Friday, October 28, 2005

Paying to Make the Grade 

(Cross Posted at Market Power)

NCAA officials and officials of member schools have been fretting for some time over the low graduation rates of student-athletes, especially in football and men's basketball. Recently, NCAA officials changed the way they measure academic progress and story the data told wasn't pretty. Now members of the NCAA board of directors decided to provide financial incentives to schools to improve their graduation rates. From the Chronicle of Higher Education daily alert ($$$ req'd):

A plan approved on Thursday by the National Collegiate Athletic Association's Division I Board of Directors would pay colleges up to $100,000 each if their athletes do particularly well in the classroom and a high percentage of them graduate every year.

The biggest payouts would go to colleges whose athletics programs make significant improvements in graduating players, while some money would also go to programs that are struggling academically and need assistance.

According to the plan, the NCAA will provide a total of $10 million to all member schools. The breakdown of how it is intended to be used:

Half the money, or $5-million annually, would go to institutions whose athletics programs make big improvements in their academic performance over the previous year. An additional $3-million a year would be given to institutions that can demonstrate that they have little money for tutors or programs that help athletes do well in the classroom. The rest of the money would reward athletics programs that show extraordinary academic performance.

The first step is a step in the right direction because it provides an incentive at the margin to schools to improve their athletes' academic performance. But the main problem is that those who will have to shoulder the burden of work (the student athletes) still won't see any direct financial compensation for their efforts.

As an analogy, suppose a university wanted to offer Friday night classes and Saturday day classes. As an incentive, the university offers each department some amount of funds for each Friday Night/Saturday class taught but with a stipulation that none of that money can go directly to the professor. My guess is that there will be less (very little/no?) enthusiasm to teach these classes relative to a program where the professor gets a bonus for teaching such classes.

I'm not so crazy about the second step (providing $3 million to schools that don't have the resources). Athletic departments have some leeway over how they spend their budgets. Since money is fungible, money spent on, say, training facilities is money not spent on tutoring. If some department's officials claim that they do not have much money available for tutoring, how do we know that this isn't because they have chosen to spend their funds somewhere else? This second step gives departments the perverse incentive to decrease their spending on tutoring etc. to obtain more cash from the NCAA. I imagine NCAA officials realize this so we'll probably see a further burgeoning of the bureaucracy to combat it.

The third step, rewarding each school with good academic performance, will work like an extra credit assignment where everyone who gets an A gets a candy bar. Students who are most likely to get a candy bar from this assignment are those who would have gotten an A anyways.

Thursday, October 27, 2005

Playing Injured Players 

Before the St. Louis-Houston series, Dick Cantrell, a colleague and long-time baseball follower predicted that St. Louis was in trouble. He gave 3 or 4 concrete reasons, one of which centered on Larry Walker's poor health. In spite of Walker's neck problem, LaRussa inserted him in the lineup to which Walker responded with 3 hits in 28 AB, 1 double, and a pitcher-like OPS of 421. Phil Garner played injury-impaired Jeff Bagwell much less than Walker but still played him. Bagwell hit 182 in 11 ABs with an OPS of 490.

These are not isolated incidents. Managers and head coaches in a variety of sports often play established stars even when their performances are far below their non-injured levels and below a reasonable expectation for available substitutes.

Here's my stab at why. Managers are maximizers, but maximizing collective performance (profits, revenue, output, ...) is not the sole goal. It works well as an approximation in most circumstances and better than any single alternative. There are strong pressures to incorporate player happiness, especially of established, star-quality veterans. Over the long haul, keeping these players contented may contributed to team success (sometimes it may not). It certainly contributes to manager longevity. The failure to keep Biggio and Bagwell happy contributed to Larry Dierker's exit in spite of success (see excerpt from Houston Chronicle article regarding Dierker's book). Even strong-willed managers like LaRussa and "Scrap Iron" are not immune to these pressures. In the short run, bowing to them can have negative effects, but it is in situations such as the playoffs where not playing them is even more difficult.

As a side point -- commentators are also slow to blame superstars. It's much more media correct to pick on the Ensberg's or Lane's. While this will be near heresy to some other Astros fans, Biggio and Bagwell are two big reasons for Houston's struggles in the postseason over the years, even though they are big reasons why the Astros got into the playoffs. Their regular season numbers are great, but this is built on mediocre and bad pitching. They both have holes in their swings as big as West Texas that very good pitchers exploit. Bagwell's career playoff average is 226 in 106 ABs with 2 homers and an OPS of 685. Biggio's numbers are even worse. He has a higher average, 234, but an OPS of a lowly 618 and only 2 homers in 167 ABs. (4 homers between them in nearly a half-season's worth of ABs!). In contrast, Lou Brock had 4 homers, 15 extra base hits, and an OPS of 1079 in 87 ABs during a pitching-dominant era. Among contemporaries of Biggio and Bagwell with plenty of playoff ABs, Moises Alou's OPS is 752. Bernie Williams' is 856. Chipper Jones' is 870.

Wednesday, October 26, 2005

Ben Bernanke, sabermetrician 

From David Leonhardt in today's New York Times:
Bernanke, a Southerner by birth who stands well shy of 6 feet, became a Red Sox fan in the mid-1970's while he was a student at Harvard. After moving to Princeton as a professor, he kept his allegiance to the Red Sox. He also became fascinated by the way that statistics can capture the game or distort it, much as they can for the economy.

Bernanke and Dwight M. Jaffee, a Princeton colleague, had a regular squash game, and they spent their walks to the campus gym talking about monetary policy and baseball, Jaffee said. Bernanke was particularly bothered by E.R.A., the main yardstick of pitching. If one pitcher leaves runners on base and another pitcher allows them to score, the runs are charged to the first pitcher.

Pitchers unlucky enough to be followed by ineffective relievers, as the Yankees' Randy Johnson was in 2005, have unfairly high E.R.A.'s. Pitchers who are bailed out by their bullpen, as Roy Oswalt of the Astros often was this season, end up with artificially low E.R.A.'s.

A better system would divide blame, depending on the base the runners were on when a pitcher departed and the number of outs, Bernanke argued.

"He was always saying, 'We ought to come up with a solution for this,' " Jaffee said.
I've always been a fan of Bernanke's research, and was pleased to see him nominated to head the Fed.

Subsidy please, with insurance on top 

MLB wants the city to absorb the risk of disaster at the new stadium in DC. From today's Washington Times:
Hurricane Katrina and the fear of terrorism in the District are playing a role in talks between Major League Baseball and the city over the terms of a lease for the Washington Nationals' new ballpark.
MLB has asked the city to soften its demand for a guaranteed annual lease payment, in part because it wants the ability to pay less rent or eliminate it in cases in which outside events -- such as catastrophic weather or terrorism -- would force the Nationals to play in another stadium.
The issue of the rent payment has become one key sticking point in efforts to complete the lease agreement, which must be in place before Wall Street will approve the city's financing plan for the $535 million ballpark in Southeast.
Details of the lease talks were discussed by city sources only on condition of anonymity because negotiations are ongoing and at a sensitive stage.
The question of who bears the risk of something neither side can prevent is economically irrelevant. It's a wealth transfer, pure and simple.

MLB is engaged in last minute wrangling, trying to alter the contractual terms over a small probability event. None of this would matter, of course, if teams owned their own stadiums. But de facto, this will be the Nats' stadium. MLB is attempting to shift the risk that the stadium is rendered useless (read, the insurance payment) to the city, which it can, since the city was so nice as to subsidize the thing in the first place.

This is another current example (along with the Saints) of how teams in America's closed league system protect their share of league rent by separating their fortunes from the cities that serve as their hosts.

Tuesday, October 25, 2005

You vill NOT exercise! 

(Crossposted at SCSU Scholars)

I had breakfast this morning, as I do many mornings, with some people associated with our university's athletics department. This morning we were talking about the voluntary training sessions for our football players. We are a D-II program (a pretty good one, though last week's loss at Omaha hurt our chances for the playoffs), and we're amazed by the size of our players. One fellow said that this was because of year-round conditioning programs, all of which are voluntary. Quarterbacks organize skill player sessions to catch footballs and run routes in the spring; lifting and running are year-round, with some groups meeting in the morning and others in the afternoon. All of this NOT under the watchful eye of a coach, because that would be formal training.

That we can't have, because the NCAA says this is unfair. And so the University of Memphis was sanctioned on Friday for having too much formal training of its women's volleyball team.
In the volleyball case, the committee investigated reports in seasons from 2000 to 2003 that the women's team was required to participate in individual skill instruction during the spring. Only voluntary instruction is allowed under NCAA rules.

Under the probation, the volleyball program must reduce its number of practices and hours spent conditioning.
From the team's website:
The Tiger volleyball team was cited for a series of secondary violations that occurred over a three-year period that, when taken together, constitute a major violation. The violations were inadvertent but the coaching staff agreed with the NCAA that the staff had knowledge of legislation on playing and practice sessions and had a responsibility to ensure the volleyball program complied with the legislation limiting athletically related activities.

The volleyball program will receive two years probation, as well as a public reprimand and censure. The team will have its preseason practice opportunities shortened from 29 practices to 26 and spring conditioning will be reduced by one-week. The head coach is required to attend an NCAA Compliance Seminar at her own expense and will not attend one-week of spring conditioning. The coach will also have a letter of reprimand placed in her personnel file.
So who benefits from this? Obviously, the teams that compete against Memphis. Anyone care to guess who turned them in? What do you want to bet that the Tigers' volleyball team's success increased right around the 2000-03 seasons? Sure enough

1999 11-22
2000 13-20
2001 22-10
2002 19-15
2003 30-6
2004 27-10

Just as predicted years ago by Fleisher, Goff and Tollison, teams that suddenly become more successful are much more likely to face NCAA scrutiny. The story then was about money sports like football and basketball. Has it reached even women's volleyball now?

Monday, October 24, 2005

Condolences from a Chicagoan 

"Looks like the gamblers decided to buy the umpires this year instead of the players. Makes sense, given the change in their relative salaries since 1919." Triggered by the Jermain Dye incident, of course.

Thursday, October 20, 2005

Legalized Scalping 

In our Radioeconomics discussion about the World Series this morning, King Banaian, Phil Miller, and I discussed ticket scalping at the outset. In an earlier posting, Skip Sauer noted that there have been reports from the Chicago Tribune that Chicago tickets to the World Series with face values roughly between $125 and $200 have been resold for between $515 and $7500, depending on the location of the seats.

After our podcast discussion (but probably unrelated to it), one of Skip's friends sent him this story from the WSJ online. It turns out that reselling tickets is legal in many states, and with varying regulations on the resellers and the prices they are allowed to charge.

One Illinois provision was passed in May when White Sox fans could only dare to dream about a World Series berth for the first time since 1959. It lifted the ban on nonlicensed individuals reselling event tickets online for more than face value.
The effect of this de-regulation of the aftermarket has been to increase the supply of tickets on the legal market, with the expectation that, ceteris paribus, prices would drop somewhat.

The new laws could mean that prices for resold tickets for other events such as concerts and theater performances could fall too as a greater number of sellers post tickets online.
At the same time, knowing that one can buy scalped tickets legally has increased the demand. The net effect on prices is difficult to predict and assess.

But online ticket resellers continue to report frenzied business. StubHub, based in San Francisco, says the number of White Sox tickets sold on its site the day the team clinched the American League championship was 57% higher than the number of Red Sox tickets sold when Boston won a spot in the World Series last year.

Online ticket reseller RazorGator reports a 50% increase in traffic overall. "The change in the law opened up a whole new piece of the market," says David Lord, the Beverly Hills-based company's president and chief executive.
The article makes a concluding point that emphasizes the importance of reputation: counterfeit sales may become an increasing problem, especially with personal sales on-line between people who do not know each other.

Hugh Macaulay 

A great teacher, superb economist, and wonderful man died yesterday, Alumni Professor Hugh Macaulay. Hugh inspired students unlike any professor I have known. He challenged them to think and work hard, but he was polite beyond imagination. Students loved him for this. His reach extended to colleagues as well. Don Boudreaux, Chair at George Mason, was drawn to Hugh at Clemson in the early 90s, a decade after Hugh had retired. Hugh was just special in many many ways. I'll be brief here, and point those of you with a Clemson connection to the Economics Department's page for more on Hugh's story. Don posted an appreciation at Cafe Hayek this morning, and a member of Hugh's reading group, Steve Spearman, posted his at The Fat Triplets.

But allow me one last, personal observation. As Don notes, Hugh retired over 20 years ago because he was losing his sight due to macular degeneration, and he ultimately became legally blind. But he remained a voracious reader, dominating his reading group (!) according to Steve's post. He became a tech-savvy 81 year old, communicating regularly by email and using digital technologies to download books and listen to them in recent years. Though blind, I never saw Hugh use a cane or a dog. He simply memorized the steps when walking in familiar places, and relied on the elbows of his friends to guide him elsewhere. And even though he could'nt see, his mind remained so sharp that he could guide me with directions while driving to places in Greenville, 45 minutes down the road from Clemson. He was an incredible man. We will miss him, but his spirit will live on in Clemson, and in the hearts of his students and colleagues across the globe.

The Economic Impact of the World Series 

The calls started last week, just like they always do this time of the year. A reporter from a newspaper or radio station in a city hosting a postseason sports contest calls and wants a quote on the fantastic economic impact that the upcoming game/series will have on the local economy. The "postseason" season is once again upon us.

From now until the NBA finals next June, the media will be full of outlandish claims about the positive economic impact of playoff games, championship games, NCAA basketball tournament regionals, et cetera. Typical estimates of the local economic impact of a MLB playoff series, generated by the chamber of commerce or visitor's bureau, run from the tens of millions of dollars to the low hundreds of millions of dollars. These estimates should be taken with a grain of salt.

Dennis Coates and I published a paper in the Journal of Sports Economics ("The Economic Impact of Postseason Play in Professional Sports" - subscription required) a few years ago that looked for evidence that hosting a professional sports playoff game or series had any effect on the past economic performance of US cities. After controlling for other observable factors that might affect the local economy, we found that variation in playoff appearances did not explain any of the observed variation in real income per capita in any US city that was home to a professional football, basketball, or baseball franchise over the period 1969-1997. A recent working paper by Victor Matheson and Robert Baade finds similar evidence using a different approach. The economic impact of a postseason appearance is zero.

Note that this research does not find that there is no economic impact from postseason games. Bars and restaurants near ballparks will do a lot more business than they would have if the game was not played. Stores that sell jerseys, caps, and memorabilia will also enjoy increases in revenues. But this spending does not represent a net increase in economic activity in a city. Every screwdriver that Astro fans drink in bars near Minute Maid Park is a screwdriver not consumed somewhere else in Houston. Increased entertainment spending on gameday is just entertainment dollars that would have been spent somewhere else in the area, at some other time, if the game did not take place. Unless, of course, you believe that people draw down their life savings in order to finance tailgating before World Series games.

Claiming that a playoff game generates positive economic impact is similar to claiming that weekends generate positive economic impact. Imagine the headline in the business section: Bar, Restaurant Sales Surge on Friday and Saturday Night! Postseason appearances generate civic pride and contribute to fans and city residents feeling good about themselves and their home. They also give cities national and international media exposure that would not have taken place in the absence of postseason appearances. But a large body of evidence indicates that postseason play generates no significant economic impact on the local economy.

Leadership and the Astros 

Replace agony with joy: the Astros are going to the World Series. One year after losing 1/3 of their offense through free agency (Beltran, Kent) and injury (Bagwell). Five months after starting the season 15-30. Somehow they patched a team together and turned in baseball's best record after that to barnstorm into the World Series.

How? One ingredient is obvious: pitching pitching pitching. They are loaded with it. They also have a good statistical record defensively, although watching Taveras track a ball or Everett line up a throw gives me heartburn. So while they have trouble scoring runs, on a good night it is very tough to score against them.

But there is another aspect. Baseball is a funny game which sequentially combines essentially individual contributions. Contrast it to football or soccer, where synchronous teamwork is essential - every player must be simultaneously engaged with the game. In baseball, most every player is either sitting on the bench or standing around in the field watching the pitching matchup, and springing into action only if the ball is put in play, and then getting seriously engaged only a fraction of the time. The sense of team is more mental than physical. In that environment it is easy to quit. But the Astros didn't quit, even though they had every excuse. At 15-30, most teams would have just played out the string.

The key ingredient for the Astros was leadership: Biggio and Bagwell, Clemens and Pettite. All are well known to be hard workers, guys who lead by example, and deflect the credit to others who contribute. And it didn't hurt to be managed by a likeable character nicknamed "Scrap Iron." They're a talented but not great team, and they keep bringing their lunchpail to work.

The Astros were counted out by much of the media after Pujols' blast on Monday. They were expecting the Astros to quit, but that was foolish. The Astros knew, as did Earl Weaver, that "momentum is tomorrow's starting pitcher."

Enter Roy Oswalt (Wow!), and play some ball. Enter the World Series. Yeee hah!!!

Wednesday, October 19, 2005

The Merchant of Venice and World Series Tickets 

The prices for tickets to World Series games in Chicago have once again been set well below the market clearing prices. The nominal prices are between $125 and $185. But scalpers/brokers are charging between $515 and $7500 per ticket, depending on the game and the location of the seat. Skip Sauer has more in his posting below at The Sports Economist.

There have been some unusual offers. For example, this one in the Chicago Tribune that Skip drew to my attention:

One posting at offered a healthy kidney--you choose left or right--for "two Sox tickets in the outfield!"
I presume the offerer is not serious. But what if s/he were serious? How might one enforce the contract? Surely one could not extract the kidney before the game, since then the offerer would not be able to attend the game -- s/he would still be recovering from the surgery. Do you think perhaps s/he wants to give up a kidney to get a pair of tickets for some friends or relatives? I doubt it.

But if the seller of the ticket waited until after the game to collect the kidney, that would be pretty risky. What if the offerer of the kidney reneged on the promise? How might one enforce such a contract, or, if it were deemed unenforceable, what remedies might one seek?

Enter Shylock.....

The Economics of the World Series:
Reminder of Thursday's Podcast 

On Thursday morning, King Banaian, Phil Miller, and I will be discussing "The Economics of the World Series" on Jim Reese's Radioeconomics podcasting service. The discussion will be available for download several hours after it takes place. All three of us have taught sports economics, and we are part of the group that blogs here at The Sports Economist.

Or you can listen to the discussion live and post questions for us to consider during our discussion. Professor Reese has set up a Breeze Live site for this feature of his podcast productions. To go there, click here. The Breeze site will be available after 8am EDT on Thursday, and the discussion will begin at about 9am EDT [10:30 in Newfoundland].

More Teams in Boston and New York? 

Michael Mandel argues that Major League Baseball should place a third team in New York and a second in Boston to improve competitive balance:

It's the post-season, and once again the Yankees and the Red Sox are in the playoffs. Here's a very simple reason why: There are too few baseball teams in New York and Boston relative to the size of the local economies. As a result, New York and Boston teams have access to more economic resources than anyone else. The conclusion: If baseball wants competitive balance, the best way is to add an extra team in NY and Boston.

Michael is essentially arguing for division of large local economies. Mark at the SportsBiz blog argues it won't solve much:
This is not simply a market size phenomenon, although that is certainly part of it. The Mets have not benefited from the market size of New York in quite the same way as the Yankees and there is no reason to expect that a third team in New York will make a significant dent in the Yankees enormous local television revenue which is the key to their ability to spend so freely on payroll. The Yankees and the Red Sox are both sitting home thinking about next year(and the Mets haven't made the post-season in so long I can't remember when it was). Of the remaining teams in the playoffs, the Angels represent the third largest market and have the fifth largest payroll, although they play in Anaheim despite what they call themselves or it says in your newspaper. However, the other teams are not quite from the upper echelon of markets based on Mandel's personal income test. Their payroll's, however, are in the upper tier. The White Sox are the lowest at 13th, with St. Louis 10th and Houston 11th.
He argues for more equitable sharing of local TV revenues, something addressed by the latest Collective Bargaining Agreement in baseball. Brian over at Hardball Times argues:
In addition to the arguments that Mark presents, the addition of teams to the New York and Boston areas would face stiff resistance amongst the ownership group. A change in the territory of a team requires a 75% vote, and it’s unlikely any of the owners would vote to take away a precious asset—the exclusive territory of a given team—from one of their own.
I wonder how much resistance there would be. Teams like the Blue Jays and the Orioles might be receptive. The million dollar question is how much resistance there would be from other teams fearing that their exclusive territories might be next. Having an increased chance to make it to and advance in the playoffs might be a tradeoff some owners might accept.

Another barrier to entry facing an expansion team is the expansion fee. Expansion fees generally compensate existing owners for lost revenues through revenue sharing and for negative impacts on local revenues (would Baltimore fans rather watch a game against the Yankees or against the Devil Rays?). Would a new team in New York generate enough profits to warrant paying the expansion fee? This hinges not only on the size of the market but also on the loyalty NY and Boston fans have to their existing teams. How deep does the loyalty run and how does loyalty change over time?

Get your World Series tickets! 

Oops. Too late if you are a White Sox fan:
Gone are the days of diehards pitching tents outside the ticket window; White Sox World Series tickets were sold exclusively online or by phone for the first time.

Those who got through at noon were entered in a queue of 130,000 users. "Several thousand" assorted seats for each of four possible home games, priced between $125 and $185, were gone in 18 minutes, said team spokeswoman Katie Kirby.
18 minutes! Wow. And if the ticket servers could have handled the traffic that was shut down due to congestion, it might have been more like 1.8 minutes.

Of course, you can rely on those skilled or lucky enough to grab what they could in the internet queue, but the price is pretty steep.
Ticket reseller StubHub! sold a pair of seats six rows behind home plate for $7,500 each, according to spokesman Sean Pate. The least expensive seat on was $515 in the far reaches of the upper deck.

"We've sold 12 times as many tickets for this year's World Series as we did for the Red Sox and Cardinals last year," Pate said.

He estimated 10,000 tickets were probably made available Tuesday for each of the games at U.S. Cellular Field. That could be as many as four games or as few as two.
Most of the rest of the tickets were presumably allocated to season ticket holders, corporate insiders, and other friends of Jerry (Reinsdorf, the owner). And those with a little savvy and a bit of dough could jump the queue on Monday by purchasing a classic tie-in:
Before the Internet and phone sale, more than 1,000 season tickets for 2006 had been sold Monday and even more on Tuesday. These purchases entitled the buyers to tickets for this World Series--a marketing plan that allowed current demand for tickets to fill next year's seats.

"Season ticket-holders are valuable customers who make the commitment in advance, they fill the seats in April and September," Kirby said. "We saw this as an opportunity to give those folks a reward now for committing to next year."
I love the marketing language: "give those folks a reward" ... for letting us extract their consumer surplus!! Still, there may have been a profit opportunity here. If I knew then what I know now, I'd have bought two season tickets, six or seven rows behind home plate.

Tuesday, October 18, 2005

Astros Agony and Pinella v. Brenly 

Skip's post accurately reflects my feelings as part of Astro-dom (aka Astrodumb). When your main teams are the Rangers and Astros, these opportunities come around infrequently. On the upside, they still have Oswalt and Clemens. As Skip mentions in different words, the walk to Edmonds was much like sticking the gun to your head and pulling the hammer back. Lidge should have thrown the ball underhanded to him if that's what it took to throw a strike.

Given the situation, Bob Brenly advised showing Pujols a steady stream of sliders. In contrast, Lou Pinella criticized one of the Angels' relievers the other night for "falling in love" with the breaking ball. As Pinella observed and McCarver seconded, mistakes with breaking balls frequently end up as souvenirs while mistakes with fastballs often end up as outs. Even a great fastball hitter like Pujols runs a pretty high chance of missing, popping-up, or fouling-off a belt-high, middle of the plate 97 mph fastball. On the other hand, we witnessed what he did with a belt-high, middle of the plate slider when he knows a slider is likely -- MinuteMaid Park may be structurally unsound after its impact.

Assessing uncertain risks is a big chunk of a manager's job. I thought Pinella's view made a lot of sense a few days ago -- it makes even more sense to me now.

"The agony of being an Astros fan" 

That's Ben Shpigel in the New York Times. That's the brutal truth, although Shpigel can't possibly understand what he wrote unless he's an Astros fan himself. Bill Simmons almost gets there, and notes the analogies to 1986. Not sure I needed that.

Still, we march on, and hopefully the team will learn from this. Lesson #1: You must throw strikes to Edmonds in that situation. He can't beat you, and besides that he's a head case compared to Pujols, who's an assassin.

On an unrelated note, JC Bradbury deserves a share of Leo Mazzone's next contract. His post on Leo's prowess is # 4 on the google page for "Leo Mazzone." He'd make a fine agent.

The San Antonio Saints 

The NFL's New Orleans Saints have fired one of their most vocal proponents of staying in New Orleans:
The New Orleans Saints abruptly fired director of administration Arnold Fielkow on Monday as the organization appeared to move closer to trying to make its move to San Antonio permanent.

Fielkow had been owner Tom Benson's right-hand man in lease negotiations with the state of Louisiana and had been the most vocal member of the organization in expressing a commitment to New Orleans in the wake of Hurricane Katrina as Benson remained mostly silent.

What is going on here? The article's author takes it as a signal that Saints officials want to solidify their position for a move to San Antonio, but perhaps they are trying to play the two cities off one another in an attempt to get the best sweetheart deal.

Friday, October 14, 2005

Technological Reluctance? Or Profit? Replay Review 

When is an increased technological ability not a technological improvement? Apparently in sports. Case in point: the Eddings call in the Angels-White Sox game. A really nice graphic and commentary are in today's NYT (Jack Curry article).

I think we're all aware of the "purist" v. "revisionist" arguments. And I certainly don't mean to downplay the importance of that discussion (or the cocktail party fun it engenders). And I know there will be posts that yet again just beat up on owners (and those of us who examine their behavior from the rational perspective): economists and other business-oriented analysts are chock full of wild blueberry muffins even looking for rational explanations for owner behavior.

But there are huge amounts of money riding on playoff outcomes (especially advancement). And these monies go disproportionately to owners and are not shared among owners. So why does MLB, actually just an organization of owners, continue to reject "review from the booth" when it has been demonstrated so useful in both the NFL and now college football? That is, why would owners prefer mistakes that can be clearly demonstrated by replay review but cannot actually be officially reviewed? I think most would agree that balls and strikes can't be reviewed in any way that wouldn't destroy the continuity of the game, so I'm restricting my thoughts to close plays on base.

Economic and business intuition suggests that it must pay. Perhaps fans get an added thrill from mistakes that adds to their willingness to pay. Maybe it's just that fans like to argue over calls, so give them somethinig to argue about.

Looking for testable implications, two things occur to me. First, the value of random thrill and argument for fans would have to increase the expected value of playoff pay to owners enough to offset the now higher chance that any given owner loses in the playoffs due to a bad call. This could be tested if there are playoff revenue data and data on bad calls so that the probabilities can be assessed.

Second, unless the NFL and college football have simply erred in chosing replay review, then MLB fans would have to be different in this regard than football fans. MLB fans would have to place a high enough value on random thrill and argument, relative to NFL fans, for there to be review in football but not baseball.

I wonder. Alternative testable explanations welcome.

Thursday, October 13, 2005

The Economics of the World Series 

Phil Miller, King Banaian, and I had a long discussion this morning on one of Jim Reese's radioeconomics podcasts. Here is his summary:

Discussion about the economics of education, economic education, and economic freedom. Items covered: vouchers, student retention, outsourcing of freshman and sophomore courses, comparative advantage, free markets, measures of economic freedom, and recommendations of economics books for non-economists.
Next week at 9am EDT we will be discussing "The Economics of the World Series".

We have chosen to hold the discussion then because it will be after the league championships have been decided but before the World Series begins.

The discussion will be carried live, via Breeze, so that listeners can type questions to us during the discussion, and both the transcript of the typing and the audio of the discussion will then be available for downloading later in the day.

The Love Boat or Playmakers? Take Your Pick 

Well, um, I guess there's nothing quite like a pleasure cruise:
A season that began with Super Bowl aspirations for the Minnesota Vikings has gone awry in just about every way imaginable. The latest black eye for the team has come with the revelation this week that Vikings players are being investigated for lewd and possibly criminal conduct during a party on a boat cruise last week that reportedly was arranged in part by former Washington Redskins cornerback Fred Smoot and one of his teammates.
From the Chicago Tribune:
The Hennepin County Sheriff's Department is investigating allegations of criminal sexual conduct by Minnesota Vikings players after a boat cruise on Lake Minnetonka devolved into an out-of-control party that included lap dances and sexual acts, according to an attorney for the charter boat company.
TV imitates life, eh? If this team were a college program, this would smack of "lack of institutional control. Not only do these allegations come on top of a poor performance by the team in its first four games, a performance which put head coach Mike Tice's job in even more jeopardy, in the long term it might even derail plans to get public funding for a new stadium. Opponents of such are having a field day.

Blast from Blatter 

In Yesterday's Financial Times, FIFA President Sepp Blatter announced a new initiative which threatens no less than a complete overhaul of the financial rules of the game. The FT piece is for subscribers only, but a fair chunk of the his column is extensively quoted in The Scotsman. Blatter uses Chelsea's grip on the EPL title race and the skewed distribution of wealth in World Football to make his point.
A fortunate few clubs are richer than ever before. What makes this a matter of concern is that, all too often, the source of this wealth is individuals with little or no history of interest in the game, who have happened upon football as a means of serving some hidden agenda. Having set foot in the sport seemingly out of nowhere, they proceed to throw pornographic amounts of money at it. If nothing is done, this new money could suffocate a sport that has 1.3 billion active followers around the world.
Those are pointed words - an unwelcome "source of wealth" throwing "pornographic amounts of money," threatening to "suffocate a sport." Players - Rio Ferdinand seems the target here - don't come off much better:
Equally unacceptable are the sort of wage negotiations that can produce the spectacle of semi-educated, sometimes foul-mouthed players on £100,000-a-week holding clubs to ransom until they get, say, £120,000-a-week.

...It is simply insane for any player to 'earn' £6million to £8million a year when the annual budget of even a club competing in the Champions League may be less than half that. What logic, right, or economic necessity would qualify a man in his mid-20s to demand to earn in a month a sum that his own father and the majority of fans could not hope to earn in a decade? What, in other words, are the limits? And should we not start setting some?
Here is the problem as I see it. World football is too big to govern. The idea that FIFA could impose NFL-type salary caps to equalize wage bills of clubs eligible to compete in the Champions League is preposterous. The best they might accomplish would loosely tie the wage bill to club revenues, but the disparity in revenues between clubs is enormous. That doesn't get us very far.

Moreover, any attempt to tell Real Madrid to sell fewer shirts or to cap their TV contract would kill FIFA, not Real Madrid. The money is with the big clubs, and they'll end up writing the financial rules of the game, with or without FIFA's governance.

Wednesday, October 12, 2005

Thanks for inviting me! 

I'd like to thank Skip Sauer for inviting me to The Sports Economist blog. I have several friends here already with Brad, Phil and the Double-E, and while I don't research the area as much as Skip or Brad or Rod do, it will be fun to participate to get materials for my course I occasionally teach on the economics of sports. I'm King Banaian of St. Cloud State University's economics department (currently imprisoned as chairman) and operator of SCSU Scholars. I also appear on radio many Saturdays, 12-3pm CT, on the Northern Alliance Radio Network.

I suppose I should make an offering of some kind, so let's look at TwinDomes Stadium, a concept for co-locating the Minnesota Twins and Vikings in two stadiums separated by a mall. It has the kind of language a good free market economist like me would like, saying that the proposal was
written to meet the Governor's Stadium Steering Committee specifications last year, but not submitted because the governor's process was designed for communities, not for individuals with intellectual property rights to protect.
Yet when you dig inside you find infrastructure expenditures greater than $250 million, and "gap funding" of $155 million to the two teams, in return for which the governments would become part owners with leverage over who could buy the team. That funding is called "optional" and were I an owner I think I'd decline; gap funding reduces the property rights of the owner.

The estimates on PSLs strike me as rather high. Packer fans forked out $92.5 million for PSLs to re-do Lambeau Field and $122 million was paid out for Ericsson Stadium for the Carolina Panthers. But then $30 million more for PSLs for the Twins? I find these valuations dubious.

Property rights and baseballs, redux 

Some time back, we mused about the issue of who owns a ball that leaves the playing field. The consensus formed in the comments (now deleted) was that baseball doesn't bother asserting a property right to these balls because they are not very valuable after getting scuffed. But that changes in the case of "historic" balls, say Barry Bonds' 700th home run, or Joe Carter's walk-off winner of the 1993 World Series. People have a sense that such balls "belong to the game" or belong to the batter who did the deed. Opposing players, for instance, return the ball to a batter when he reaches a milestone such as 2000 hits. They don't hold out for a price.

Clearly, there is a conflict between the rule of capture - he who comes out of the scrum with the ball gets to keep it - and the idea that balls of value be treated differently than the run-of-the-mill foul pop-up.

In Sunday's game, the two Astros' homers that left the yard - Berkman's 8th inning grand slam to make it a contest, and Burke's 18th inning game-winner - were improbably caught by the same person, Shaun Dean. As reported in the Washington Post, he and the Astros have already come to an agreement on the disposition of the balls:
Dean, comptroller at a construction firm, isn't keeping the balls. He will present them to a representative of the Hall of Fame on Friday.

In exchange, the Astros are giving him four box seats for Saturday's Game 3 game against St. Louis and are inviting him to their workout on Friday, team spokesman Todd Fedewa said.
It is not clear what the Hall of Fame is doing in the middle of this, but otherwise it makes sense. It is too costly to protect property rights to the typical ball, but teams and players would prefer to maintain their interest in "special balls" like the two in question. And this trade makes sense: the consideration involved is not very costly to the club, but it's of significant value to a true fan.

Consider the following default contract: you buy a ticket, and your financial gain from capturing a historic ball is limited to additional tickets. Would this pass muster in court, and stand the million dollar test of Bonds' 756th?

Tuesday, October 11, 2005

Limiting Team Numbers in NASCAR 

Frank Stephenson at Division of Labour alerts us to this Atlanta Journal-Constitution article about possible changes to the number of cars an owner can run:
Foremost among (NASCAR Chairman Brian) France's plans is his desire to break up the multi-car teams that are dominating the Nextel Cup Series.

Speaking to a group of reporters Saturday at Kansas Speedway, the site of Sunday's Banquet 400, France said NASCAR wants to take away some of the advantages enjoyed by powerhouses like Roush Racing (five teams, all in the Chase) and Hendrick Motorsports (four teams with one in the Chase).

He said limiting the big multi-car teams to as few as three entries will make it possible for new team owners to enter the sport.

"We don't like the fact that the independent teams, or in particular a new owner looking at coming in the door, have a daunting task to compete," France said. "That's why you haven't seen a lot of new ownership like a Ray Evernham come into the sport."

Multi-car teams have a huge edge over small or start-up teams because they can share resources, chassis setups and notes gathered by teammates.

As I understand it, teams do obtain some economies of scale as they grow larger (to a point). They can share information and technology that can help them adjust to various track conditions and other things. It apparently makes it easier to obtain sponsorships for the various cars and it becomes easier to build, test, and provide maintenance for the cars. But there are issues regarding who will control stock car racing in the future:
Owners of smaller teams would love to close the gap but questioned NASCAR's motives behind the plan and its effectiveness in controlling costs. Tony Morganthau, who co-owns Ken Schrader's No. 49 Dodge with wife Beth Ann in BAM Motorsports, believes it might be NASCAR's attempt to keep mega-team owners from banding together and possibly taking control of the sport as in Formula One, whose future is in jeopardy after many of its teams and manufacturers have formed a coalition against the sanctioning body.
My guess is that the control issues are pretty large given what's happened in Formula One.

Live Podcast on Thursday 10/13/05 

This Thursday (10/13/05), John Palmer and I will be joining King Banaian of SCSU Scholars in a live podcast via James Reese's The podcast starts at 8AM CST and we will be discussing topics such as Economic Education, the Economics of Education, and Economic Freedom among others that may come up.

We will have the ability to answer questions submitted online. The discussion will be available for download afterwards.

Here is a link to the other podcast John Palmer and I did.

Thanks to James for setting up the podcast.

Monday, October 10, 2005

The Shutdown Condition in Sports 

When economists explain how firms make their choices when they are maximizing profits, it's generally assumed that costs of production increase faster than revenue. When a profit-maximizing firm "chooses" its output level, it chooses to produce up to that point where the additional revenue from selling is as close as possible to the additional costs incurred. Beyond that level, costs at the margin exceed revenue and the firm's profits fall.

Fixed costs don't matter in the production decision because they are not under the control of the firm, but since variable costs are under the control of the firm, it must be able to cover its variable costs of production when it chooses to produce. If it can't then the business shuts down until better conditions warrant otherwise.

How often does this happen in sports? It doesn't happen often in the 4 major sports in the US, but it does happen. Consider the case of the New Orleans VooDoo of the Arena Football League as quoted from owner Tom Benson:
"The decision has been made to suspend play of the New Orleans VooDoo in New Orleans for the 2006 season. Factors beyond our control are forcing us to make this decision. We will not have a facility available to us to play our games, we will not be able to house players and staff and we will not be able to utilize our practice facility as it is being used by the government for Hurricane Katrina operations."

"The day the Astros played 18" 

Yesterday's 7-6 victory over the Braves was an epic. It was not the greatest post-season game ever, but it was certainly one for the ages. Two grand slams. An unlikely comeback from 6-1 down. A game-tying homer with two out in the ninth. Then a pitchers' duel in extra innings, capped by three knockout innings from Roger Clemens. Jayson Stark's account is the best I've read, covering myriad incidents while putting the game in historical perspective.

The boys at Page 2 rank the game among other post-season classics in an informative debate. Like them, I place it a notch or two below the Astros' sixteen-inning loss to the Mets in 1986. While it doesn't fully offset the '86 loss (the Astros were three outs and Mike Scott from the World Series, then were brutally, tortuously eliminated), it gives the Astros another chance to dance. At this stage of the season, that's all a fan can ask for. Whew!

Saturday, October 08, 2005

Club versus country 

Unlike the major leagues, league clubs in soccer (and in most other sports) belong to national federations that in turn belong to continental and world governing bodies, that in turn set rules and regulations for the sport. Since the invention of international representative competition by the English Football Association in 1872, it has been an accepted rule of these federations that clubs must release players without compensation to play for the national team. Given that national and international broadcast rights are now valued in the billions of dollars, this has become a hugely controversial issue. To be clear, players usually want to play for their country, either out of national pride or with an eye to endorsement opportunities created by representing the country. They are also paid, but generally not that much compared to their club salaries. The governing bodies and national associations share out the money for development of the "grass roots", and funding their global operations. The clubs get nothing, even though their employees are often injured.

The G14, an association of big european clubs formed at the end of the 90s, launched a challenge against this regime in the Swiss courts (FIFA, the world governing body is based in Switzerland), but seemingly got nowhere. They have now formally joined proceedings in Belgium where Royal Charleroi, a relatively small club, has challenged the regulations that oblige clubs to release players without redress.

If you're wondering why the clubs don't just secede from the national federations, the answer is that (a) many clubs want to stay within the system, they just want a share in revenues generated by players they employ and (b) breakaway would involve setting up a rival league, and US experience shows this is not easy. However, in recent years the G14 clubs have become so financially dominant that a breakaway is certainly on the cards. A european superleague formed by these clubs and their allies would certainly be more balanced than most domestic championships, and would enable to the top teams to play each other more regularly. With the broadcast rights to the Champions League up for renegotiation next year, we may be approaching a watershed in European football.

Thursday, October 06, 2005

The Extra Variable 

If my current employer offered me the same salary to stay home rather than work, it would be a bit like winning the lottery. I suspect that most people would react similarly. As a sports economist, I have written extensively about how sports mirrors life and vice versa. This is one area in which sports is different. Elite athletes want to be playing -- not just sitting and collecting a paycheck. Someone might suggest that this stems from a desire to maximize lifetime earnings, which sitting on the bench will ultimately diminish. I would not dismiss that as a factor, but even players late in their careers seem to exhibit the same desire. Certainly, there is some price for which players would be willing to sit rather than play, but the existence of this "compensating differential" for not playing seems to run counter to traditional labor settings.

Things brings me to my primary subject -- the Chelsea's or NY Yankees of the world. Much has been made of the Chelsea leviathan. Currently, their second team would stand a chance of finishing in the top 5 in the EPL, but I doubt that they will maintain such depth for very long. Two of their stars, Richard Carvalho and Arjen Robben have already voiced displeasure at their lack of playing time. Joe Cole has not gone public, but a national-team caliber player cannot relish being left off the group players dressing for games much less playing. How long will Sean Wright-Phillips, Damien Duff, and Herman Crespo be content with limited time? I don't have a crystal ball but would venture a guess that the team's number of big-name starts will diminish by next season if not in January.

Luxury tax systems such as the Yankees face reduce the financial incentives to stockpile players. Even absent the luxury tax, the Yankees would not easily be able to stockpile (veteran) players on their 25-man roster. Michael Young would not likely come to the Yankees just to sit for 150 games per year, nor would Roy Halladay to become a middle inning reliever. Instead, clubs with big financial advantages will have to content themselves with stockpiling young talent as the Yankees did in the old days.

Wednesday, October 05, 2005

FA Premier League rights: a new twist 

I wrote a blog here on September 24th about the intervention of the competition authority in Brussels to prohibit the FAPL from selling more than 50% of its live games to any one broadcaster (Sky has bought exclusive rights since the foundation of the FAPL in 1992). In the last few days the two UK cable broadcasters, NTL and Telewest, announced that they would merge and that they would bid for FAPL rights under the new competition regime.

This is a significant development, since although the competition authorities have been complaining about the restrictiveness of the FAPL contracts for years (exclusivity, too few games shown, no right for clubs to sell games not in the collective deal) their problem has been their inability to find any serious players in market to complain. For example, when the UK courts looked at the issue in 1999, not a single UK broadcaster testified against the arrangements and the BBC was in fact on the side of Sky, even though it meant that they could not get any live games.

To have a broadcaster demonstrating a willingness to pay serious money to buy a significant share of the rights will represent a major boost to the competition authority's case.

Tuesday, October 04, 2005

Hockey's (Purportedly) Extremely Hard Salary Cap 

Tonight, as I was driving home, I listened to Sportsnet's discussion of the "hard" salary cap. The participants all agreed that the contract has a definite, solid, hard cap. Their reason is that every transaction must be approved by the NHL league office, and the office will not approve any transaction that puts the team over the cap, no matter what!

What if everyone believes the league office really, really, truly will monitor every single contract and not allow teams to exceed the $39m salary cap. How else might teams spend more without exceeding the cap?

This question is no different from any other price-ceiling situation that we talk about in economics all the time: impose a price ceiling on a product, and people who really want to buy that product start figuring out how to get it. E.g., for gasoline price ceilings we have, in the past, seen long lineups, favourtism, hiring drivers to wait in line, and egregious tie-in sales (get an oil change and we'll move you to the head of the line).

How might a team exceed such a hard salary cap? Here is just one possibility that I thought of during the drive:

I might be able to sign a player to several contracts if I have some ancillary operations or arrangments:

  • I could pay him a lot to model for the covers of the programmes.
  • I could give him a huge endorsement contract for some firm (that I own) that may or may not advertise in the arena.
  • I could induce advertisers to offer him large endorsement contracts and in return offer them lower advertising/sponsorship rates for the team's games.
I am sure there are many many other evasions that more creative minds than mine will discover.

No, the cap is NOT hard. People respond to incentives.

The Car of Tomorrow 

When Dale Earnhardt died at Daytona in 2001, shock waves reverberated around NASCAR. In response, engineers have redesigned cars to provide extra safety measures. The "car of tomorrow", as it's called, has recently been tested:
Officials and teams tested prototype versions of the redesigned car at Talladega Superspeedway on Monday. Roush Racing driver Carl Edwards tested a Ford, Kyle Petty tested a Petty Enterprises-built Dodge and Brett Bodine tested a Chevrolet that was built by NASCAR's own engineering staff.

... The changes provide extra room for new energy-absorbing blocks of metal that NASCAR has been developing since the death of star driver Dale Earnhardt in February 2001. The new car's roll cage, a steel skeleton that protects the driver, also has been beefed up.
Kyle Petty says the car doesn't drive much differently than what's already out there. But,
The new car's body intentionally has been designed to be boxier than current cars; officials hope less aerodynamic cars will be able to pass each other more easily on the track.
If the new cars take some of the risk out of passing and there is a decreased advantage to drivers, won't drivers find a way to somehow adjust in order to gain that competitive advantage back, perhaps nullifying this particular feature?

Of course, cost is a big factor:
Roush Racing president Geoff Smith says the new car will cost teams millions of dollars to produce. But if NASCAR phases it in gradually, Smith says the cost will fall from "catastrophic" to merely "expensive as hell."

Quick notes on antitrust & sport 

Bruce Fein argues in Washington Lawyer that stare decisis has run it's course in the Federal Baseball case (1922), and that it's time to overturn it explicitly. That is certainly long overdue. And he's surely correct that the actions of Baltimore owner Peter Angelos have ill-served consumers:
Angelos fiercely fought for years to deprive Washington of an MLB franchise in order to protect the Orioles from nearby interstate competition and to inflate the value of the Orioles'’ franchise. The fact that over a million fans have attended the first two months of the new Washington Nationals'’ home games underscores the enormity of the loss Angelos was able to impose on the Washington public for so long.
Fein argues that MLB's disproportionate allocation of DC media rights to Baltimore (a "90-10 split") is anti-competitive and should be challenged by a DOJ injunction. I'm not confident that a challenge would stand. But the disproportionate split surely reduces media competition in the market. Indeed, that would seem to be the rationale for its existence. In the absence of creating monopoly rent from supressing competition, the Nats and Orioles would surely trade so that each could pursue their own media contracts without interference from the other. Thanks to David Giacolone for the link.

As for the serial offender that is the NCAA, check out Rick Karcher, guest blogging at the Sports Law Blog. Karcher suggests that schools outside of the BCS conferences have a case against the bowl system. The following suggests that he's right: "outsider" schools recently used the threat of an antitrust case to change the terms for selection in the BCS. They obtained only a partial victory though, so the issue is not fully settled.

The key question centers on the qualifying formulas for selection. Let's contrast golf and college football. I would argue that the PGA Tour's rules open the door to worthy competitors in a manner that the BCS formula does not. Multiple routes exist to qualify for the PGA Tour. In the BCS, mediocre teams from historically strong conferences are always protected, at the expense of excellent teams that deserve a shot at a major bowl. The BCS slot given to the Big East winner is surely the margin of protection that currently exists. The demise of the Big East and the desire of interlopers to compete in the big bowls suggests that serious pressure for change may emerge in coming seasons. How long will its BCS brethren protect the Big East?

Hurricane Kelo 

Across the inlet from Palm Beach sits Riviera Beach, Florida. In contrast to Palm Beach, Riviera Beach is racially diverse and relatively poor, with median per capita income of $19,000. The mayor claims the city is need of "redevelopment" and that his people are "in dire need of jobs." So he is going to .... tear down 2,000 homes and uproot 6,000 citizens using the power of eminent domain, in order to build a 400 acre marina project. This would be the largest relocation "since 1954, when 5,000 residents of Washington were displaced for eventual development of the Southwest D.C. waterfront." Hurricane Katrina notwithstanding, of course.

As Justice Thomas argued, Kelo "erased the public use clause from the constitution." Rather damaging, rather like a hurricane. Thanks to Frank at Division of Labour for the link.

Does Using Chopsticks Help One Become a Better Golfer? 

From the Asiapundit:
Korean female golfers continue to excel in the Lady's Professional Golf Association (LPGA). In fact out of the top 30 female professional golfers, 10 of them are Korean. You may be asking yourself, how is a small country like Korea able to dominate women's professional golfing? What is the secret to their success? Is there some kind of advanced training regimine or some mystic Korean herbal tea that is giving them such an advantage? Well look no further, the Korea Times has leaked the ancient Korean secret to becoming a master golfer; the ability to use chopsticks
Asiapundit has some interesting quotes from several sources about the correct way to use chopsticks and the importance of Korean culture. But the conclusion is very telling:

For those not familiar with the Korean media, these type of articles are very common to reinforce Korean pride and sense of superiority, especially over the Japanese and the Chinese. Everything seems to revolve around kimchi, chopsticks, and Dokto.

My only question is how did Annika Sorenstam become so dominant without kimchi, chopsticks, and Dokto? [emphasis added]

Monday, October 03, 2005

Pitching matchups 

In the Astros' wild card clinching victory yesterday, Dusty Baker pulled one reliever in favor of another to face pinch hitter Orlando Palmeiro. He wanted the left-lefty matchup. At the time, the Cubs were trailing 6-4 with two out in the bottom of the eighth inning. Of course, the pitching change meant several minutes of warmup, stalling the inevitable celebration. "C'mon Dusty," I thought, "get on with it! None of that matchup stuff matters anyway."

I may be wrong. Check out these stats on one-batter throwers, from Alan Schwarz in today's New York Times:
Relievers have been used for just one batter 1,013 times so far this season, roughly the norm for the past five years, according to Stats.

...The one-batter strategy usually works because such relievers are saved for the single batter they should be the most effective facing. This season, they have yielded a cumulative .170 batting average and a .282 slugging percentage, both remarkably low. In 2004, they were even lower, .131 and .209.
There are statistical biases that work into these stats (though the case of Joe Torre, discussed in the article, cuts the other way). The guy who gets the third out of the inning, for example, should probably be thrown out of the calculation since its not clear he was in for just one hitter. Regardless, biases notwithstanding, those are pretty impressive numbers.

Saturday, October 01, 2005

MVP, MRP, and MPP 

Judging from what I hear, see, and read, there will once again be some controversy about who should be selected as the Most Valuable Players [MVPs] in baseball this season. Just to add my eclectic, econoclastic views, let me offer the following observations:

It is not completely clear what the criteria should be for determining the MVP in each league. Last year, when I first started blogging, I suggested that the most valuable player is the player who adds the most revenue to his team. I had in mind an economics concept similar to Marginal Revenue Product [MRP].

I realize that it is difficult to assess how much a particular player has added to a team's total revenue. The relationship between playing ability and wins is complex, and the relationship between wins and revenue is discontinuous, with discrete jumps depending on whether the team makes the playoffs and how far it advances in the playoffs. But, of course, whether the team advances depends not on just the player being considered for the MVP but on others on the team as well.

That's no different, though, from saying the MRP of labour depends on the amount of capital it has to work with. And not surprisingly, the labour that has better and/or more capital to work with gets paid more because it contributes more to the revenue of the firm. Why should it be any different for sports MVPs?

I also recognize that good players probably add more to the total revenues of teams in bigger markets or with national television audiences; I can imagine that this possibility would bias many people against adopting an MRP-based measure, at least explicitly.

Often, it seems to me, sports writers have in mind a concept analogous to Marginal Physical Product [MPP] when they vote for the MVP. When they discuss "who was the best player" or "who did the most to help his team win," they are implicitly asking about the addition to total wins resulting from the use of a specific person's playing ability -- a discrete version of marginal physical product.

But here's another wrinkle: what if the criteria are, "which player added the most to the wealth of his team?" In this case, we would want to know the additions to total revenue minus the additions to total cost (i.e. minus the player's salary above and beyond the salary of a replacement player).