Tuesday, October 31, 2006

Page 2 with Steve Forbes 

Jonah Keri has an informative and entertaining interview with Steve Forbes on Page 2 at ESPN. Forbes of course runs Forbes magazine, which for many years has estimated and published annual valuations of sports teams. Here are a couple of snips to whet your appetite.
On revenue sharing: "The less you Sovietize the sport the better."

On stadiums & economic development: "Building a stadium should be done because you're already prospering. It should not be a means to prosperity, but a result of prosperity."

On MLB's objection to his estimates of team valuation: "Obviously if you're in Major League Baseball, ... you want to have a pity party, hang a black crepe and say things are terrible. It's been going on since the days of Curt Flood..."
But on the question of ticket prices, while I give him points for one insight, he ultimately gets a D for uttering the Cardinal Sin:
P2: Do you see the higher ticket prices then being due to higher salaries, or just a case of supply and demand?

Forbes:
It's both. Suddenly you have a bigger expense nut to deal with...
Say it ain't so Steve!

Monday, October 30, 2006

The revival in Detroit's fortunes 

The Lex column of the Financial Times today carried a cute comparison of the resurgence of the Tigers and the restructuring going on at GM and Ford. It raised the question over whether any lessons can be transferred from sporting success to success in other businesses. On the face of it there ought to be some carry overs. Successful teams are usually characterised by cohesion, purpose and high levels of skills employed in the execution of a well laid plan. Any business that could manage to achieve these things ought to be successful. Certainly, retired head coaches can make a very health living out of claiming to offer insights into successful team building.

In fact, the Sports Economist's very own Brian Goff published an interesting book last year on the lessons for management from sports (From the Ballfield to the Boardroom) which has an account of both the relevant and irrelevant lessons from sports management. My own take is that managing professional sports has a lot in common with management of other high profile, high earning environments-such as movie studios and bond trading- and less relevance for car manufacture. for most of us, the business problem is way less taxing than sport. The difference between peak and almost peak performance in the World Series is the difference between immortality and oblivion; if I teach my classes just a little bit better, nobody is likely to pay too much attention.

Should We Be Impressed? 

Yesterday Rich Lederer of The Baseball Analyst made the following observation.

The St. Louis Cardinals. The only team that won 11 postseason games. The only playoff team that won its last game. The only team whose players can say they are the 2006 World Series champions.

Who'da thunk four weeks ago? The Cardinals barely made the playoffs, holding off the Houston Astros on the final weekend of the season to capture the National League Central title. St. Louis (83-78) entered postseason play with the third-worst record ever and emerged as the World Series champ with the lowest winning percentage of all time.

Better to get pinned with that label than to win 116 games like the Seattle Mariners in 2001 and the Chicago Cubs in 1906 and not win the World Series. Flags fly forever. The number of victories just becomes a piece of trivia. Quick, how many regular-season games did the 1982 St. Louis Cardinals win on the way to their last championship? The answer is 92 but nobody really cares anymore.

There are only two things that matter: (1) making the postseason and (2) winning your last game. Do both of those and you can call yourselves World Series champs.

The Baseball Analysts is a wonderful website devoted to the objective analysis of baseball. Yet here is a statement arguing that all that matters is winning the World Series.

Lederer goes on to note what many other objective observers have noted, the playoffs are not about identifying the best team. In fact, as Lederer observes: Thanks to the Cardinals, the team with the inferior record has now won 3-of-the-last-4, 6-of-the-last-8, 10-of-the-last-14, and 21-of-the-last-37 World Series. Call it mystifying. Call it exciting. Or do as Billy Beane and call it a crapshoot or "five hands of blackjack." Roll the dice or deal the cards.

If the playoffs are for fun, not for science, should we truly be impressed by the team that wins the “crapshoot?” Or, put it another way, shouldn’t we be more impressed by the 2001 Mariners who won more regular season games than any team in nearly 50 years? After all, every year someone wins a World Series. Teams only win 116 games once every few decades.

Lederer notes that the Mariners accomplishment is just a piece of trivia. Well, isn’t all of this just a piece of trivia? Quick, who won the World Series in 1935? I’m a Tigers fan, so I know it was Detroit. But I hardly expect anyone who is not a Tigers fan to know or care.

Okay, I would not be writing these words if the Tigers won. Had the Tigers won the World Series I would know that this proved Detroit was the best team in baseball in 2006. At least, the fan in me would know. The person who pretends to be the objective observer of baseball knows that the playoffs don’t tell us much. Sure it is entertaining (of course more entertaining when your team wins). But the playoffs should not matter much when we assess the quality of a team. And such an assessment tells us that the Tigers are better than the Cardinals. At least, that’s what the fan in me says.

For those wishing to hear more on why the Cardinals are not the best team in baseball, check out this comment by Jeffrey Standen (better known as The Sports Law Professor). And no, I am not linking to Standen just because he mentioned The Wages of Wins (okay, maybe that is why).

Book Review: Mark Yost's Tailgating, Sacks, and Salary Caps 

Baseball may still claim the title “America’s Pastime,” but professional football is America’s favorite sport. NFL games draw tens of thousands of fans to stadiums. Millions more watch it on television. Its championship, the Super Bowl, is its showcase event and Super Bowl Sunday has become an unofficial national holiday. Simply put, football is America’s sport and the National Football League is America’s league.

Mark Yost has written a book entitled “Tailgating, Sacks, and Salary Caps: How the NFL became the most Successful Sports League in History” in which he tells the story of how the NFL grew from a collection of mostly Midwestern teams to the glittering jewel on the sports landscape. He describes its roots, its cooperative structure, its growth in marketing, and its labor issues.

The NFL, like any league, is the collection of teams and its primary officials are the team owners. The growth and subsequent success of the NFL, Yost argues, is due to the cooperation, cartelization really, that team owners have used over the years. From the development of the revenue sharing system to the abandonment of local television contracts in favor of the national television contract, NFL owners, more often than not, give up some autonomy for the good of the game.

Yost details the collective strategies that have led to the success of the NFL: the successful courting of female fans, in part due to acknowledging players’ sex appeal, and the appeal of fantasy football; the Sports Broadcasting Act, the 1961 federal law that gave owners legal backing to act as a cartel in negotiating national television contracts, and the subsequent development of the NFL on television over the years; the philosophy that drives NFL merchandising gets into the act: the standardized style of the clothes that members of the coaching staffs wear. The clothes only differ in the colors and the logos. Standardization and collectivization: it’s all for the good of all in the league.

An interesting exception to this collective strategy comes, oddly enough, from the NFL’s revenue sharing system. In this system, the most generous of the four major American sports, 60% of locally-generated revenue is put into a kitty and the kitty is then shared equally with all teams. But an exemption exists for “luxury suite” revenues. These revenues are not subject to revenue sharing and team owners give their blessing to their fellow owners to actively search for such revenue streams. Indeed, the NFL’s brand of revenue sharing was actually a driving force in the new stadium boom of the 1990’s.

Yost gives ample space to some of the more colorful owners in the NFL - such as the Washington Redskins’ owner Daniel Snyder. Mr. Snyder may be derided by some, but he is a shrewd businessman who realizes that to have a successful business, you need to serve your customers well and to provide them with value. Yost describes Snyder’s implementation of the “Tap and Go” payment system in which the process of buying refreshments is sped up. Instead of paying with cash, check, or credit card, fans pay for concessions by sweeping a keychain fob across a reader. By speeding up the payment process, the use of the Tap and Go system has helped Snyder increase concession sales and has helped drive the value of the Redskins to more than $1 billion. Snyder, like any good businessman, found a way that he could serve fans better and he profited from it.

Yost writes from the point of view of a journalist, telling stories based upon interviews with NFL officials, fans, and those who study sports. He steers away from formal modeling and hard statistical analyses, features that some readers may not prefer but others will embrace. This does not mean that the book is bereft of analysis and data. Indeed, it is a well-researched book. Sports economists will recognize many familiar names mentioned in the book, including TSE’s own King Banaian.

Overall, Yost has produced a well-written and readable book. Yet some passages will undoubtedly cause some to be left wanting for more. For instance, Yost argues that because it makes playing talent more affordable for all teams, the salary cap system has been a driving force in the league’s growth. But the discussion seems incomplete. Salary caps are, in essence, a ceiling on payrolls. If a team wants to sign a player but that player puts the team over the cap, the team has an incentive to find a way around the salary cap. Yost recognizes this, but doesn’t fully explain why the type of salary cap used by the NFL has worked nor does he present evidence that it has worked. A similar thing can be said of the discussion of the NFL draft.

The book also contains little about the enforcement mechanisms that keep the cooperation between owners humming along. There seems to be a classic prisoners’ dilemma-type story somewhere to be told: business owners form cartel and choose not to compete against one another, increasing the profitability of the group. This creates an inefficiency that is screaming to be exploited. To stabilize any cartel, there must be an enforcement mechanism in place. Yost does write about the mavericks in the group of owners, Dan Snyder, Jerry Jones, and Oakland Raiders owner Al Davis most notably, and he does a good job of describing the business acumen of the mavericks. Yost also notes the friction between these owners and others in the league. Yost does discuss some of the frictions between the owners that were at the heart of the most recent negotiations over the NFL’s collective bargaining agreement. But there seems to be an untold story about how the rest of the owners have been able to keep the mavericks corralled over time.

The copy I received was an advance review copy and it was a little rough around the edges. My guess is that the typos and other rough edges have been cleaned up by now. Even taking this in mind, Yost has produced a well-researched, well-written, and readable story of how the NFL has been shaped into the power that it is today.

Friday, October 27, 2006

Fame and Fortune for Florida International? 

The recent Florida International/University of Miami football debacle is a perfect opportunity to examine the lunacy that often creeps into big-time collegiate sports. With nearly 38,000 students, FIU is larger than any other university in Florida including its better known rivals Florida State, University of Florida, and the University of Miami. As the university has grown, its administration has increasingly turned to athletics to bring additional publicity to the school. In 1987, the school leapt from Division II to Division I status, and in 2002 the school added football for the first time in an attempt to grab the fame and fortune that would surely come from having a big-time football program. In fact, neither fame nor fortune has flowed from the addition of football.

Of course, college football is a zero-sum game and 118 other Division 1-A programs are also committed to having a top-tier program as well. No matter how much each school spends on scholarships, coaching, recruiting, and training facilities, by definition only 25 teams can be ranked in the top 25. For this reason, it’s not surprising that FIU has, so far, fallen short of its stated goal of becoming a football powerhouse and the attendant glory that comes along with having such a lofty program. Following its lopsided loss to Miami last Saturday, FIU now has an all-time record of 15-35, the lowest lifetime win percentage of any school playing Division 1-A football this year. Having one of the worst football programs in college football is hardly the type of publicity that the school was looking for.

Of course, the only time FIU has received any national media attention due to its football program was the result of the ugly brawl that interrupted their game against cross-town neighbor Miami last weekend. This prolonged fight involved over 100 players, resulted in the expulsion of 13 players (eight from FIU), and later led the schools to suspend 30 players (18 for FIU) for at least one game. Those boosters who claim that sports teams and events can bring "invaluable exposure" to schools or host cities always ignore the possibility that the attention a sporting event or team might bring need not be positive.

If it can be believed, the fortune accruing to FIU as a result of adding football is even worse than the fame (or infamy, as it were). While the football program cost FIU $4.4 million to run in 2004-2005, the school sold a mere $112 thousand in tickets and garnered another $90 thousand in media rights, conference and NCAA distributions, and advertising and sponsorship revenues. In fact, the biggest money-maker in 2004-05 for the FIU program was $205 thousand in appearance guarantees. Appearance guarantees are payments made by big, successful programs like Miami or Florida State in exchange for FIU agreeing to play them at the Hurricanes’ or Seminoles’ home stadium. When two large programs play against one another, Florida State vs. Florida, for example, guarantee payments are not made, but instead the programs agree to play one game at each team’s stadium in successive years. When a guarantee payment is made, Miami or Florida State is under no obligation to play future game at FIU’s stadium. From an economic point of view, guarantees make perfect sense. Miami needs someone to play, and the revenues generated by a Miami home game are well in excess of the revenues that FIU could expect from hosting Miami. From a sports competition point of view, however, FIU is essentially playing the Washington Generals to Miami’s Globetrotters in exchange for 30 pieces of silver.

So, it looks like the football program lost about $4 million in 2004-2005. No so, according to FIU. In fact, in their disclosure to the NCAA, they claimed a $600K football profit. First of all $900K in donations to the university were attributed to the football program. Certainly, if the football team encourages giving that would not have occurred in the absence of the team, then this is a perfectly acceptable accounting practice. However, if a big donor decides to dedicate their planned $500K gift to FIU to the football program, this is a $500K donation that is not available for new classrooms, or the library, or endowed professorships, or the general fund. The list goes on.

The biggest line-item for the football team, however, is $3.7 million of "Student Fees." Essentially, students through tuition and special fees subsidize about 75% of the costs of the football team to the tune of about $100 per student, adding to the already high cost of higher education. Again, this is $3.7 million of student funds that could be directed elsewhere in the university or simply used to reduce the average student’s financial burden. As if the current financial costs are not enough, FIU has announced plans to undergo a $34 million stadium renovation to include the construction of 14 luxury boxes and 1,400 club seats. It’s not at all clear that this new stadium will be able to generate the roughly $3 million in additional revenues required to pay for the interest and amortization of this new facility.

In the ultimate indignity, in January 2003, FIU announced that due to budget difficulties brought about entirely because of the $4 million in annual losses due to the new football team, the university was cutting men’s soccer, the most successful team in the institution’s history. The men’s soccer program had won two national championships in the 1980s when FIU was still in Division II, and had lost in the NCAA Division I national title game in 1996 to St. John’s. The team is the only sports program in the school’s history to win a national title, and it has produced numerous professional players including Steve Ralston, a perennial Major League Soccer All-Star selection. In effect, FIU traded a highly successful men’s soccer program for a poor football team that loses roughly 4 times as much money as the soccer team did while bringing national disgrace to the university due to its actions on the field.

Big-time college athletics is an lure that many schools find difficult to resist. The reality is, however, that even revenue sports such as football and men’s basketball are money losers for most programs. Certainly FIU must be rethinking their decision to step onto the football field.

Addendum: Later in 2003, FIU reinstated the men’s soccer team on a year-to-year basis due to pressure from current and former players and alumnae. In addition, the Indianapolis Star has a database of NCAA financial reports that is a gold mine of interesting information regarding college finances. It's the best source I have ever seen regarding school finances.

The Grand Design or the Grand Illusion? 

The Minneapolis Star-Tribune has an article on that reveals an awful lot about the mindset behind stadium and surrounding neighborhood development:

A 10-member volunteer Design Advisory Group appointed by the Hennepin County commissioners held a public hearing this week to review the issues and invite feedback. By Nov. 9, the group is to report back to the commissioners on ways to activate the area around the stadium.

...But the park's sunken site means fans will reach it by elevated walkways -- a broad pedestrian bridge extending from the Target Center, skyways from the nearby parking ramps and platforms from the Hiawatha light-rail and Northstar commuter trains.

"We have several large gulfs that need to be bridged," said Chuck Ballentine, deputy coordinator for the Hennepin County ballpark project.

How these connections work is one of many questions about how the 42,000-seat ballpark will fit into the city.

...rather than letting the neighborhood grow around the ballpark. Past experience tells us that ballparks do not, by themselves, lead to much "spontaneuous" economic vitality around them. There are notable exceptions (Wrigley Field, anyone?), but they are the outliers. Why should folks believe that public officials are any better at building "ballpark villages" that will attract people than they were at building ballparks?

Thursday, October 26, 2006

Is Revenue Sharing Working? 

During Game One of the World Series Tim McCarver claimed that revenue sharing in baseball is working. His evidence – baseball is crowning its seventh new champion in seven years. McCarver – and others – interpret the outcome of baseball’s playoffs as evidence of increased parity. Furthermore, this increase in parity is attributed to Major League Baseball’s “share the wealth” plan.

The revenue sharing – league parity story goes as follows:
1. Rich teams give poor teams money.
2. Poor teams now spend more on talent, rich teams now spend less.
3. As payrolls become more equal, teams become more equal.
4. Poor teams now win more, rich teams now win less.

That’s the story we are being told. The data, though, tells a different story.

From 1996 to 2000 the New York Yankees won the World Series four times. “Baseball has a competitive balance problem” was the cry heard throughout the land. The only solution was some mechanism to control the growth of salaries and re-distribute baseball’s wealth from the rich – i.e. the Yankees – to the poor.

The 2002 labor agreement – which was just extended to 2011 – was designed to resolve these problems. A luxury tax on high payrolls was enacted. This tax – primarily paid by the Yankees – was designed to restrict spending by large market teams on players. The agreement also focused on revenue sharing, which gave small market teams more money.

Payrolls in the American League have not quite responded to this agreement. From 1999 to 2002 the coefficient of variation for league payroll – standard deviation divided by the mean – was 0.44 in the American League. From 2003 to 2006 the coefficient of variation rose to 0.54. In other words, after the 2002 agreement payrolls became less equal.

What has happened to competitive balance? The standard deviation of winning percentage in the American League was on average 0.083 from 1999 to 2002. From 2003 to 2006 it averaged 0.084. In other words, increases in pay disparity did not dramatically change competitive balance.

If we look at the National League we do see evidence that pay has become more equal. The coefficient of variation in pay has decreased from 0.37 from 1999 to 2002 to 0.33 from 2003 to 2006. And the National League has become a bit more competitive. The standard deviation of winning percentage from 1999 to 2002 in the National League was an average of 0.073. From 2003 to 2006 the average fell to 0.065.

Was this change due to the 2002 agreement? From 1995 to 1998 the average standard deviation in winning percentage in the National League was 0.066. In other words, just about what it was the last four years.

Commissioner Bud Selig tells us that the 2002 agreement has ushered in a “golden age.” If by “golden age” he means an era of pay equality and competitive balance, then the data doesn’t seem to agree. Team payrolls are even less equal today and the level of competitive balance appears to be about the same.

The reality is that competitive balance improved in baseball during the 2oth century as the population of available athletes expanded. And the improvements occurred well before the 2002 agreement. For the mechanism of how this works, please read chapter four of The Wages of Wins (shameless book plug, sorry about that). Or perhaps I will comment on this at our blog – The Wages of Wins Journal (another shameless plug, sorry again). In the last thirty years the standard deviation of winning percentage in both leagues has changed very little. Yes, payrolls have increased dramatically, but competitive balance remains basically the same.

So is this a “golden age” of baseball? If by “golden age” we mean the Yankees are not winning the World Series every year, then I guess that is true. But one should not be confused about how that trick was pulled off. The true trick happened when baseball expanded participation in the playoffs. Since 1995 the team with the best record in baseball has only won the World Series once. And that is because the best team now has to navigate three playoff rounds to win the title.

The revenue sharing plan, which put more gold in the pockets of small market teams, may have made the lives of some owners come closer to a “golden age.” But it is hard to see how this altered the level of parity we observe in the National Pastime.

Update: For those who are interested, I posted a few more comments on competitive balance at The Wages of Wins Journal.

Tuesday, October 24, 2006

Cartel enforcement, Louisiana style 

An assistant strength coach for LSU was arrested and accused of violating state law by inviting student athletes to his home to meet a sports agent and suggesting the agent should represent the athletes, LSU police said Tuesday.

Travelle Ernest Gaines, 26, of Port Allen, surrendered to university police and was booked into East Baton Rouge Parish prison, the university said in a statement.

In my job, I'd get a nice pat on the back for bringing students to my house to investigate employment options. But then I don't work in Louisiana for an athletic cartel!

Update: At Voluntary Trade, Skip Oliva examines the statutes which enable the LSU police to "protect" their football players. Good stuff.

Monitoring officials in the NFL 

What I've been talking about, in a great story by Judy Battista in today's NY Times. It's no surprise that the NFL takes it seriously.

Mike Pereira is the NFL's Vice President for officiating. Here's where he spends his Sundays:
...in the league'’s officiating control center, a darkened room with flickering images of games on 10 high-definition televisions and a floor-to-ceiling projection screen. For the N.F.L., the control room is a boisterous nerve center that serves as a vital link between the big business of pro football and the credibility of the games.
No 13 inch sets with rabbit ears here, as described by Selena Roberts for the Oklahoma-Oregon game.
The control room is located past a "Zebra X-ing" sign and not far from Pereira'’s corner office, which is decorated almost exclusively with black and white stripes and includes a marionette of an official. In the control room, each game is watched by someone listening on headphones and taking copious notes concerning all player-discipline penalties and all instant-replay challenges.

Games are digitally recorded so that every fumble, every injury, every step out of bounds can be reviewed in excruciatingly slow motion.
Game day is just the beginning. In the following week each game is reveiwed, play by play, and every official is graded, position by position.

The NFL has the organizational structure and the incentive to produce efficient monitoring and evaluation of officiating. I draw two implications from this. First, major college conferences should copy and implement crucial elements of this system. The college system can improve. Second, if the NFL's concern with performance evaluation extends to training and selection of those who officiate the games (and I have no basis for thinking otherwise), then officiating in the NFL is probably as accurate and efficient as humanly possible.

Monday, October 23, 2006

Questions from The Blind Side 

Two years ago Michael Lewis published Moneyball, the story of the improbable success of the Oakland A’s. For sports economists this book sparked much discussion and specifically inspired the work of Jahn Hakes and Skip Sauer, previously discussed in this forum.

Now Lewis has moved on to the sport of football. In The Blind Side, Lewis focuses on a position often overlooked by football fans, the left offensive tackle. The job of the left offensive tackle is to protect the right-handed quarterback’s blind side. The importance of this job is highlighted by the pay these players receive. As Lewis notes: “By the 2004 NFL season, the average NFL left tackle salary was $5.5 million a year, and the left tackle had become the second highest paid position on the field.”

Like Moneyball, I expect this excellent book to generate questions of interest to the sports economist. Two questions leap to mind.

1. Are left-handed quarterbacks more likely to be sacked? These quarterbacks are protected by right offensive tackles who – according to Lewis -- should be inferior in talent to those on the left. I asked this question at The Wages of Wins Journal (where a more complete review of this book is offered). The discussion revealed that the sample of left-handed quarterbacks was probably too small for systematic inquiry.

2. The lack of left-handed quarterbacks suggests some form of discrimination. Does the lack of lefties at the quarterback position extend to the college and high school ranks? If not, why are these players unable to take the field in the NFL?

There have been a few successful lefties. Steve Young and Michael Vick are two names that leap to mind. Mobility is the calling card of each of these signal callers. Can a left handed quarterback survive as a classic drop back passer? Or is the disparity between left and right tackles too difficult to overcome?

Okay, that’s more than two questions to ponder. Hopefully everyone can read this book and a few more questions can be asked. And maybe we can come up with some answers as well.

Saturday, October 21, 2006

Spotlight on the Ivy League 

Here's a New York Times story on fighting and arrests in Ivy League football.

Some interesting quotes. From Dartmouth: "I've seen worse at a hockey rink." From Harvard (paraphrased): "elite schools ... can be an easy target." Maybe so, but it doesn't take months for an ACC or SEC player's arrest to surface in the news.

They sound a bit Shalala-like to me.

This is neat 

Fast Company Magazine chooses a category each month and lists the "best blogs" in that genre, along with a short description. The October issue's category is "Best Blogs: Moneyball," and The Sports Economist is one of three blogs listed, along with Sportzbiz, and The Sports Law Blog. Huzzah!!! & thanks to Bobby McCormick for the link.

Thursday, October 19, 2006

Who's cheatin' who? 

A Russian hockey club filed an antitrust lawsuit Thursday against the NHL and the Pittsburgh Penguins, saying rookie Evgeni Malkin shouldn't be allowed to play in the league because he remains under contract in his native country.

The Metallurg Magnitogorsk hockey club, which filed the lawsuit in U.S. District Court in Manhattan, also demanded unspecified damages from the NHL and the Penguins over Malkin's deal to jump teams this summer. ....

Malkin was under contract for another year in Russia. The NHL had previously said the league believes any player should have the right to choose where he wants to play as long as he is legally free to do so.

After Malkin left his Russian team, he cited a Russian labor law that permits an employee to leave a job by giving two weeks notice.

The lawsuit, filed after a Russian arbitration panel ruled that Malkin is still under contract to Magnitogorsk, said the signing of Malkin to an NHL contract was a "blatant and deliberate tampering and interference" with the Russian team's existing agreement.
If this is just a contract dispute with Magnitogorsk's contract binding, then the issue is between them and Malkin. But if the NHL argues that contracts between players and NHL teams are binding (i.e the Bruins honor Rangers contracts), but not so between players and teams in other leagues (Magnitogorsk is a non-entity), are they not setting themselves up for a fall? This has the scent of a group boycott to me.

This suit would be unlikely in the world of soccer, where players commonly move back and forth between Russia and the rest of the world, with cash transfers between teams balancing value in the deal. My crystal ball says that the Penguins will have to pay off Magnitogorsk before this is over. And let's hope the NHL doesn't get in the habit of acting like an outlaw league.

You can read the full story here. Thanks to Bill West for the link.

Wednesday, October 18, 2006

Sports Econ Potpurri 

Some interesting things that caught my eye recently:

"The Oddsmakers Top 25." Point spread geeks like me have often pondered the improved rankings that would come from using market based measures of team strength. Dan Steinberg of the Washington Post has found that Las Vegas Sports Consultants actually compiles such a list! Why they (or a customer) doesn't post it or make updates available on the net escapes me, as it would be cheap publicity. Perhaps someone does, or perhaps the asking price is too high. Anyway, as of a week ago they had Cal at #6, three spots ahead of Tennessee at #9, who beat them handily in the season's first week. Thus, the point spread market - presumably the best measure of team abilities - is poorly suited as a ranking system for the purposes of fashioning the BCS Champion.

Tim Brando also has Cal ranked ahead of Tennessee, for which he's had to defend himself to Vols fans: "California right now is playing better football," he says. But if they both finish in the top 5 with 1 loss, Brando would reverse his rank to give the heads-up winner the edge in the BCS beauty contest. I agree with Brando, but this is further proof that rankings are inherently inconsistent.

At Knowledge Problem, Lynne Kiesling points out that Floyd Landis' posting of documents related to his failed testosterone test has the advantage of employing distributed knowledge to fight the Doping Police. Check out Lynne's post - the authorities seem like malicious Keystone Cops to me. Fight the power Floyd!

Finally, my three cents on the Miami-FIU incident: 1) The biggest window into UM for most people comes via college football, and everyone is tired of seeing the Miami thug show. This is an administrative problem that may claim the head of the AD in addition to Coach Coker before it's all said and done. 2) Miami grabs the headlines, but the actions of the two FIU players in mugging and pummeling the PAT holder were utterly despicable - worse in some dimensions than the Haynesworth incident. If I had an orange jersey on it would have been tough to stay on the sideline, but there were too many transgressions on the Miami side for self-defense to be a valid excuse for their behavior. 3) College refs need to study the tape of this game and the Clemson-South Carolina game from two years ago - at the beginning of each of the next five seasons. Officials have a tough job, and it is made tougher when facing players intent on creating mayhem. But I was a close observer of the game two years ago, and I have no doubt that the SEC officials failed miserably in that game - it was a game they could and should have controlled. If officials are prepared -- and there are signs that they are better prepared now -- they are more likely to intervene successfully. There's plenty of work that needs to be done on this problem, from the league offices to the ADs, not just by Larry Coker.

Hat tip to two college pollster wannabees at EDSBS and mgoblog - who like SI's Stewart Mandel dropped Clemson multiple spots after the Tigers' second team manhandled Temple last week. The fools!! But give 'em an AP ballot anyway. As history shows, AP poll lunacy is just par for the course.

Tuesday, October 17, 2006

Arizona Meltdown 

SI.com's Peter King wrote a blistering column this morning about Arizona's "historic choke job." In typical King style, he treads pretty lightly on poor head coaching decisions. In real time (not just Tuesday morning QB-ing), I was shaking my head at the Cardinals' coaching decision to close up shop at the Bears' 23-yard line with two runs. I had seen this kind of scenario before during the ultra-conservative days of Jeff Fisher (pre-2002) -- get just within reasonable field goal range and hope for the best. It cost the Titans a Super Bowl in the 2001 playoffs in the game where they manhandled the Ravens but decided to put most of their eggs in the Al Del Greco basket.

This morning, I looked up the FG percentages so far this season. Between 40 and 49 yards, there's about a 1 in 4 shot at missing not counting the extra, end-of-game pressure. Given that the kick barely exceeded 40 yards, the figure may be closer to 1 in 5. With a few more yards the chances of missing fall way off. In the 30-39 range, it's just below 1 in 10 and only 1 in 20 for the 20-29 range. While King thinks kicker Neil Rackers "can't show his face without getting pelted by tomatoes," the he doesn't even raise the issue of the barely-get-in-range-and-hope-for-the-best strategy. Instead, King describes the drive as "stalling out" at the 23.

Saturday, October 14, 2006

The Flow of Information and the AP Poll 

Jason Whitlock explains his rationale at voting the Missouri Tiger football squad at number 25 in the nation, upsetting some fans.
My vote is a work in progress until mid-November, when we’ll have much more information about all teams. I don’t believe in a slotting system. The teams I have ranked ahead of Missouri don’t have to lose for me to move the Tigers up in my poll.
I can't say I blame him (or any other voter) for being cautious at this point in the season: memories of past seasons still matter. Tiger teams under head coach Gary Pinkel have several maddening come-from-ahead losses under their belt (up 14-0 at Troy in 2004, lost 24-14; up 17-0 at home against Okie State in 2004, lost 20-17; up 21-0 at KSU, lost 36-28). The whole coaching staff is the same and many of the players from the squad that squandered those leads are still on the squad. Yes, everyone's a little older and a little wiser, but this year's Tigers have shown some cracks in recent weeks.
"Yes, I suspect I have the Tigers ranked too low. But that can be easily corrected once the Tigers play Oklahoma and Nebraska. I can guarantee you this: when the season is over, you will be satisfied with where I’ll rank the Tigers. I’ll make the same promise to the Nebraska fans who are upset the Huskers haven’t cracked my top 25."
Yes, but does that mean that his memories of the past will be completely erased by season's end and Mr. Whitlock's vote will only account for this season's play? That may be the case with him, but as Brian noted here and Rod noted here, that that isn't the case for the average AP voter.

I sometimes think of the polls as some sort of dynamic animal that feeds off of information. At the beginning of the season, all voters have is how the team played in years past (especially last year), who (including coaches) is left over from previous squads, who are the new guys, and a lot of guessing about how the brew will come together. By the end of the season, enough information has been processed to give a more informed poll. But the past still matters.

"Money is no easy fix" 

Gerard Baker of the The Times examines and considers recent NY Yankee failures, with an assist from TSE. Also included is a comparison between Chelsea and the Yanks (2nd page) - guess whose wage bill is the highest?

Thursday, October 12, 2006

Prospects of Stealing Second 

Surfing the net the other day, I ran across a working paper concerning the decision to steal second base by Ashgar Zardkoohi, an economist in the management school at Texas A&M, and several colleagues. While I don't know Ashgar personally, our networks of associates have overlapped, so I decided to take a look at the paper. Using over 200,000 decisions in MLB between 1985 and 1992, the authors estimate the likelihood of an steal attempt based on game situation (lead, pitcher characteristics, count, league, ...). Their objective is to determine whether managers select stealing attempts (as if) taking into the full range of likely benefits or costs (expected utility) or whether certain biases appear whereby managers appear to use rules-of-thumb that limit their decisions based on the context of the situation or their biases (prospect theory). They find two main results suggesting the latter:

  • Teams that are losing are less likely to steal than are teams that are tied, and teams that are winning are significantly more likely to steal than are teams that are tied.
  • Managers become less likely to have players steal as the game progresses.
I'll leave it to interested readers to look at the paper for detailed explanations of why these support the idea that managers employ rules-of-thumb. In short, both indicate that something in addition to the likelihood of influencing the game outcome is at work. Managers appear to eliminate or alter some choices that, if considering the real probabilities, would be better.

The study offers insight into the value of sports economics. Most experiments comparing different models of decision making utilize contrived settings that always raise the specter of departures from decisions in "real" situations. The authors explicitly pursue this angle of offering a "field" comparison.

As for the findings, some proponents and critics of "behavioral" methods stand ready either to dismiss such results out of hand or use them as supposed evidence of the complete failure of economics. I don't see it that way. Economic models are very useful, but exactly how people deal with uncertain situations and process available information is an area of open study. "Why Good Refs Make Bad Calls" highlights the work of Roy Radner (economist) working on the more theoretical end and Max Bazerman (psychologist) working more from the experimental-empirical side on subject of information processing. More recent developments in prospect theory have shown how it can be consistent with basic and tenets of choice in economics that are crucial and universal. What is needed over time from the experimental-empirical side is some sorting through the long list of "biases" and "effects" to find ones that are hold across most any situation. Otherwise, one is left with only a "theories" of decision making applicable in one context but not another. That's not useful for much other than seeking grant support for the latest experiment.

Wednesday, October 11, 2006

Yankee dollar fails again 

Once again, the team with the biggest payroll in baseball failed to win or even reach the World Series. As a result, some commentators have pointed out that money doesn't buy success in baseball. This seems an extraordinary comment. Over the last ten years the Yankees have maintained the highest payroll in baseball and in that same period they have recorded more wins than any other team. In addition, they have won four World Series, and two League titles, as well as being in every post season. Dave Berri in his Wages of Wins Blog points out that having the best team cannot provide statistical certainty. Indeed what would be the interest in sport if it did?

Baseball seems like a pretty good example of the law of large numbers, so why does this cause so much controversy? My colleague Steve Ross gives what I find a pretty convincing answer. He points out that the Yankees controversy is really about straw men. Some people want a policy of constraining the payrolls of teams: these people argue that the Yankees are buying success. On average they are right, but on any given Saturday they may not be. Some people think that there are too many cosy agreements and restraints in baseball: these people point out that money cannot guarantee success. But this only true for a particular game- on average this is clearly not so.

For what it's worth, the correlation coefficient between wages and wins in baseball is around 0.2 in a single season, and around 0.7 over a decade. Are these worryingly big or trivially small numbers? This probably depends on what you want to do to baseball.

Monday, October 09, 2006

Simple Coase theorem application to the NCAA 

The University of North Dakota has sued the NCAA over the latter's banning of UND from postseason competition unless it changes or covers up its Native American nickname. In court papers filed Friday -- which happened to be Native American Day in North Dakota -- the university claimed it had been harmed by the NCAA's injunction.

The lawsuit alleges the NCAA breached its contract by creating a new bylaw without a vote of the entire membership; acted in bad faith by exempting some teams and not others from the nickname mandate; and restrained trade in North Dakota by imposing the mandate.

UND will also seek cash damages from the NCAA, Stenehjem said.

According to one source, the cash damages sought are $2.6 million. If the NCAA was serious about reducing the number of universities using the mascot, a simple Coasian solution would be to pay the damages. In this case, exempting some teams but not others would be an efficient outcome -- buying out UND and Indiana University of Pennsylvania (to name two) would be efficient because the schools are low revenue, while allowing the negative externality at Florida State or Illinois to continue because it's not worth the money to be spent by the member organizations.

The question of due process -- asking the full body of the NCAA university presidents to approve the mandate -- would still remain, but the issue of treating different universities differently would make sense.

Saturday, October 07, 2006

Professional Sports Team Territories 

The Washington Redskins apparently have mistakenly been marketed in the official territory of the Baltimore Ravens. Today's Baltimore Sun reports that residents of some Maryland counties well outside the Washington metropolitan area have recieved flyers advertising season ticket packages for the Redskins. One recipient of the flyer is the president of the Ravens' Marching band. No fan of the Redskins, he passed the flyer to the Ravens who then reported the incursion to the NFL office. The Ravens have not heard back from the NFL and both teams down-played the issue citing the difficulty of policing the territorial agreement when promotions are conducted by second parties. For example, the offending season ticket offer, a pre-sale for 2007, is a Bank of America promotion, not a Redskins promotion.

In the past, the Redskins and Ravens have battled over marketing issues and team territories but neither team seemed concerned about this incursion.

Redskins spokesman Karl Swanson said the team did not intentionally cross into Ravens turf.

"This is an inexact science when other people [besides the Redskins] are doing the distribution," Swanson said. "If it's a concern they have, they should give us a call."

Ravens officials say they don't want to confront the Redskins over this recent lapse.

"I don't regard this as that big of a deal," Cass said. "It might be irritating to our fans. If you're a big Ravens fan, you're not going to want to get a Redskins mailing in your mailbox, and vice versa."

The recipient of the ad thought it was a joke being played by another member of the Ravens Marching Band. "The Redskins are not my team and never will be," he said.

Thursday, October 05, 2006

The Tax Exempt Status of the NCAA 

Lost in the current sex scandal on capital hill is a news report that lame duck Representative Bill Thomas (R-California) sent a letter to NCAA President Myles Brand this week asking him to justify the tax exempt status of the NCAA. Thomas, who announced last Spring that he will not seek re-election, lists all the usual NCAA excesses: million dollar salaries for coaches, billion dollar TV contracts, and the commercialization of intercollegiate athletics. Preliminary statements from the NCAA also toe the party line: amateurism. A spokesman for the NCAA remarked "We educate student athletes; they are students first."

I am generally skeptical about any pronouncement from capital hill around election time. I also wonder how the tax exempt status of intercollegiate athletics can be challenged without also calling into question the tax exempt status of institutions of higher education. Couldn't the same logic be applied to gift shops operated by museums ? Why isn't the House Ways and Means committee concerned about the outrageous markups on Vermeer prints sold at art museum gift shops?

Thomas has requested a response to his inquiry, including data on revenues and expenditures for Division I football and men's basketball programs, by the end of the month. Stay tuned.

(HT to my graduate student, Brian Soebbing)

Wednesday, October 04, 2006

Crime, player rights, and the NFLPA 

I'd like to note a few odd features of the Haynesworth-Gurode incident discussed in EclectEcon's post below.

Needless to say, kicking someone in the head with a set of cleats is a dangerous and despicable act. And as Rod's comment to EE's post makes clear, players are liable in a significant monetary sense for maiming other players in sporting contests. The law is crystal clear on that.

One purpose of law is to act as a deterrent to harmful acts. It is not the only incentive-based tool in use however - organizations fine and punish in the private arena as well, and dismissal is a common sanction. The NFL's 5 game suspension - a weak form of dismissal - is viewed by many as insufficient, but not by the NFL Player's Association. They urged Haynesworth to appeal the suspension. I find this puzzling on several counts. First, Haynesworth and just about any other player have their own private agents, and presumably these agents are enough to look out for a player's individual rights. Second, should not the NFLPA's objective be protection of the entire group of players? Or do they prefer that players be given a license as headhunters of their fellow players? To me, the NFLPA looks very silly masquerading as the "players' rights advocate" in objecting to the league's sanction in this case. But I suppose this is just par for the course, in a repeated game in which the NFLPA conceives of itself as a perpetual adversary versus the league office.

The second odd feature is a comparative one. In this case we have a clear attempt to maim (mindless or not), and we've barely heard a peep out of the police. The police have said, quite sensibly, that the issue is in the hands of Gurode and the Dallas Cowboys. If they wish to press charges, the police will move forward with a case. But criminalization seems an unnecessary route to take - the two players, teams, and the league should be able to take action which effectively manages the problem without recourse to the courts. Credit to Haynesworth for understanding this implicitly, and shame on the NFLPA for acting like buffoons.

In contrast to the Haynesworth case, trivial matters are referred to the police in British soccer as a matter of routine. Ten days ago at Old Trafford, Jens Lehman impetuously kicked a water bottle into the crowd after taking some pretty vicious stick from the fans. Result: a police inquiry. This weekend, Man City's Joey Barton did a Randy Moss impersonation to the fans at Everton, with the added bonus of exposure rather than simulation. Result: another police investigation. This is commonplace, though for the most part the "inquiries" merely lead tabloid headlines, as convictions are rare. Still, I wonder why these matters lead to at least an initiation of criminal proceedings in Britain, when again, it's in the interest of the league and the teams to put things right. Those forces should be sufficient, but relying on private action to do the job is not very newsworthy.

Tuesday, October 03, 2006

The Economics of the Haynesworth Decision:
Do People Respond to Incentives? 

From NFL.com:
...6-foot-6, 320-pound Haynesworth stomped on Dallas Cowboys center Andre Gurode's head Oct. 1, knocking off his helmet, then kicked and stomped his face. Gurode needed 30 stitches to repair the cuts left by the tackle's cleats...
For this he was suspended for five games??? FIVE GAMES??
* He stomped on Gurode's head, knocking off Gurode's helmet.
* He kicked and stomped Gurode's face.
* Gurode needed 30 stitches.
The importance of a suspension for this behaviour is not just retributive justice (which I think is an important component of justice), it is also deterrence. And five games plus loss of $500K in foregone salary during the suspension might not be much of a deterrence (well, of course it would be for me, but for someone earning $100K per game, I wonder if it is enough); and I note that some sources put the dollar amount of his salary (and hence de facto fine) at a much lower amount.

But there is also a third reason for punishment: in criminal law, people are incarcerated because we don't want them on the streets where they can commit more crimes. And Haynesworth's behaviour is analogous: it simply should not be tolerated at all, so he should not be allowed to play the game any more. Furthermore, suspending him for life would send a signal that this kind of behaviour will not be tolerated by the league.

At the same time, local authorities should arrest Haynesworth for assault and throw him jail. Todd Bertuzzi faced criminal charges in Canada; Ken Schram agrees, wondering why Haynesworth wasn't arrested on the spot; and Stephen Pollard has argued that Ben Thatcher should have been charged for his violent outburst during a football match in England in August.

I keep telling my students that economics can be summarized with the phrase, "People respond to incentives." If the NFL really wants to deter behaviour like that of Haynesworth, they must be willing to create serious disincentives for it. But maybe they don't want to deter it; maybe, in their cold-hearted analysis, the NFL sees violent outbursts (and the attendant hoopla) as good for the profits of the teams. If that is the case, and if others in society disapprove, then it will fall to civil authorities to create additional disincentives.

As I wrote on my own blog, however, there might be one reason for suspending Haynesworth only 5 games:
One reason to let him play again after five games is that his next best income-earning opportunity might be to earn maybe $50K per year. Given that Gurode has been disfigured, he surely has a case against Haynesworth for an intentional tort and should sue the guy. But how can Haynesworth pay any damages if he doesn't play football? So maybe letting him play is one way of (potentially) providing compensation for Gurode.
One of the commenters there wondered whether I thought Haynesworth didn't have more than enough salted away to cover whatever damages he might be liable for. In short, no. I can readily imagine that he has (and will have) very little in the way of attachable assets by the time this case works its way through the courts, especially if the lower estimates of his salary prove to be correct.

Monday, October 02, 2006

The Big Easy's MNF + 1 Week 

I went bipolar watching Monday Night Footbal last week. On the one hand, growing up in NE Texas, I was close enough to New Orleans to get many of their games and became a mild follower. Given my proximity, my liking of Drew Brees as a QB, and the plight of residents of an area whacked by a devastating natural disaster, I couldn't help but feel sympathy and a desire for the team to succeed. On the other hand, the media's elevation of the event to a national day of celebration along with ESPN/ABC' posture as faux-Visitor's Bureau brought out the dispassonate, hyper-analytical economist in me. I didn't listen to much of the commentary, but I did get Mike Tirico's note to the nation,

"Bourbon Street is open for business and bustling with activity"

For all of the hype along with substantial funds and genuine efforts of many people, the long term outlook for the city and Saints can only be bright for the most politically correct announcers or most optimistic of people. An August report by the Brookings Institution provides an overview of the situation with some detail concerning the current state of affairs. As is often the case with Brookings, the report intertwines analysis with unabashed advocacy. Nonetheless, one can get a decent picture of the pre- and post-Katrina problems the Big Easy faces:
  • Depopulation (pre and more so post)
  • High Rates of Poverty (pre and post)
  • Housing blight (pre) and outright abadonment (post)
  • Poor city leadership (pre and post)
  • Etc
Taking on more of the Mike Tirico tone, the report lays out the conditions for building a "Better New Orleans." All it requires is more spending (on top of the $109 billion in total fed spending in Gulf areas including about $35 billion in "long-term" spending), getting federal, state, and local authorities to spend the money effectively while also setting up the right kind of development and incentive plans. No problem if you hold a romantic view of government solutions. Ironically, the report also blames much of the decline in New Orleans on policies like public housing projects, expanding levees to protect more outlying areas (protecting the city center is ok, not the suburbs), and other suspect government decisions. In another ironic twist in the same vein, the report express how difficult it is to follow the federal money trail.

A more realistic outlook is likely offered in a CNN summary of the Brookings study, quoting a one New Orleans native (and former Green Beret) who holed up through the storm and for three weeks thereafter:
The politicians were promising a comeback. I knew immediately they were dreaming, and as much as I love the city, I couldn't live there anymore, not the way it was. It was hideous, horrendous," said the 35-year-old freelance economic consultant. "I'll never come back to live in New Orleans. I don't have much hope for the city.

For the Saints, the political correctness of it all has tied their hands. If they can put together an NFC championship, they might even replace Green Bay not just for the present but over the next few years as the media darling. Nonetheless, over the long-term economic and demographic fundamentals matter. Barring a miracle for the city or revenue sharing that is generous even by NFL standards, they could easily make a ton more money somewhere else even in Toronto not to mention LA as John Palmer noted.