major Baseball League would move the Montreal Expos to the nation’s capital in exchange for a new, city-built ballpark.

The professors based their report on new data as well as previously published research in which they analyzed economic indicators from 37 major metropolitan areas with major-league baseball, football and basketball teams.

“The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area,” Humphreys and Coates noted in the report.

Here is the Cato publication by Coates and Humphreys referred to in the quote above. My little foray into the economic impact of stadiums is here. Here is a book on the subject.

Why Economics Should be a Required Course
for Journalists and Sportscasters 

About a week ago, I was listening to the Toronto Blue Jays' broadcast of a game between the Blue Jays and the New York Yankees. Jerry, the primary announcer was telling the listeners that the Yankees infield had a collected salary of 65 gazillion dollars while the Blue Jays infield was paid collectively only 32 cents --- Actually, I forget the exact numbers, but the ratio was roughly five or six to one.

He then proceeded to do the same thing with the outfield, the bench, the starters, and the bullpen. Given that the total payroll of the Yankees is about 5 or 6 times as large as the Blue Jays payroll, this wasn't surprising.

When he finished, his sidekick, Warren, chimed in

Does that tell you anything about why tickets to Yankees games cost five times as much as they do anywhere else in the league?

No, Warren it doesn't.

In simple terms, the supply curve for tickets to a game is vertical at stadium capacity. That means the equilibrium price of tickets is determined by the height of the demand curve and is not a result of the amount being paid to players. In fact, it is a causal factor in how much owners and G.M.s offer to pay players.

If the size of the payroll determined ticket prices, why don't promoters hire the ten best volleyball players in the world, pay them $10m. each per season, and charge $75 per ticket to watch them play?

To my colleagues: I know, I know: a better explanation involves marginal revenue and marginal costs, along with marginal revenue product and marginal factor costs.

Moneyball & Efficiency 

I've quickly noticed that the title, Moneyball, incites strong emotions. In spite of this, I'll risk a venture into some of the issues intersecting with Skip's insightful post on Monday. These issues touch on the nature of analysis in economics and highlight areas where sports examples make a valuable contribution. I'm no behavioralist by a long stretch. The simplified analytics offered by economics, such as the basic axiom that individuals try to maximize subject to constraints, are powerful tools. On the other hand, my "Virginia Political Economy" roots have never led me to to think solely in terms of "what is, is therefore efficient." In a dynamic world with heterogeneous individuals holding diverse and limited knowledge sets, maxmizing does not, to me, imply the absence of inefficiencies or the stock market-like instant arbitraging of new information across all environments. .

Sports provide glaring examples of the opposite so, for me, the hypothesis and evidence supporting the Moneyball premise has not been a stretch. For example, whether one buys the best-teams-first story of racial integration that Bob Tollison, Bobby McCormick, and I presented (2002 AER) or not, there is no doubt that black players were a valuable but underutilized input before 1947. Managers may have been restrained in using them prior to 1947, but the utilization of this resource did not occur evenly or even quickly. Instead, it dispersed over a generation in an S-shape just like Zvi Griliches' hybrid corn example. The "what is is efficient" rebuttal might be that these delays only reflect other constraints and costs such as customer preferences -- maybe, but these rebuttals quickly lead down a circular and non-testable cul-de-sac. Going beyond race, the same kinds of dispersion over time in the adoption of new sports "technologies" where customer preferences do not matter: the "pro set", the 4-3 defense, the shotgun, passing offenses, and film analysis much less non-sports examples like new corn varieties.

The Oakland As would not be the first sports example of a team finding a competetive advantage through the use of new and improved methods of selecting players. Tom Landry and Tex Schramm accomplished a similar thing in better organizing and analyzing information on players including using (early) computers. Competitors, the media, and even some of their veteran players mocked this "quantification" of skill as absurd at the time, but now, most teams utilize latter-day versions of their original ideas.

Tuesday, April 26, 2005

My shot at ESPN 

Everyone takes a shot at ESPN these days, so let me pile on.

The UEFA Champions League semi-finals kick off today, with the match between AC Milan and PSV. Which network has the US rights to the Champions League? ESPN, of course.

Are they televising it? No. And what are they showing on ESPN2? ...

Stump the Schwab!!

That takes some explaining. Here are two possibilities:
Hypothesis #1: ESPN management is lost, and in love with their own TV productions.

Hypothesis #2: MLS pays ESPN to limit coverage of superior soccer.
Hypothesis #2 is attractive. It represents a classic "contract in restraint of trade," that would enrich lawyers and expert economists alike, if true. But I'm afraid #1 is more likely in this case. Real sport takes a back seat to trivia on the nation's sports network.

Update: In the comments, "Occam's comb" offers "Hypothesis #3: the American Public would rather watch 'stump the schwab' than soccer. ESPN's management is rational & therefore shows the Schwab." Clearly (to my mind at least), #3 should be the default hypothesis. But it's hardly worth a blog rant, and I think #1 has a chance of being right.

I also note that ESPN will show the 1st leg of the 2nd semi-final tomorrow afternoon (Chelsea-Liverpool, arguably a more attractive game to the American audience). Last year we got two Champions League matches per week during the latter rounds, but not any more (as Brian had noted earlier). I'm guessing the ratings were poor, but I'd be interested to know the ratings for The Schwab vs. Champions League soccer.

It may also be that what was once a bundled contract has been altered into a piece rate contract, where ESPN's payment is based on the number of games they show, and not for the entire bundle of rights. The would be Hypothesis #4 I suppose, which is not necessarily in conflict with #s 1 & 3.

Monday, April 25, 2005

On Moneyball - without the $ 

JC discusses Steve Levitt's latest missile into the Moneyball camp. The missile is this:
I have assembled the average yearly offensive statistics for five American League teams over the period 2000-2004. The statistics are as follows:

Team......HR....AVG.....OBP.....SLG.....OPS.....R.....SO....BB
Team A...200...0.276...0.348...0.454...0.802...867...1045...591
Team B...222...0.271...0.351...0.450...0.801...865...1022...638
Team C...202...0.264...0.343...0.436...0.778...838...1029...633
Team D...193...0.269...0.341...0.437...0.778...829...1041...575
Team E...159...0.275...0.349...0.422...0.771...828...1022...619

So two questions for baseball fans:

1) One of these five teams is Oakland. Which one?

2) When you compare these statistics, do you really feel comfortable suggesting that the reason that Oakland has been so incredibly successful can be attributed to the fact that they are following a different offensive strategy than other teams that have achieved roughly the same measure of success (as measured by runs generated)?
JC notes that the answer to Steve's question is:
Team A: Red Sox
Team B: Yankees
Team C: Oakland
Team D: Cleveland
Team E : Seattle
Oakland looks very similar to the competition, but there is an important difference: they did it more cheaply than their competitors. If you can buy equally productive inputs at half the price, and you are as good as the best in the league, your strategy should be considered a success. "Moneyball" has two components to it: the money and the ball. Steve has his eye on the ball, but not the money part of the equation.

Was there an inefficiency that could have been exploited - the central claim of Lewis' book - during that period? As a Chicago-inspired economist I was naturally skeptical. But the claim holds up to econometric testing, as Jahn Hakes and I show in this paper. The good news for Chicago-style modeling is that the apparent inefficiency is no longer evident in baseball's labor market.

Policy lives on 

In case you thought the numbers racket was an artifact of a bygone era:
Twenty-five years after New York State started a legal version of these small-time tests of chance, the underground games survive, a pounding ventricle of New York neighborhood life run on a heady concoction of numerology and poverty, superstition and fate.

The games' endurance, particularly in big East Coast cities, is no great mystery. The street pays better odds than the state, tax-free, and money speaks every language in the city.

There is a woman in Upper Manhattan who takes bets in the back of a dive, a union man in the elevator of a newspaper office. Countless young men keep the books by memory, moving money from bodegas to banks, pleasing their mothers with a job safer than running drugs. The music of the dance is the promise of a tiny windfall, enough to change life a bit for a short while, for the price of a lucky number.

...The basic structure of the games has been the same for generations. A player picks a number, usually three digits, and bets anywhere from a fistful of coins to $30 that the number will hit, meaning that it will be chosen as a winning number of the day.

The chances of winning with a three-digit number are 1,000 to 1, and the payoff is usually 600 to 1, sometimes less. New York Numbers, the state-sponsored game, pays 500 to 1.

Methods for determining the winning numbers in the street game vary. Court and other records show that the Brooklyn Handle game gets its winning number from the total sum of money - the handle - bet during the day on all the races at a given horse track, with the last three digits of the handle being the hit. The game known as the 3-5-7 Old Way gets its first digit from the last digit of the total paid by the track on $2 bets to win, place and show for the day's first three races, its second digit from repeating the formula using the first five races and the last digit using the first seven races.
From a great story by Michael Brick in today's New York Times. It's full of good lines, to wit: "In New York, the police have been trying to shut down the numbers games for generations, at least when they were not helping to run them."

Sunday, April 24, 2005

Twins Might Get a New Stadium 

According to this article in the Minneapolis Star Tribune, Hennepin County (which contains Minneapolis) and the Twins have agreed in principle to public funding for a new stadium:

With a new promise of $125 million from Minnesota Twins owner Carl Pohlad in hand, Hennepin County will seek state permission to increase the local sales tax for a Warehouse District ballpark in downtown Minneapolis.

Under the terms of the plan to be unveiled at a Metrodome press conference Monday, the Twins and the county would build a $360 million, 42,000-seat open-air stadium. The site is near the confluence of Interstate Hwy. 394, the end of the Hiawatha Light Rail line and the proposed Northstar commuter rail in downtown Minneapolis.

The total cost of the ballpark project is projected to be $478 million, including bonding costs, site preparation and surrounding infrastructure, such as road and pedestrian improvements. No state money would be required.

The team, which has been seeking a new ballpark for a decade, would reap revenues from concessions, naming rights and luxury suites.
Why a local sales tax?
The use of the sales tax -- as opposed to user fees -- allows the county to issue tax-exempt bonds, which carry lower interest rates than taxable bonds. The sales tax also is a stable and predictable funding source that would grow along with the local economy.
In other words, this allows the county to have federal tax payers subsidize the stadium (in the last link, look in the second paragraph under the heading "Tax Exempt Bonds and
Economic Issues" for information on how such issuing tax-exempt bonds pushes public funding for projects onto federal tax payers). How much is the proposed tax?
The proposed 0.15 percent increase in the general sales tax is projected to raise $28 million a year and underwrite $353 million in county debt. County officials involved in drafting the proposal plan to issue 30-year bonds, but they predict the tax would raise enough money to pay off the bonds more quickly.
That isn't that much now, is it?
"This is a very workable plan because it does not require any state general fund money," (Phil adds: Senate Minority Leader Dean) Johnson (DFL***) said. "Three cents on $20 falls out of most people's pockets before breakfast."
The Twins have been trying to get public funding for years for a new ballpark, but the public has not been very generous. But 3 cents out of $20 isn't a big deal at all according to congressman Johnson. Taking this to the voters of Hennepin County will be like Shaq slam-dunking a basketball through a Little Tikes hoop, right?
One group that probably won't be voting on the tax -- which would amount to three cents on every $20 in purchases -- is Hennepin County residents: County and team officials said that requiring a public referendum would kill the deal.
Nice. Apparently voters think that 3 cents out of $20 is too much to give for a stadium. Maybe taxpayer money is more valuable to taxpayers than congressman Johnson believes. One thing is for sure - it is easier to spend other people's money than your own, especially when the other people have no say in the matter.

Here and here are two more articles on the new stadium. It's not quite a done deal though. The state still has to approve the tax increase.

*** In Minnesota, what is known as the Democratic Party in most states is called the Democratic-Farmer-Laborer Party.

Friday, April 22, 2005

Ballfields, Boardrooms, & The Yankees 

With 90 percent of the season yet to be played, not much should be made of any team's start. Still, Yankee-haters like me can hope! From a less passionate perspective, I have wondered about the direction of the Yankees for the last couple of seasons. Opposing owners, fans, and the media like to play up the Yankees financial advantage, but it is only part of the story, and in my view, a secondary element. Their budgets are large but still limited. Coupled with roster limits, when they make poor player choices, they will pay.

In Chapter 2 of my new book, From the Ballfield to the Boardroom: Management Lessons from Playing Fields, I make the case that the Yankees run of success since 1996 has a lot more to do with sound and well-coordinated personnel decisions than financial superiority. From 1979-1994, the Yankees enjoyed a financial advantage that translated into mediocrity. They used their deep pockets to pusue free agents, who, for the most part, were big names beyond their best years such as Jack Clark, Danny Tartabull, Jesse Barfield, Wade Boggs, Jimmy Key, Andy Hawkins, Tim Leary, Jim Abbott, and Steve Howe They developed few of their own prospects. Team performance turned around when Bob Watson and Gene Michaels built the team around young (and cheap) players such as Bernie Williams, Derek Jeter, Mariano Rivera, Andy Pettitte, and Jorge Posada, while using their free agent war chest to plug-in holes with solid but non-spetacular veterans such as Brosius, Knoblauch, Martinez, and Nelson. Even a name as big as Roger Clemens really played a supporting role for most of his stay. The main benefit of the Yankees financial clout has been to help them extend their run of success two or three years beyond what most teams might be able to pull off with a given core.

For all of the media hoopla in the last two years over the Yankee signings, the decisions from the Yankees' brass have begun to resemble those of the 1980s and early 1990s. Jeter, entering his 10th full season, and Posada, who is in his mid thirties, are the "young blood" in the lineup. The only prospect developed in recent seasons, Alfonso Soriano, now plays in Texas. Two of the starting pitchers are over 40. Rivera turns 36 while Mussina and Williams turn 37 this year. Jason Giambi is a deflated shadow of his steroid-enhanced self. If Mussina, Johnson, and someone else pitch very well all season, they may make some noise. If not, the ALCS collapse last year may have forshadowed gloomier days for Yankee fans.

Odds & competitive balance 

Chelsea are odds-on favorites (at 10-11) to win the English Premier League. Next season. Man Utd are second favorites at 5-2, Arsenal close behind at 11-4. Every other club is a rank outsider - Liverpool is quoted at 14-1 and the rest are 66-1 bar. As Clive Tyldesley says in The Telegraph, "Unless Bill Gates takes an unexpected interest in Bolton Wanderers, the grid for the start of the next race will consist of four racing cars and 16 dodgems."

That's not a very balanced competition, in my view. Most measures of competitive balance are of an ex post nature - standard deviations of winning percentages, concentration of championships won, and so on.

Implicit in the betting odds are good approximations to the probabilities of winning a championship (unless you are a follower of Richard Thaler or even Steve Levitt). I've long thought that these ex ante measures offer a uniquely informative alternative to the traditional measures of balance in sports leagues.

Irrational Expectations on Draft Day 

From Tyler Cowen at Marginal Revolution:

Cade Massey and Richard Thaler say yes:

...we analyze the decision making of National Football League teams during their annual player draft. This is a domain in which incentives are exceedingly high and the opportunities for learning rich. It is also a domain in which multiple psychological factors suggest teams may overvalue the "right to choose" in the draft -- non-regressive predictions, overconfidence, the winner's curse and false consensus all suggest a bias in this direction. Using archival data on draft-day trades, player performance and compensation, we compare the market value of draft picks with the historical value of drafted players. We find that top draft picks are overvalued in a manner that is inconsistent with rational expectations and efficient markets and consistent with psychological research.

Here is the NBER link; here is a free version of the paper. Here is an article on the biggest NFL draft busts.

I haven't read through the entire paper yet, but I read through the introduction and parts of the discussion of the empirics. I was interested in how Massey and Thaler treated fan preferences for draft picks. They discuss it, but do not rigorously examine it. From page 34 of the free version of the paper:

A more subtle argument is that the utility to the team of signing a high draft pick is derived from something beyond on-field performance. a very exciting player, Michael Vick comes to mind, might help sell tickets and team paraphernelia even if he doesn't lead the team to many victories. We are skeptical of such arguments generally. Few football playerrs (Vick may be the only one) have the ability to bring in fans without producing wins. But, in any case, if high draft picks had more fan appeal, this shold show up in their 6th year contracts, and we find no evidence for it.

Fan preferences for draft picks matter. Suppose that the Vikings believe that player A, a linebacker, is the best player available in the draft that addresses what they see as the most pressing need. Suppose the fans *strongly* want the Vikings to draft player B, a standout collegiate wide receiver. If the Vikings do not draft B in favor of A, fans in attendance at the draft will roundly boo the choice and the Vikings will be "fanhandled" in the local media and on talk radio. These sorts of attacks affect teams (unless the GM and the coach like to be personally attacked and to be booed) at the margin and rational teams will account for them. If the Vikings draft player B, it will not be to generate fan interest but because of existing fan interest for the team. It's a sort of customer service. If you've ever worked in retail, you've no doubt heard that the "customer is always right." A rational retail manager must balance customer beliefs with his own.

If player B turns out to be a bust and player A turns out to be solid performer for another team, did the team act with irrational expectations? No. It may have very well acted with very rational expectations.

San Antonio Wants an MLS Franchise 

From the Kansas City Star:

The arrangement should look good to anyone interested in owning a team in San Antonio. Here is what the city has offered a prospective owner, according to the Express-News:

Rent-free use of the Alamodome for 20 home games each year for at least the next five years. Renting the Alamodome has cost between $35,000 and $200,000, with the average tenant paying $119,000.

The MLS franchise will keep all revenue from its ticket sales, suite rentals, temporary field signage, concessions and the sale of merchandise and novelties. It also will keep 95 percent of advertising sales and 70 percent to 80 percent of what it collects from the sale of naming rights for the Alamodome.

The team will get half the rents collected for any other event in the Alamodome, except for conventions, events that are already booked, and NCAA and Olympic events.

San Antonio will provide $75,000 of a $100,000 campaign to sell 5,000 season tickets. MLS has mandated that a new team in San Antonio sell 5,000 season tickets before a franchise is awarded.

The city will pay $1.115 million for artificial turf and replace it when necessary, $1.050 million to finish out 14 luxury boxes, $426,000 to refurbish the team's offices (which are rent-free) and $150,000 for new drapery. Yes, drapery.

In the words of Colonel Frank Slade (Al Pacino) from Scent of a Woman: "HOO-AAAAAH!" What does San Antonio expcet to attract that isn't already there?

Wednesday, April 20, 2005

Yanks Close in on New Home 

From the NY Times:
The New York Yankees are reportedly close to an agreement with city and state officials to build a new stadium.

The New York Daily News reported in its Saturday edition that lawyers from the city, state and team are finalizing a ``memorandum of understanding'' and an official announcement could come as soon as early May.

According to the report, the new stadium will be made up of two separate structures: an exterior wall, designed to replicate the original Yankee Stadium built in 1923, and the interior stadium itself, which will rise above the exterior.

According to the report, the Yankees will finance the construction of the structure and the state of New York will kick in cash for various bits of infrastructure and public works projects around the stadium (if state and local governments need to give subsidies for projects around ballparks, that should tell us something about the development value of sports stadiums).

With the resistance to public funding for construction of the stadium around the country, the Yankees and the Red Sox are apparently focusing their efforts on getting infrastructure subsidies. Are these signs of any kind of trend or are these just aberrations?

Here are some thoughts on the Yank's stadium issue from the Hardball Times. HT to the Bench Jockey for the Hardball Times link.

Baseball and charity 

Ewing Kauffman insisted on an unusual clause in the contract when he sold the Kansas City Royals five years ago: any profit made on a subsequent sale of the team must be donated to a Kansas City charity.

The obvious intent of the clause is to keep the club in KC - it makes it more difficult for other suitors to motivate the current owner to sell. But there are two unintended consequences that I can think of. Most obvious, the financial incentive for the new owner to create value in the franchise is muted. While the owner clearly remains interested in operating profit, investment for the long term is penalized by the charity clause.

Second, the value of the franchise should continue growing as the economy grows - more wealth and a limited number of MLB franchises equates to rising franchise values. But this growth cannot be captured by the current owner. Hence the clause, while keeping the club in KC for the short term, also creates an incentive for a premature sale. Presumably, a Kansas City bidder would emerge and be able to purchase the franchise at a bargain price relative to what it would go for if all bidders were on equal terms. But then that makes the next owner the beneficiary of the charity clause.

Still, it is an interesting concept - a costly but creative way to contribute to locational stability of sports teams. Since the current owners can't profit from the sale of the club, they do not incur the cost of inserting the clause in a future sales contract. Hence the clause may be self-perpetuating. If MLB had a rule requiring that all contracts transferring ownership have such a clause, some of the stadium shenanigans would be avoided. Which is one reason it is unlikely to happen, of course. For more on this, see The Daily Lancer, a Royals Blog.

Winning is not the objective 

The Tampa Bay Devil Rays may have one of the worst records and lowest player payrolls in Major League Baseball, but their financial picture apparently is strong.

In fact, the team is among the most profitable teams in baseball, booking $27.2 million in operating income in 2004, according to new financial analysis by Forbes magazine.

The Rays had a higher operating income - earnings before interest, taxes, depreciation and amortization - than any other team in the major leagues last year except the Baltimore Orioles, according to an estimate published in the latest edition of the magazine.

...The Forbes analysis and ranking comes on the heels of Tampa Bay Devil Rays manager Lou Piniella and fans complaining that team management isn't spending enough to recruit top quality players. Its $29 million payroll is baseball's lowest.
$20 million in revenue sharing - a welcome subsidy for teams that choose not to compete - is responsible in part for the rosy financials of the Rays. King George, you can be sure, is fuming.

I get the sense that the Rays' strategy is not about winning games in Tampa, but rather to cash in on a move to better digs, and perhaps the sale of the franchise.

Spring Games 

Across the country, spring football practice is wrapping up. The last scrimmage is billed as the spring game and has become an annual event marking the end of spring practice, and housands of fans watch these games. Oklahoma State held its spring game in front of 7,000 people on Saturday. Over 38,000 showed up to see Steve Spurrier’s first spring game with South Carolina. Over 8,000 fans showed up to see the University of Pittsburgh squad play on a high school field. Over 23,000 came to watch Phil Fullmer’s Volunteer Squad. Missouri held it's Black and Gold game this past weekend and also drew thousands of fans.

None of these numbers come close to those at seen annualy at the University of Nebraska. Nebraska is known to have very loyal fans - they are riding a long-time consecutive sellout string that dates back to the early 60's. The “sea of Red” one sees at Lincoln’s Memorial Stadium actually spills out around the state. Nebraskans love their Huskers, and nowhere is this more evident than in their annual Red and White game - over 63,000 showed up this year for the spring game. Oklahoma, once NU's biggest rival, has fans that are also loyal - but *only* 41,000 showed up for their Red and White game.

While collegiate athletic departments are not profit maximizing corporations, the demand for the various sports is an important determinant in whether the sports can be expected to be viable in the long-term. Notre Dame is an interesting exception, but with fans like Nebraska’s the Huskers shouldn’t expect to be down for long. Big 12 foes best try to get them while the gettin' is good.

Monday, April 18, 2005

Monday Night Football 

Monday Night Football is moving to ESPN while Sunday night football is moving to NBC. ABC will not have any NFL broadcasts. NBC needs a ratings boost, especially on Sundays where a bunch of housewives have been doing rather well in the ratings.

An interesting twist is NBC’s deal that gives it a flexible schedule:

NBC will devote its entire Sunday night prime-time lineup to the NFL. The Sunday night games will start at 8:15 p.m. ET and include flexible scheduling for the final seven weeks of the season, details of which will be developed by the league.

That issue has become more pressing since parity caused by the salary cap has resulted in teams moving up and down the standings annually, leaving bad teams that were strong the previous season in prime time and good teams that were bad the past season off of it.

There’s a lot of risk in the preset schedule. People want to see teams in contention.Who knows, for instance, how good the Steelers and the Bucs will be?

Happiness research and policy 

There is more to the Benthamite juggernaut than I knew of when I posted on happiness research and taxes last week. You can get a good sense of this research program from a lucid and fascinating discussion with Richard Layard at RN's Background Briefing (ram or asx). **

Layard's remarks were very intriguing, so I bought his new book Happiness, even though I oppose his policy proposals. At one point in the program Layard claims that Western policies have been based on "excessive individualism" in recent years, a statement which hints at the basis for his unorthodox stance on policy. Yet as Layard also makes clear, people in Western countries have the highest levels of happiness in the world. Reorienting economic policy away from individualist-based incentives and toward collectivism seems at odds with both recent experience and more stylized empirical evidence. But there are interesting puzzles and paradoxes here, hence my purchase of the book.

**Be warned - at 50 minutes it's a lengthy listen!

Baseball's Labor Market: From the Ground Up? 

From the Baltimore Sun:
Instead, envision the baseball impossible: Neither the New York Yankees nor the Boston Red Sox make the 2005 playoffs. Neither one represents the American League in the World Series. ...

But there's another squad lurking in the shadows, one that could challenge anyone, including the Red Sox and Yankees: the Minnesota Twins.

"They are good," said Boston manager Terry Francona, whose team, like the Twins, holds spring training in Fort Myers. "They've always made very good moves. They have a great minor league system."
Teams can assemble players through free agent acquisitions, trades, and their respective farm systems. Rather than hitting the free agent market in the offseason, the Twins have chosen to build their teams with their farm system. Their scouts identify good players who can learn the system and the minor league system that teaches how to play "the Twins Way". So when they are brought up to the majors, they have the skills, relatively rough though they may be, to fit in with the rest of the team and to contribute. In other words, they acquire the human capital necessary to compete for the Twins.

Still, if developing one's own players has been so successful for the Twins, why don't more teams do it to the extent the Twins have done? Offhand, I can think of a few reasons:

1. The home team's fans prefer not to watch a glorified Triple A team grow into a major league contender.
2. The probability that the players won't gel are too low.
3. Teams don't want to spend all the development costs to train players who will eventually end up playing somewhere else.
4. If the team's owner seeks enjoyment as well as cash, the owner may not want to rub elbows with up and maybe-comers.
5. The team's fans don't care that much about players who came up through their farm system.

It helps playing in the weak AL Central, but winning the last three division championships suggests the Twins are doing something right.

Friday, April 15, 2005

The Strike Zone and the Probability Density Function 

A little over a decade ago, I did play-by-play announcing for the AA London Tigers, a London, Ontario, affiliate of the Detroit Tigers. One night, during a lengthy rain delay (and we had stopped broadcasting from the ballpark), we had one of the umpires up in the press box telling us war stories -- the usual macho stuff.

At one point I asked him about pitches over the black part of the plate -- how difficult is it to tell when a pitch is just over the black and when it is just off the black?

He angrily grabbed a piece paper. He put the paper on the counter and slammed an empty Coke can on the edge of the paper. Then he picked up another empty Coke can and slammed it down just off the edge of the paper. He glared at me [and here I'll use the standard Lenny Bruce substitution]:
You show me a guy who tell those two apart and I'll "blah" his "blah"!
When we resumed our broadcast, I decided not to relate that story on-air.

Instead, I launched into a monologue about how pitches in the middle of the strike zone are almost certain to be called strikes, how pitches near edge of the strike zone are much less likely to be called strikes, and how pitches outside the strike zone still have some probability of being called strikes.

I then looked at my co-broadcaster and said,

So you see, Joe, the strike zone is little bit like a probability density function. The probability that a pitch will be called a strike depends on where it is. When it is on the edge of the strike zone, we don't know for sure whether it is in or out of the strike zone, and the less certain an umpire is that the pitch is in the strike zone, the less likely that pitch will be called a strike.
It was this umpire's bold statement about how difficult it is to call balls and strikes that played a part in my earlier argument that we should use computer triangulation to call balls and strikes.

Thursday, April 14, 2005

NBA Age Limit 

An age limit, such as the NFL's, has been tossed around by the NBA. The success of the NFL in withstanding the court challege from Maurice Clarrett made serious consideration by the NBA a near certainty. Jermaine O'Neil has raised the spector of racism behind such a move. While there may be race-based consequences, the motivations are summed up not by black and white but by green. A statement by Grant Hill in the New York Times and cited in an article by Jason Whitlock on ESPN.com gets to the heart of the motivation

"I always thought that it was the purpose of the union to protect its members, not potential members ...I think if anyone gets left out, it's the older players, guys who put equity into this league, card-carrying members paying their dues to the union. I would hope they would be protected."

If only the motives of all interest groups were so transparently stated! Yahoo!'s Dan Wetzel suggests another motivation, one for owners, growing out of their desire reduce the uncertainty of acquiring younger players. This motive is a little more subtle. On the one hand, the "average" owner does not gain or lose competitiveness relative to other teams if all get lucky or make mistakes on occassion. However, the relevant decision horizon is probably much shorter than the period of time long enough for all of the luck-mistakes to balance out. Over the short haul, increased uncertainty may expose owners to large, asymmetric risks. I'm not totally sold, but it's possible. Alternatively, owner support may be as simple as the ubiquitous desire to reduce uncertainty in decisions.

Wednesday, April 13, 2005

Taxes & happiness: a silly argument 

While many of us are filing income tax returns, comes cheerful news that taxes are good for us. I'm not buying it.

The proposition that taxes are beneficial in and of themselves is based on the new "happiness research," a logical trap that has captured the mind of Lord Richard Layard of the London School of Economics. Here's the core of it:
"[M]ost people are not rivalrous about their leisure," Layard says. "But they are rivalrous about income, and that rivalry is self-defeating. There is thus a tendency to sacrifice too much leisure in order to increase income."

Taxes are clearly performing some useful function beyond that of raising money to pay for public spending, he concludes. "They are holding us back from an even more fevered way of life."
Once upon a time, it was fashionable to defend high income taxes by claiming that the elasticity of labor supply was zero - i.e. that people did not respond to higher taxes by working less. Now we encounter exactly the reverse argument: high taxes are good because they do cause people to work less!

A nice point which illustrates the weakness in Layard's argument was recently made by Don Boudreaux at Cafe Hayek. Rubella, smallpox, and polio have been virtually eliminated in modern economies, but measures of well-being anchored in relative status fail to pick up these tangible benefits. I prefer the old fashioned, hypothetical "willingness to pay" metric here: how much would you be willing to pay to avoid living in a country in which the risk of disease stood at the level of a century ago?

To add to Don's point, these diseases have disappeared due to sustained efforts by highly skilled people who are motivated to attack them. Higher taxes and less work effort implies that progress on this front will be retarded - and fighting disease is just one example.

"Happiness" studies - and all arguments based on relative status - fail to capture the many benefits from work and production. Systems of thought which ignore the fact that work yields tangible benefits for mankind are just silly. It is sad to see Lord Layard fall into that trap.

Tuesday, April 12, 2005

The Coaching Search 

The University of Virginia is building a new basketball arena, the John Paul Jones Arena. Here is a movie of what the inside of the arena will look like when it's finished. Costing nearly $130 million (double the construction cost of the beautiful Mizzou Arena on the campus of the University of Missouri), the 15,000 seat arena's construction is 100% funded through private sources.

But the Cavaliers need a new coach. At the end of the just-ended basketball season, coach Pete Gillen stepped down following a last-place finish in the ACC. The new arena - and the new revenue streams that it will create - is expected to bring in plenty of pecuniary fodder to bring in a big name coach. But the big names are apparently balking. Andy Katz reported that Tubby Smith of Kentucky has no interest in the job. Neither does Rick Barnes of Texas. But the search is still on-going and people can change their minds.

But what does it take to bring in a big dog? Here's what Tubby reportedly makes at UK:
Smith, 53, has six years left on a $21 million, eight-year contract, one of the most lucrative in college basketball. He also gets a two-year extension at about $2.3 million per year if Kentucky reaches the Final Four, a $1.5 million bonus if he stays through April 2007 and a $2.5 million bonus if he stays through 2011, Stricklin said.
A new arena surely helps pay the bills, but going from Kentucky or Texas to Virginia would not be a lateral or an upward move. That's not to say that UVa couldn't pull a big-time coaching hire, but it will be a tough sell to bring in established coaches from established (and lucrative jobs) in power conferences.

Whoever is brought in, there's going to be pressure to win now, especially once the new arena opens. In the rugged ACC, that's a tough thing to do. A more-established coach would have a better time handling this pressure than someone with no head-coaching experience (like Quin Snyder when he was hired at Missouri) or really young coach without major-college head coaching experience (like Jeff Capel). This doesn't mean that a young and inexperienced coach couldn't do well at UVa, but the pressure to win at such a school makes it that much more difficult. But can they lure Tubby Ball to UVa?

Florida flap 

The Marlins' stadium proposal is meeting resistance in the Florida legislature.
State Rep. Fred Brummer, R-Apopka, who chairs the House Finance and Tax Committee, is refusing to hear the request for a $60 million state sales tax rebate.

...Miami-Dade County and city of Miami officials, who are seeking the rebate to round out a $420 million plan for a ballpark east of the Orange Bowl, were already scrambling to prepare economic analyses on the benefits of a stadium for a Wednesday hearing before the Senate Commerce and Consumer Services Committee, when Brummer said he wouldn't hear the bill.
I would not expect a high quality analysis from this contingent. My evidence? Rep. Carlos Lopez-Cantera, R-Miami:
Lopez-Cantera said he will present his own economic analysis this week showing a stadium's benefits.

"I told [Brummer] that if you can find an economist that says one thing, you can find an economist that says the opposite," Lopez-Cantera said.
Slander upon my profession calls for a response!

Lopez-Cantera was quoted in a story from the Ft. Lauderdale Sun-Sentinel. Across the state in St. Petersburg, columnist Robert Trigaux finds two economists who actually make a similar claim - that economists as a group agree on this issue.
"The number of economists not on the consulting payrolls of leagues, teams or chambers of commerce who think that (sports) stadiums provide net economic benefits for an area could fit comfortably into a phone booth or a Geo Metro," says University of Chicago economist Allen Sanderson.

Adds Clemson University economics professor Raymond Sauer: "Academic economists are in almost unanimous agreement that sports venues are not economic engines."
Sanderson goes on to say that "If citizens want to spend money on a sports facility - and don't rob the poor in the process - just because it would be fun, and with their financial eyes wide open in terms of it not being any catalyst for economic growth, then I have no problem with such a commitment." Wow- we agree again! Take that Mr. Right Honorable Lopez-Cantera!

That Marlins' stadium is pictured in the Sun-Sentinel story. It looks impressive, and no doubt would be a big improvement over their current digs. But that does not mean that citizens in Pensacola or Fort Myers are happy about sinking their tax dollars into it.

Monday, April 11, 2005

More on the Economics of Curling Telecasting 

An exercise in marginal/incremental studies:

The 2004 -5 curling season is now over, with Canada having soundly defeated Scotland in the finals of the World Championship on Sunday with a record-breaking two five-enders. I would like to take some time, now, to explore more about the outrage so many curling fans felt about the television deal made between the Canadian Curling Association and the CBC.
At most championships, there are three draws (games) each day for the round-robin portions of the tournaments. In the past few years, the Canadian sports network, TSN, had televised all three of the daily draws during the week, leaving the semi-finals and the finals to CBC on the weekend.
This season, when fans began trying to watch the early games of the round-robin tournament for the Canadian Women's Championship [formal name: The Scott Tournament of Hearts], we were stunned to learn that the Canadian Curling Association had signed a contract with CBC allowing CBC to telecast only two games per day; further, CBC decided to broadcast some of the evening games on a digital channel that not many people subscribed to. Fans were livid. At the time, I wrote:
------
"I couldn't believe it! I was so distressed, I fired off the following letter to
the Curling Canada Association:
Okay, folks. Whose wise idea was it to show curling on CBC's extremely lame "Country Canada"???? We don't get it where we live, and we will now miss a LOT of curling.I sure hope CBC paid somebody a lot of the taxpayers money to make sure that fewer Canadians now have less access to watching curling on television.
"I was wrong; we can get Country Canada here if we sign up for digital cable. And so this morning, we committed ourselves to spend a lot extra over the next few years to get digital cable boxes so we can watch curling. As I said, I was furious."
------
I have since learned that when TSN made a bid to for the broadcast rights to all the championship series, their bid was also for only two games per day, rather than all the round-robin games. The reason both TSN and CBC made such an offer to the Canadian Curling Association was, I suspect, a strictly marginal one:
The expected marginal revenue of carrying the third game each day (ordinarily, but not always, a game not involving Canada's team, since each team usually had only two games per day) was likely to be quite low, especially if the third game to be carried would have been the morning draw. Meanwhile, the expected marginal costs of carrying a third game each day were considerably higher (on a per-game basis) than the those of carrying the second game each day. Carrying a third game would involve dramatic overtime expenses for the broadcasters and crew or necessitate having a complete second team in place to telecast the third game each day. Either way the marginal costs of carrying the third game skyrocketed in comparison with the first two games.
The above is not the explanation offered, but it seems plausible. Neither network wanted to carry all three games each day.

But the Canadian Curling Association [the CCA] is still displeased with the deal they negotiated with the CBC. See here for details and additional links.

My take: It looks as if the CCA should consider suing its lawyers if, in fact, the CBC made decisions that the CCA would have opposed but were not covered in the terms of the contract.

Sunday, April 10, 2005

What an afternoon! 

Tiger Woods smoked Amen Corner this morning - seven straight birdies! - and takes a three shot lead over Chris DeMarco into the final round at The Masters. They tee off at 3pm. Just to spice things up, Phil "Spikes" Mickelson and Vijay "Phil's a Punk" Singh are paired together two groups ahead. Methinks the Gods of golf have spoken.

But before that, there is the little matter of Barcelona-Real Madrid at 1pm (Gol TV). I'd better get the grass cut quickly!

Hogs at the trough 

One of the most lucrative sports empires in the world, NASCAR is asking the hard-working residents of Florida to contribute $75 million in sales taxes toward a new ''NASCAR Hall of Fame'' in Daytona Beach.

The plan is to build a world-class facility that presumably would display acres of blown engine parts and other historic racing memorabilia, attracting hordes of stock-car fans from far and wide.

Nothing wrong with that, except that NASCAR can well afford to build its own Hall of Fame. Last year, it raked in $2.1 billion on merchandising alone.

Competing with the stock-car moguls for subsidies are the Orlando Magic, which wants $99 million for a new basketball arena; Fort Lauderdale and other cities seeking funds to improve their spring-training parks; and of course the long-suffering Marlins, who want a second $60 million tax break to cement a financing package for a new stadium next to the Orange Bowl.

...Florida is already on the hook for half a billion dollars in glorified welfare to 14 pro franchises as well as other sports-related rip-offs -- including $50 million for the PGA World Hall of Fame in St. Augustine and $15 million for the International Game Fishing Association museum in Dania Beach.

You can hardly blame the guys at NASCAR for trying to get in on the action. If taxpayers can be fleeced for stuffed bass and antique golf shoes, why not for 73 old pairs of Richard Petty's wraparound sunglasses?
From Carl Hiassen, on the Opinion page of the Miami Herald (subscription required).

A dynasty in ruins 

Mark Heisler chronicles the rise and fall of the Lakers in today's LA Times. Here's his bottom line.
It's not written anywhere that a great organization has to stay great. The Celtics all but invented this league, but they haven't won a title since 1986 and aren't closing in on their next one.

Nor would I hold my breath waiting for the Lakers' next one. Their last miracle took nine years from the '91 Finals to the 2000 title, so if they pull off another one just like it, they'll win their next title in 2013.
I was delighted when the Pistons won last year, a complete reversal of my sympathies from the days when Magic and Coop battled the dastardly Laimbeer and Mahorn. Nevertheless, it is sad to see the Lakers fall so precipitously. Many fingers are pointed at Kobe these days, but the ego that is Shaq does not come off well in Heisler's piece either.

Saturday, April 09, 2005

Marketing at The Masters 

The members are not in hot pursuit of revenue at Augusta this week, but golf's sponsors are making the most of it. Witness two interesting facts from today's Times. First, a unique promotion on Callaway drivers in Europe: "If Phil wins, you win."
[F]for the 13 days before the start of the Masters, punters in the United Kingdom, Ireland, Germany, France and Sweden who bought a Big Bertha Titanium 454 driver were informed that if Mickelson wins this week, they would get their money back. Sales in the UK went up by 500 per cent.
If he loses, I'll bet we see a few clubs returned next week. Regardless, go Phil!

John Daly is also in business this week. Many will recall that he was once sponsored by Callaway, with a contractual clause that he remain sober. Daley's latest gig shows he's had enough of that. It's with Hooters, and among other goodies, it provides Daly "an unlimited lifetime supply of Hooters food and beer."

Daly is quite a character - an episode with "Big John" is one of the more memorable chapter's in Rick Reilly's laugh-a-minute Who's Your Caddy. It's worth the price of the book, as is Reilly's account of a round with Deepak Chopra. All is not peace and tranquility on the fairway with Deepak! Great stuff.

The New Deal 

Peter Angelos and Major League Baseball have reached a deal regarding compensation for the move of Les Expos to our fair nation's capital. MLB and Angelos have reached an agreement on the development of a new cable network, Mid-Atlantic Sports, that will have the rights to broadcast the majority of Nat's games.
On Thursday, MLB and the Orioles ended 6 months of negotiations and came to an agreement on a package to indemnify the Baltimore franchise for relocating the Montreal Expos in Washington, DC. It also ends years of saber rattling by Orioles owner Peter Angelos, which by the looks of things, seemed to have had the desired affect with the brass at MLB headquarters. Angelos won’t be suing, and MLB will be, well, paying. It wasn’t the Camp David Accord, but the impact of the package will have lasting effects for MLB, both internally and externally.
Here's a Washington Post article on the deal.

Major League Baseball and the Baltimore Orioles announced yesterday the creation of a regional sports network that will televise Washington Nationals games, while designating the vast majority of ownership and any profits from the venture to the Orioles. ...

Under the terms of the deal, which was negotiated over the last six months, the Orioles will own 90 percent of the regional sports network this season, with baseball owning the rest, according to sources with knowledge of the arrangement. Baseball's share of the network would increase over the next 20 years, but it will be capped at 33 percent. ...

The deal prompted expressions of concern by groups interested in buying the Nationals from Major League Baseball. They said it raised questions over whether the team would be able to fully take advantage of the Washington media market, the eighth-largest in the country and nearly three times the size of that of metropolitan Baltimore.

Here's a link to a previous post on this blog about the negotiations. It sure looks like Angelos played the game right and got the majority of the spoils. The Nationals get a guaranteed $21 million from the agreement. According to 2001 Selig Report data obtained from Rod Fort's webpage, the average MLB team earned just over $19 million in local media revenues. The Orioles earned just under $21 million.

It's hard to believe some of those numbers. According to that data, the Cubs earned $23.559 million in media revenue. The Cubs play in the third-largest city in the nation, are the most popular baseball team in the city, and are owned by the Tribune company - which also owns WGN TV and Radio. But the cross-town White Sox earned $7 million more. I doubt that the Tribune company is paying the Cubs market value (assuming the $23 million figure is correct). That being said, some believe that the $21 million is low for the Washington market.

That being said, Angelos keeps majority control over the current lucrative broadcast media outlet for the Nationals (local cable) and that hinders the ability of the Nats to compete.
One person familiar with sports television deals, who asked that his name not be used, said the $21 million rights fee for both cable and over-the-air broadcasts sounded low for the Washington market. The person said the rights fee would not likely increase the value of the team, but it could reduce the amount baseball can earn from the sale.
While it may bring peace between Angelos and MLB, it may push the Expos to be what they have been for so long - MLB's version of the Washington Capitals or the Washington Wizards. Plus ca change. But don't expect Angelos to spend this money on the O's because that money is not generated by the O's... it's generated by the Nat's. It sounds like Angelos sure got a lot of gravy with his potatoes.

Hat tip to the Business of Baseball for the Maury Brown link.

Friday, April 08, 2005

New Curling Blog 

Back in February, I posted a diatribe on both The Sports Economist and The Eclectic Econoclast about the poor deal that the Canadian Curling Association made with the CBC for televising the major curling events in Canada.

That posting led to an e-mail exchange with Alan Adamson, and we have recently launched a new blog, Curling, which is devoted entirely to the sport of Curling -- it strategies, the media problems, techniques, etc.

If Canada wins the tie-breaker this afternoon (so that CBC will be interested in televising the game at 6pm EDT this evening), and if Blogger doesn't continue to act up, I will be live-blogging the game as it progresses.

Thursday, April 07, 2005

Whither the Sole Owner of a Sports Team? 

The LA Times had this article recently on the owner of the Los Angeles Dodgers, Frank McCourt.

When he sold the Dodgers to Fox Sports Enterprises in 1998, having lost $12 million the previous season, Peter O'Malley declared Major League Baseball's era of family ownership over.

Player salaries had grown too high for a baseball-only business to succeed, O'Malley said. He figured that corporate owners such as Fox Sports, a unit of media giant News Corp. with the ability to cross-promote the team through its TV properties, were the wave of the future.

This week, Frank McCourt begins his second season of trying to prove O'Malley wrong.
The ownership of a sports team by a media conglomerate (FOX, the Tribune Company) could be a way to improve the overall profitability of the conglomerate. Suppose that a conglomerate has decided that it is going to try to buy a team or its media rights. If owning a team outright improves the profitability of the conglomerate more than simply buying the rights to broadcast the team’s games, we’d expect it to try to buy the team. Just how that improvement could occur is easier said than explained because there are so many ways that owning a team can improve “the bottom line.” In the case of FOX and the Dodgers…

Executives at parent News Corp. declined to comment for this article. However, people familiar with the company's strategy said it already had accomplished its real purpose in buying the team: establishing a regional cable sports network in the nation's No. 2 media market, thereby thwarting the similar goal of rival Walt Disney Co.'s ESPN.

The Dodgers were on the market for two years and were finally sold to McCourt for $421 million. Now, in his second year, he’s adding some new wrinkles to the old ballpark – some obvious and some not-so obvious.

Fans returning to Dodger Stadium this weekend for the Freeway Series against the Angels are seeing a number of changes in the 43-year-old ballpark aimed at increasing revenue.

For example, some 1,600 premium seats have been added along the baselines. A 3-foot-high, 1,100-foot-long electronic "ribbon board" has been installed on the facing of the loge section to flash advertising, along with scores and statistics. Chicago-based Levy Restaurants, which used to handle just the premium dining, has taken over food concessions for the whole stadium.
He’s added more seats to increase revenue at the gate, a ribbon board to increase advertising revenue, and has outsourced the concessions to one company presumably to lower costs. These actions sound like the actions of a profit seeker. But...
"Being profitable isn't the point," McCourt said in an interview in his wood-paneled office overlooking left field. "The point is to at least break even and have a sound, healthy business."

Professional sports ownership has always been more about building the asset value of a franchise over time rather than taking out profit along the way.

The franchise value of a team will reflect the long-term profitability of the team if potential buyers seek profits and the current ownership seeks profits. If profits are the sole motivation of the buyer and the seller (the million dollar question!), the buyer wouldn’t want to buy the team if its sale price were more than the present value of the team’s expected profits over time and the owner wouldn’t want to sell it for less than this value. If other things motivate the buyer/seller, then things get a little messy. But the franchise value still reflects profits over time.

Hat tip to The Business of Baseball for the link to the article.

Wednesday, April 06, 2005

Matt Jones & The NFL Draft 

Arkansas QB Matt Jones has astonished NFL scouts and reporters by running sub 4.4 40s, vertical jumping 40 inches, standing broad jumpng over 10 feet, and exhibiting soft hands to boot during his stints at wide receiver in the Senior Bowl, the NFL Combine, and on-campus workouts. All of this comes packaged on a 6-6 1/2, 242 pound frame. Beyond the raw athleticism, he has shown an incredible ability to make big plays on the field. In a recent article by ESPN's Chris Mortenson, ex-Florida coach Ron Zook noted,

"He was the best player in the SEC the past two years ... Now that's a mouthful. Think about the guys who have played in the SEC the past couple of years."

A half dozen other SEC coaches and players echoed Zook's views. Mortenson's article addresses the dilemma facing NFL GMs and coaches,

"'it's going to be up to those people, especially some offensive coordinator, to think outside the box and figure out what to do with a guy like that,' [Steve]Young said.

He didn't know it at the time, but Young was talking about someone available in the 2005 NFL draft -- a guy I believe is the best player in the draft. Matt Jones is that player. Yes, the Arkansas quarterback NFL evaluators have been struggling to figure out."

'You know, it's funny,' one AFC head coach told me last week. 'We asked [Jones] about putting on some weight and playing tight end, and he made it clear that he thought it was foolish. He said, 'So you want me to put on 20 pounds and be a 4.57 guy instead of a 4.37 guy? When you put that into context, you have to admit he makes sense. Match up a 6-6 guy who is that fast and athletic with great hands on any corner – even the tall ones – and how do you stop him?'"

Skill at innovating is rare. As Zvi Griliches (1957 Econometrica) showed with hybrid corn, innovations tend to disperse over time in an S-shaped pattern with a few foward looking people at the beginning, then some wise imitators following suit, then the herd catches on, and finally the footdraggers come on board. Bob Tollison, Bobby McCormick, and I (2002 AER) showed this pattern held true for the dispersion of black players in MLB. In my upcoming book, From the Ballfield to the Boardroom, I illustrate the same idea with the "West Coast Offense."

The trouble with an individual player, such as Matt Jones, is that he is a unique resource, rather than part of a underutilized group such as black players or a new technology like the West Coast Offense. As Steve Young notes, most offensive coordinators will struggle to figure out how to use him. Kordell Stewart was a similar player. Of all his offensive coordinators, only Chan Gailey came close to making full use of his talents. It will be interesting to see who takes Jones and how effectively they use him.

Tuesday, April 05, 2005

Defense wins championships 

The evidence from last night's NCAA championship:

1) UNC ran two days of practice the week before without rims:
Coach Roy Williams had the rims taken down then for the second time this season. They were removed so that Williams could drive home a point in practice. And when the players arrived last Tuesday for the week's first practice after winning the Syracuse Regional championship, they immediately understood what the emphasis was going to be and why.

"We knew it was going to be a tough practice," Jackie Manuel, a senior guard, said. "It was going to be all defense. There's no point in looking at the basket offensively. It's all defense."
2) With the game on the line, Williams had sharpshooter Rashad McCants riding the bench, replacing him with Manuel, an exceptional defender. William C. Rhoden - intrigued by the mercurial and gifted McCants - was watching closely.

This might be an excessive interpretation of two isolated facts, but don't you get the sense that Coach Williams had a plan?

The game was certainly worthy of the occasion. Congratulations to both the Tar Heels and Illini for "delivering the goods."

Opening day 

Baseball season is upon us, in the wake of scandal. But business is brisk.
As the season approached, advance ticket sales, as of March 31, were up 6.5 percent over last year, to 49 million. In addition, seven new corporate sponsors have signed on in the past year, including Bank of America, General Mills, General Motors, DHL and The Home Depot.

The sport's Web site, MLB.com, has sold 10 million tickets to this season's games, nearly as many as it sold all last year, and total revenue is projected to rise 40 percent to $190 million. And a deal with XM Satellite Radio, which began with the Boston Red Sox-Yankees season opener Sunday night, will provide baseball with $650 million over the next 11 years.

In the midst of this, comes a survey which appears on the surface to have negative implications.
Player's high salaries were named as baseball's "biggest problem" by 33 percent of those surveyed, followed by steroids at 27 percent and the cost of going to a game at 22 percent, according to the telephone poll done for the AP and AOL Sports by Ipsos-Public Affairs.
The story in the LA Times focuses on the steroid issue, which is understandable - thank your congressman for that. But the steroid issue is likely in the sport's rear view mirror. High salaries for workers and rising prices for the product (ticket prices are reportedly up 6.3 per cent) reflect a healthy business, with high and growing demand. They are problems any business would like to have.

Monday, April 04, 2005

Electronics, Computers, and Judgement Calls 

As I watched the final match of the NASDAQ tennis tournament Sunday afternoon and the opening game of Major League Baseball on Sunday evening, I realized there is a major difference in how the two sports use electronics for judgement calls.
  • In tennis, there is a beeper that sounds if the serve is not hit into the proper section of the court. Also, there is rampant speculation that computerized re-enactments will quickly be able to provide better evidence about other line calls during the play.
  • In baseball, there is clearly sophisticated technology available to indicate whether a pitch is a ball or a strike. But we will not likely see it used in any game for a very long time.

Why the difference between the two sports?

My guess is that a major explanation is that MLB umpires are unionized, whereas tennis line officials are sometimes (okay, rarely) volunteers, but are definitely not unionized. This difference suggests that the resistance to using computers and cameras to call strikes and balls in MLB is little more than feather-bedding by the umpires' union.

[long-time readers from rec.sport.baseball may recall that over a decade ago Gary Huckabay urged the use of computers to call balls and strikes in baseball. Computer technology and software are so much better now making his case is even stronger.]

I wonder how Greg Maddux fans would react to the use of computers for calling balls and strikes.

Sunday, April 03, 2005

The Future of the NHL 

The National Hockey League owners and players meet again on Monday.

The two sides haven't met since March 17 in New York, when the NHLPA was
presented two proposals by the NHL, the first a team-by-team $37.5-million US
salary cap deal that did not have a fixed link between player costs and league
revenues - "linkage."

The second offer was based on linkage, with player costs to take up no more than 54
per cent of league revenues. The union wants no part of linkage, not wanting to tie players' salaries to a business that has suffered immeasurable damage with an entire season cancelled.

The NHL gave the union an April 8 deadline - this Friday - to negotiate on the "de-linked" proposal, or else it will be pulled off the table and only the second proposal will remain. So the union, which held a conference call with players last week, has had a major decision to make. Do the players cut their losses now and put a cap offer on the table, let's say around $45 million, and call it a day? Or do they gamble that the NHL's next option, replacement players, will blow up in its face next fall and
hand the leverage back to the union.

The decision should be clear on Monday.

After talks fizzled in February, I wrote the following to Eric McErlain:

My own guess is that the players will never see as good an offer as they got last week.

Conditional on that guess: Goodenow will be gone, and Bettman will be regarded as a reasonable guy, hero to the owners and the league, etc.

And the players will be scorned for (a) having held out for such a bad deal and (b) having "cost" everyone a lost season.
Just about the only way the players can "win" whatever is left to win will be if fans wholeheartedly reject the use of replacement players. But by the time that is clear, there will not be much left for the players to win. Presumably the NHLPA has figured this out, too. Look for them to accept a de-linked cap soon.

MLS business plan? 

The MLS season kicked off this weekend with the contest between champions DC United, and LA's new Hispanic-oriented team, Chivas USA. United took the points with an away win (2-0) before 18,493 Angelenos. That's a rather paltry crowd: no better than many, and far worse than some from the heyday of the New York Cosmos and the North American Soccer League. And that, dear readers, was more than 25 years ago.

I caught a bit of the DC-Chivas match on TV after watching the EPL's Arsenal rout Norwich 4-1 behind a Thierry Henry hat trick. Henry is one of the world's unique sporting talents, a pure joy to watch. This past year, he finished 2nd to Barcelona's Ronaldhino for the Footballer of the Year award. Today, one could take in the Brazilian's splendid skill, on Gol TV, in the 3-3 draw with Real Betis. My allocation of TV time was 90 minutes worth of Arsenal-Norwich, 90 minutes of Barcelona-Betis, and about 10 minutes of DC-Chivas.

What relevance is my TV watching to MLS, much less economics? Well, everyone knows that media revenue is the financial driver in modern sport. And while I'm an Arsenal loyalist, the basis for my allocation had more to do with the quality of the skill on display than anything else. Arsenal and Barcelona obviously trump MLS in that regard, and that is bad news for MLS media revenue.

With modern television making competition in football truly global, MLS has a very tricky development path to negotiate. There are only a dozen teams in MLS, creating little in the way of local allegiance. Out in TV land, there are plenty of alternatives with superior skill on display. It's not even feasible to follow the best US players by watching MLS games. Most of the team that Bruce Arena sent out in Mexico City are based in Europe, for the simple fact that European teams pay higher wages.

How can MLS compete for TV viewers under these circumstances? Not very effectively, I'm afraid.

Economists are not fond of taste-based explanations, but here is a taste-based stab at what the future holds for MLS. I believe that American fans won't support what they perceive as a minor league sport. MLS is minor league because, by design, salary caps preclude the teams from competing for the world's best talent. Something has to give if MLS will ultimately be successful.

This seems rather obvious, and I presume that the brains behind MLS understand it. Hence my hunch is that they have developed a transition plan to forge a crossing to quasi-major league status. By this, I mean a "Major League Soccer" in which American clubs are on par with the best in the hemisphere, and capable of an occasional win against the giants of Europe.

Turning down $5m for striker Eddie Johnson suggests that the league is indeed interested in development, rather than merely being a seller of talent to Europe. But I can't figure out how they will make the crossing to being competitive - i.e. to put a product on display that will cause me to shift my viewing from Barcelona to DC United. Can anyone put together a thumbnail sketch of such a business plan? One that has a chance of success? I can't see it, myself, unless it involves a deluge of red ink. And that's not much of a business plan.

Baseball's anti-trust exemption 

Andrew Ratner provides a historical account of baseball's antitrust exemption in today's Baltimore Sun.

The exemption stems from Justice Holmes' quirky Supreme Court decision in Federal League Baseball Club of Baltimore v. National League (1922). Antitrust law literally applies to "interstate commerce." But Holmes found that baseball was an "exhibition" which "could not be called trade or commerce in the commonly accepted use of those words," and hence antitrust did not apply.

Ratner's is a useful account, though he errs by accepting the view of some historians, that baseball's historical stability in franchise location was due to monopoly. In the modern era of footloose franchises, there is an easy comparison between U.S. leagues, where relocation is common, and Europe, where relocation is a rare, if not unheard of event. U.S. leagues are monopolies which control entry, and keeping franchises artificially scarce maximizes their value. This scarcity leaves a ready pool of cities on the margin, seeking to acquire the rights to a team whose fortunes or favor are in decline elsewhere. Not so in Europe, where every town of any size already has one or more clubs, each with the opportunity to "play its way in" to the top league. Relocation rarely makes sense in the free-entry leagues of Europe.

America's MLS, a unitized monopoly in a fairly strict sense, adds to the case that franchise stability in early American sports had little to do with the presence or absence of monopoly. (The Miami and Tampa franchises were folded in 2001, with the league waiting until this year to replace them with teams in Salt Lake and L.A.) Locational instability is more convincingly tied to the tenuous profitability of promoting sports as a commercial enterprise in that era. Teams that failed in town A packed up and moved to town B. That this was done in monopoly baseball during the 50s - take the A's, Braves, and Browns, for starters - makes one wonder why historians are regarded as the gatekeepers of history's facts.

Despite this error, Ratner's piece is worth reading even if you know about Holmes' decision and the economics of monopoly sports leagues. Consider this:
In the early 1900s, the original Baltimore Orioles relocated to New York, where they were renamed the Highlanders and later became the Yankees. Baltimore soon got a new team, again called the Orioles, in the minor International League, but it competed against major-league teams and often beat them.

In 1913, a new league formed to rival the National and American leagues. Baltimore was pleased to get a team in the new league, according to Robert W. Creamer's rich biography of Babe Ruth. The city and its newspapers were breathless about the arrival of the new Federal League Baltimore Terrapins. The House of Delegates voted to make their arrival a state holiday.

Orioles' owner Jack Dunn knew his team was in trouble when 1,500 fans showed up to watch the Orioles play the champion New York Giants, with local star Ruth pitching, while the Terrapins attracted 30,000 that same afternoon.
A minor league team beating a team from the majors? The upstart Terrapins drawing 30,000 patrons when Ruth was on the mound across town? Interesting.

I've long thought that the economic impact of Holmes' decision was limited to the distribution of rent between players and owners, the decision giving owners the upper hand. Perhaps I need to reconsider. Holmes' decision had to reinforce monopoly in all its aspects. The organization of American sport just might have evolved differently had the court ruled sensibly in the Federal League Case.

Friday, April 01, 2005

Stadium politics 

With each iteration, the stadium subsidy game grows more grandiose, and increasingly rich in political intrigue. As evidence, consider this introduction to an article on the drive for a new football stadium in San Diego.
The San Diego Chargers are drawing up a new playbook for their stadium development campaign that features a broad-based appeal to labor, environmentalists and affordable-housing advocates.

Team officials are working to get a development plan – including a new stadium, more than 6,000 housing units, offices, retail, a hotel and a park – before city voters in November 2006. The project would be at the 166-acre Qualcomm Stadium site in Mission Valley, which the city owns.

The proposal may be tweaked to include fewer but taller buildings – some as high as 20 stories – to allow for as many as 7,000 condominiums and apartments. That would clear space for a bigger park, although no size has been determined.
Labor, environmentalists, and affordable housing advocates? That is some coalition! Thanks to my man in San Diego, RJ, for the link.

Now That We've Committed to Staying... 

let's look for new revenue sources. The Red Sox owners**** have decided to stay in Fenway for the long haul (link via Greg at Sports Law Blog). Now that they've made that decision, they are looking for new revenue sources:
The Red Sox and Boston College have expressed an interest in bringing the Atlantic Coast Conference baseball tournament to Fenway Park, but according to a source in the BC athletic department, BC and Boston University are working on something more dramatic: college hockey at Fenway.
...
It's been tried before... with pgood success.
Outdoor hockey would be nothing new to Michigan or Michigan State since the Central Collegiate Hockey Association rivals played before a record 74,554 fans Oct. 6, 2001, at Michigan State's Spartan Stadium, finishing in a 3-3 tie.
The opportunity costs of committing to stay in Fenway and letting it sit empty during the offseason are just too high, so the are looking for ways to generate new funds. But don't expect the Red Sox to spend their new-found cash on baseball players. Since they (the baseball players) don't generate it, they won't get it.

******According to the article on the decision to remain in Fenway, the Red Sox are going to try to get infrastructure subsidies from the public now that they won't be getting any construction susbsidies.