The Sports Economist

Labels: finance, nhl

Labels: golf, sports economics

GolfWorld's Ron Sirak has an interesting article on the LPGA. Endorsement money has begun to flow in to the top players:

When Meg Mallon won the 2004 U.S. Women's Open she wore a hat purchased in The Orchards golf shop and her caddie carried a bag uncluttered by corporate logos. The following week, after she took the Canadian Women's Open, Mallon received one congratulatory call from an equipment rep -- and no endorsement offers. What made the situation more depressing was that Mallon had 17 LPGA victories, including four majors, and possessed one of the most marketable personalities in her sport.

"It's very frustrating when you watch the men's qualifying school and the winners say [golf manufacturers] are throwing money at them right and left, and our tour can't even get a bonus pool," she said at the time. She was not alone in her frustration: Beth Daniel, Juli Inkster and Rosie Jones were unrepresented or under-represented in endorsement deals.

Fast forward to today and LPGA players are hot commodities -- at least the stars. All four major winners from a year ago had endorsement deals well in excess of seven figures annually, many from multinational companies outside golf. Three have lucrative equipment deals. As the tour embarks on its 59th season at next week's SBS Open at Turtle Bay in Hawaii, Mallon said she was "ecstatic that [equipment companies] have finally found the value in the women's game. I hope the trend continues."

Via Golf Blogger (HT to John LaPlante). John noted that the improvement in deals is partly driven by the change in womens' labor market presence and by Title IX requirements. But those factors have been more gradual and don't go well in explaining the spike in the right tail of the star spectrum. A better explanation of the spike, as Sirak argues, is that several of the LPGA's rising stars, such as Paula Creamer and Natalie Gulbis are new to the LPGA and provide, well, sight-utility. And they are good golfers. As John noted in an email to me:

Three youngsters--Paula Creamer, Natalie Gulbis, Morgan Pressel--have both good looks AND game. Nothing succeeds like success.

Labels: golf, lpga, Morgan Pressel, Natalie Gulbis, Paula Creamer

Ironically, if the coach and the school can't agree the buyout may not be enforceable, at least in Georgia. State law stipulates that such buyout clauses must reflect a "reasonable pre-estimate" of the probable loss. The clause must also provide for actual damages and not as a penalty against the party who terminates the contract.

"The burden of proof falls on the party who breached the contract," said Steven M. Winter of the Buckhead law firm of Weinstock & Scavo. "And in some cases that can be hard to prove."

Could the NCAA become the North American Collegiate Athletic Association? The NCAA recently laid the groundwork for an international expansion. In an almost unnoticed vote during the NCAA Convention last month, NCAA members voted 259-8 in favor of moving forward with a pilot program that would allow Canadian universities to apply for membership in Division II. The move is has precedents. Simon Fraser University in British Columbia played in NAIA for years, and applied for membership in NCAA Division II in 1998. The application was denied on procedural grounds, but the interest was mutual, and both the NCAA and SFU continued to explore options. The NCAA vote clears the way for Canadian universities to start playing in Division II as soon as 2009 and become full members of Division II in 2011. There is also a provision for Canadian universities to eventually become members of Division I.

Most of the Canadian universities that have expressed interest in joining the NCAA have been in the western part of Canada, where there are relatively few universities, and travel costs to many US universities in Washington, Oregon, Idaho and Montana would be less than travel to, say, Saskatchewan or Manitoba. To date, SFU (enrollment 18,000) and the University of British Columbia (enrollment 35,000) have expressed interest in joining the NCAA, with SFU’s interest much stronger than UBC’s. A third likely candidate is my own institution, the University of Alberta (enrollment 35,000). My colleague, Marvin Washington, has recently suggested that the U of A should join the NCAA.

UBC and the U of A are large, urban comprehensive public research universities with research and student admission requirements comparable to PAC-10 universities. However, Canadian scholarship and eligibility rules are different than NCAA rules. For example, hockey players who played in the semi-professional Western Hockey League can play college hockey in Canada. I have worked at a Big 10 University and a Division I university with no football program, and attended a Division III university (that happens to play Division I lacrosse only). The athletic facilities here at the U of A are closer to those at Division III Johns Hopkins than to Division I with no football UMBC. I can see the cost savings for some Canadian universities, although the upgrade in facilities could be very expensive. It will be interesting to see how this develops over the next few years.

The St. Louis Post-Dispatch notes that many college football freshmen are enrolling in college before they
have graduated from high school:

Graham Pocic will graduate from high school in three months, so you would expect him to be at home in Lemont, Ill., enjoying his final semester with a light academic load and leisurely workouts with friends. Maybe even preparing for the prom.

Instead, the 17-year-old chose a path that an increasing number of college football recruits have pursued in recent years.

Having met graduation requirements, Pocic enrolled for the spring semester at Illinois to get a jump on his academic and football careers. He is one of seven players who signed this month to enroll early at Illinois.

..."It has to be the right guy who's good academically and who's fairly mature," recruiting coordinator Reggie Mitchell said. "The good thing for us is we get them for spring practice. The good thing for them is they've got 4 1/2 to 5 1/2 years on scholarship."

USA Today, which has tracked the number of freshmen who enroll early in recent years, reported that 69 football recruits entered college a semester before their high school graduation in 2007. That was nearly a 100 percent increase over 2004.

I'll take Mitchell's word that they actually get 4.5-5.5 years on scholarship per-se, but they still only get 4 - 5 seasons to play football. The difference is that they can come in and begin working their butts off and learning the ropes in January rather than in August.

Labels: college football

Labels: golf

Thomas T. Roberts, a prominent arbitrator best known for his mid-1980s ruling that major league baseball club owners had improperly colluded to prevent free-agent players from obtaining richer contracts, died last Wedenesday. He was 84.

Roberts (Loyola University, Loyola Law School) was fired twice by Major League Baseball management for issuing rulings in favor of the players. In 1986, he ruled that teams could not negotiate drug-testing clauses with players individually; they had to deal with the players union under the collective bargaining agreement.

After being reinstated, Roberts issued his most famous ruling in the baseball case widely-known as the “collusion case” in which he found that, following the 1985 season, no teams had sought to sign free agents unless their old clubs had lost interest in them. He termed that “a strong indication of concerted action,” something prohibited by baseball’s collective bargaining agreement. Roberts was fired again by management. But in 1990 his ruling was vindicated when the owners agreed to pay affected players $280 million plus interest to settle the collusion cases.

Labels: arbitration, collusion, Major League Baseball

According to Barker, the board fears a move to playoffs would diminish the regular season. To illustrate the reluctance, the Clemson president offered up a contrasting assessment.

"When the Patriots played the Colts about three-quarters of the way through the professional football season, Tom Brady was quoted as saying, ‘Yeah, but it doesn’t mean anything. The only thing that means anything is the playoffs.’ You would never say that about a college football game," Barker said.

...Barker is often besieged with suggestions for playoff formats. Although fans continue to demand a playoff grid, his stance remains steadfast.

"Presidents ought to determine what the NCAA is doing. Not sports writers, not coaches, not athletic directors. And thank goodness it does because there was a time in the NCAA when that was not the case," Barker said. "I’m not closed-minded to say that this will not evolve and change. I think it probably will. But at this moment and for the foreseeable future what we have is what we’ll keep. It’s certainly not lowered the visibility of college football."

Sunday's 50th Daytona 500 could not only set the tone for how the 2008 season goes, but also how NASCAR goes as well.

With TV ratings and at-track attendance slumping the last two years, it's imperative that the sport not only gets off on the right foot, but keeps moving forward with whatever momentum is generated from the season opener.

1. Rising prices and NASCAR focus on the "almighty dollar" rather than fans;
2. Too many crackdowns on post-race outbursts by drivers;
3. Dale Jr.'s sliding performances;
4. Cookie-cutter tracks

• The optimal amount of track and race variability is one dimension. Taking the sport to new and highly populated areas makes sense, but do fans really want to see the same race each week in merely a different venue?

• Another issue is the mix of TV ads and racing. My NASCAR-following colleagues complained loudly about this after Sunday's race. Quantitative estimates of ad time run about 25-30 percent of air time and influences both live attendee and TV viewer experience. TV is the golden goose for sports, but who wants a 900 pound goose in the room?

• A third dimension is the optimal degree of competitive balance between cars. NASCAR has pursued this balance with near myopia. Fans enjoy side-by-side racing and bunches of cars grouped together. However, excessive parity means that cars have trouble passing each other and/or line up in single file for long stretches of the race. Also, a tradeoff between balance and repeated winners exists. Most sports writing focuses on the fomer but ignore that possibility that dynasties (Dale Jr. and his father, for instance) may also build fan interest.
  

• The branding of cars matters. Fans follow drivers, but stock car racing also grew up around a fan association with cars. The "Car of Tomorrow" essentially makes every car the same with only text or insignias marking a nominal difference. Why would NASCAR reduce such branding? Is this related to an excessive fixation on parity?

Labels: NASCAR; Product Management

Stern told reporters in New Orleans last week that sports teams are an entertaining diversion, but they're not the key to the city's recovery.

"When you're talking about education, housing, infrastructure and all the things the city is focusing on, sports is a good thing, but it pales in comparison," he said. "A good manufacturing plant with 3,000 jobs is a heck of a lot more important than a sports team."

Are sports-franchise prices headed for a tumble? Boom-time euphoria has vanished from the stock and real-estate markets. But the cost of acquiring a sports team keeps climbing in the face of a weakening economy, preserving what may be one of the last asset bubbles in North America.

...Even for plutocrats, the sums involved in owning major-league teams have become big enough that they can't be laughed off. Top franchises in the National Football League are seen as $1 billion properties. Many U.S. baseball and basketball teams are valued at $400 million or more. Even smaller-market teams in the National Hockey League trade hands for $200 million.

Profitable sports franchises may be priced at 20 times annual cash flow, at least double the valuation of a mundane company with similar prospects.

Here' a front pager from today's Philadelphia Inquirer. One of the best mainstream articles ever written on the problems with publicly financed stadiums. The reporter did a sensational job seeking out different scholars who have studied the topic. The result is a relatively balanced piece, which is better treatment than we usually receive from the media.

Labels: "billion dollar barrier", economic impact

I wanted to let folks in Sports Economist Land know that I'm going to be a guest "expert" on a Philly-area NPR radio show this Monday morning. The topic deals with the ongoing plans for a new publicly subsidized soccer stadium in Chester, PA.

The segment on this topic is from 10-11 a.m. EST. A spokesperson for the investor group goes for 20 minutes, then I'm on for 40 minutes. Phone-ins are welcome, even from a distance. Here's the link for live streaming and call-in information.

The new Yankee Stadium will have party suites, a members-only restaurant, a martini bar and a price tag to match all the luxury -- $1.3 billion, up from the original estimate of $1 billion.

"We tried to reflect a five-star hotel and put a ballfield in the middle," said Yankees chief operating officer Lonn Trost, who hosted a media tour Thursday.

The new ballpark, set to be ready for the 2009 season, is directly across the street from the old House that Ruth Built. The site is now a welter of cranes and construction trailers, with hard-hatted workers patrolling the infield.

The granite and limestone exterior is designed to evoke Yankee Stadium when it opened in 1923, before it was remodeled in the 1970s.

But inside there will be amenities unheard of in Babe Ruth's day -- or in Reggie Jackson's.

There will be a conference area with video conferencing so that a corporate group could have a daylong meeting and then stay for a game. A concierge will be available to procure theater tickets or restaurant reservations.

There will be 51 luxury suites, two large outdoor suites and eight party suites with seating for up to 410 people in total.

The 58-by-103-foot center field television screen will be six times the size of the video screen at the current stadium.

Guardian Unlimited understands there are serious reservations in the government about the Premier League's plan to take matches overseas for the first time from the 2011-12 season. Ministers will not at this stage oppose the audacious proposals to extend the season from 38 games to 39 to allow every club to play one extra match abroad, but they are not yet convinced that the move is in football's best interests and there are concerns around supporters, sporting integrity and the impact upon other national leagues and competitions.

The deal has not been agreed yet, but the league and the chairmen of its 20 clubs are known to be enthusiastic about the idea having agreed to explore the proposal in London today. If the deal goes ahead, the 10 overseas games are expected to take place in January providing there is space in the calendar, with points awarded for the extra match in the normal way. The top five sides are likely to be seeded so that they do not meet each other, but otherwise the fixtures will be drawn out of a hat and played in cities around the world.

New York, Beijing and Tokyo are among potential venues, and they will have to compete with other cities for the right to stage the games. Five cities would be chosen each year, with each venue hosting matches on consecutive days. A certain number of games are likely to be played in third world nations, with the Premier League keen to use football as a development tool.

...With the influx of foreign businessmen to the Premier League - nine top-flight clubs are owned by overseas owners, including Manchester United, Liverpool and Chelsea - it has long been thought that league matches would eventually be taken outside England. The league is following the example of the top American leagues, the NFL, NBA, NHL and MLB, the first three having all staged games in London last October, the latter having previously played regular-season baseball games in Tokyo.

In terms of betting, the Super Bowl is one of the most popular events in the world. Sports books, as well as trading markets like TradeSports that operate like betting markets, offer a wide variety of bets/contracts on the Super Bowl. I like to follow the trading of contracts on TradeSports in real time for large handle events like the Super Bowl to see how markets interpret the information that is revealed on the field. While surfing around the TradeSports web site before the game, I noticed among the “proposition” contracts offered was a contract on the Super Bowl coin toss coming up heads. Based on the volume of trades, this was the most popular Super Bowl proposition bet on TradeSports, and based on other web sites, proposition bets on the Super Bowl coin toss are one of the most popular Super Bowl prop bets.

For those unfamiliar with TradeSports, and other prediction markets, this site allows members to buy and sell contracts on specific events occurring. Each contract is worth $10 if the event happens and zero if it does not. So if you purchase a contract on the event “heads on the Super Bowl coin toss,” you get $10 if the toss is heads and zero if the toss is tails. Up until the coin toss takes place, these contracts can be bought and sold on a market at whatever the prevailing price is at that moment. By convention, TradeSport prices are normalized to the 0-100 interval, so that the price can be interpreted as an estimate of the buyer or seller’s subjective probability of the event taking place.

As anyone who has taken a statistics class knows, the expected value of the toss of a fair coin is 50/50 – a 50% chance of heads and a 50% chance of tails. So the expected value of a $10 contract on “heads on the Super Bowl coin toss” is 0.50*$10+0.50*0=$5, or 50 when expressed in the TradeSports price metric. TradeSports also makes price-volume data available for all contracts. There were 86 transactions, involving 275 contracts, in this particular market. The graph below shows the frequency distributions for the prices paid in these transactions.

This distribution is interesting, to say the least. The mean price was 50.33 and the median 50.35. Why would anyone pay more than 50 for a contract with an expected value of 50? Of the 85 transactions, 52 of them took place at a price greater than 50. Those two trades at 52, which are the equivalent of betting $5.20 for a 50% chance of winning $10, both came minutes before the coin toss.

There are several possible explanations for why we would observe prices not equal to 50 in this market. Risk seeking in the Friedman-Savage sense, consumption benefits from gambling, and a number of Kahneman-Tversky type heuristic decision rules immediately come to mind. FYI, in 42 Super Bowl coin tosses heads has come up 20 times and tails has come up 22 times. I was unable to locate a year-by-year list of outcomes, so we can’t determine if there is a “hot hand” in Super Bowl coin tosses.

Labels: gambling, NFL

The US dollar has depreciated significantly against other currencies over the past several years. Currency depreciation has a differential effect on an economy. For example, manufacturers who export their products abroad benefit, as their goods are cheaper in foreign markets, while manufacturers who purchase raw materials from abroad are hurt because they face higher input prices. US citizens living abroad who get paid in some foreign currency also benefit from a weaker dollar (not that I know anything about that.)

Currency exchange markets seldom affect the sports world. North American professional sports leagues that have teams in both the US and Canada are one exception to this. Canadian-based NHL, NBA and MLB teams have to pay their players in US dollars. In the 1990s, when the Loonie was trading under seventy cents to the dollar, Canadian NHL teams struggled financially, as their payroll costs were significantly higher than US based competitors. A number of Canadian teams moved to the US, and the Canadian government considered subsidizing Canadian NHL teams.

The financial environment is quite different now. The chart below shows the Canadian dollar-US dollar exchange rate over the past five years. The Loonie has been trading roughly at par with the US dollar since last fall, and some analysts predict that this exchange rate will persist for some time.

Labels: franchise values, nhl

Specifically, the NFL over the issue of the Patriot's filming: In a telephone interview Thursday morning, Senator Arlen Specter, Republican of Pennsylvania and ranking member of the committee, said that Goodell would eventually be called before the committee to address two issues: the league’s antitrust exemption in relation to its television contract and the destruction of the tapes that revealed spying by the Patriots.

"That requires an explanation," Specter said. "The N.F.L. has a very preferred status in our country with their antitrust exemption. The American people are entitled to be sure about the integrity of the game. It’s analogous to the C.I.A. destruction of tapes. Or any time you have records destroyed."