Monday, February 08, 2010

It's all Greek to Economists 

Financial turmoil has roiled Greece over the past several weeks. There is real concern that budget deficits in that country will lead to its government defaulting on its debt and in the worst-case scenario the potential unraveling of euro currency itself. So, how did Greece find itself in such dire straights? The 2004 Olympics are a large but overlooked piece of the puzzle.

Greece's federal government had historically been a profligate spender, but in order to join the euro currency zone, the government was forced to adopt austerity measures that reduced deficits from just over 9% of GDP in 1994 to just 3.1% of GDP in 1999, the year before Greece joined the euro.

But the Olympics broke the bank. Government deficits rose every year after 1999, peaking at 7.5% of GDP in 2004, the year of the Olympics, thanks in large part to the 9 billion euro price tag for the Games. For a relatively small country like Greece, the cost of hosting the Games equaled roughly 5% of the annual GDP of the country.

Of course, the Olympics didn't usher in an economic boom. Indeed, in 2005 Greece suffered an Olympic-sized hangover with GDP growth falling to its lowest level in a decade.

While its hard to place all of the blame for the current Greek meltdown on the Olympics, the lingering debts from the Games are undoubtedly exacerbating an already difficult situation.

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permalink posted by Victor Matheson @ 8:37 PM

The Psychology of Winning 

You can put me in the skeptic's camp when it comes to claims that a winning team boosts productivity, wages, and the local economy. But evidence matters, so I have an open mind, even a cautiously optimistic one, in the wake of the victory by the New Orleans Saints in yesterday's Super Bowl. Hooray!!

Prior to the Super Bowl, there were a number of stories in the press on this topic. At Newsweek, Molly O'Toole links to several of them. Even better, she cites the academic literature on the economic and psychological impact of winning, including the recent Davis and End paper that Brian discussed here at TSE a few days ago. It's the psychological and medical evidence that particularly intrigues me:

Prof. Len Zaichkowsky of the sports-psychology program at Boston University School of Medicine and School of Education compares the “eustress,” or good stress characteristics, of spectating to the stress-relieving benefits associated with sexual activity. The heart rate increases in a moderate, controlled way, which improves cardiovascular strength, and the accompanying endorphins highly correlate with longevity and the absence of disease. Just cheering for your team is enough to provide a positive rush, but a victory produces an even stronger boost.

A winning team is also able to boost the collective confidence of its fans, which in turn creates tangible results, says Indiana University psychology professor Edward Hirt. (That the study comes from Colts country makes no difference.) In his study of Big Ten basketball, Hirt found that many fans identify so strongly with their teams that victory and defeat become personal. On a range of tests, fans basking in their team’s reflected glory after a win felt more optimistic about their own abilities, from mastering mental puzzles to resisting romantic rejection.

This sense of confidence and camaraderie has far-reaching benefits. “In this country, we can’t even agree on a bill in Congress,” says Dr. Richard Lustberg, founder of the Web site Psychology of Sports. “But the city of New Orleans is united around the Saints—the tremendous degrees of euphoria, connectedness, this provides, all the psychological benefits … you can’t underestimate those kinds of connections.”

Those benefits include a noticeable boost in the city's health. Zaichkowsky calls this phenomenon of collective feelings associated with a team “community mood states.” He first observed the trend in anecdotal evidence in Boston, where patients’ health seemed to improve in hospitals when the Red Sox were having a successful season. According to Zaichkowsky, worldwide observations of this occurrence have carried it well beyond the anecdotal; measurements of mood fluctuations based on fans’ own reports show lower rates of distress and depression for whole groups with the success of their favorite team. The powerful impact that sports teams can have on the mood of entire cities says that for our society, it’s more than “just a game.”

Bill Plaschke's piece on the subject is also interesting. Plaschke extends this line of thought in an entertaining way to the entire nation. With the exception of Indianapolis, of course, and they'll soon get over it.

Enough of the celebrating. For the sake of these academic studies and well-wishers like me, it's time for New Orleans to roll up its sleeves and get to work!

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permalink posted by Skip Sauer @ 11:31 AM

Sunday, February 07, 2010

Super Bowl Wrap Up 

The Saints beat the Colts 31-17 for their first Super Bowl victory. It was a thrilling win, with the outcome in doubt until Tracy Porters' 74 yard "pick six" with 3:12 left in the game and the Colts driving for the potential tying score.

The other big winner in this game was sports books. Evidence shows that bettors love two things: favorites in point spread betting and the over on total betting. According to sportsbook.com, as of about 4pm Eastern on Sunday the line was the Colts -5 and the over-under was 57. Based on action at off-shore sports books, 63% of the sides betting was on the Colts, and 66% of the totals betting was on the over. The Colts didn't cover, and the 48 point total was well under 57. Given the bet-110-to-win100 payoff structure on sides and totals, and the fact that the Super Bowl is the most popular sporting event to bet on all year, that translates to a big payday for sports books.

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permalink posted by Brad Humphreys @ 10:19 PM

Friday, February 05, 2010

Does NFL Success Matter for Communities? 

Maybe only steroid discussions stirs the blood of sports economists quite like questions about the impacts of sports on communities, largely because of the tie-in with debates over public funding for stadiums. Let me be very clear on a couple of points. 1) The quantitative work in economics by people such as the TSE's Brad Humphreys and Dennis Coates casts serious doubt on the supposed tax revenue and direct economic development benefits of sports stadiums beyond the imaginations of civic "boosters." 2) The existence of broader, indirect impacts on income, wages, or intangible enjoyment by some citizens do not provide a sufficient rationale for large-scale public-financing of stadiums. Public financing requires a controversial transfer of tax dollars from non-sports lovers to sports lovers. In addition, great stadiums can be built without widespread use of public dollars as certain cities and even whole leagues (like the EPL) demonstrate.

Which leads me to ... the January issue of Economic Inquiry, in which Michael Davis and Christian End find a small positive impact on metro area wages and income from bad NFL teams getting better -- an effect that diminishes as a team becomes very good. They also identify a small positive effect of winning the Super Bowl, overlapping with the 2002 Coates and Humphreys article, while differing from the results in a 2006 article by Robert Baade and TSE's Victor Matheson. D&E check their results for several econometric issues, some of which confirm them and some don't.

The D&E study is neither the first and nor the last quantitative word on this subject. One nagging question in this and related studies centers on whether the football factors are appropriately measured. D&E include team existence, performance, stadium, playoffs, and Super Bowl as well as similar variables for other sports. However, the effects of these variables may be bound up together and figuring out how to disentangle them or look for combined effects is no simple task.

Nonetheless, the ongoing investigation of team performance and economic impact will likely be easier than the measurement of the impact of the existence or entry/exit of clubs. The D&E results, themselves, point to problems for this front -- showing an NFL presence lowers wages/incomes while an MLB presence raises them. Given the relative popularity of the two sports in recent decades, that result makes little sense.

The vigorous exchange between Carlino-Coulson and Coates-Humphreys in The Journal of UrbanEconomics regarding the C&C finding of 4 percent higher rents in cities with NFL teams further highlights difficulties of identifying whether the presence of a team matters. A major problem is lack of variation. All large cities, except LA, host teams with most entry/exit on the lower end (and not a lot). Even there, the entry and exit that occurs is not easy to disentangle from expectations. When the Oilers left Houston, did Houston residents have very low expectations of a future franchise? This expectation problem plagues "event studies" in general. Given that even a presumed sports impact is relatively small versus the influence of non-sports factors, finding a positive effect is not easy and is always subject to valid criticisms while rejections are relatively easy and have low "statistical "power" My own fiddling around with simulation work where the "true" impact is positive but these kinds of problems exist confirms the difficulty of coming to a definitive answer.

The D&E findings don't send up red flags for me. Unlike some of my colleagues in the sports econ community, my default position is that sports teams have a positive impact, at least on the psychological enjoyment of sports-loving citizens in a community. The psychology literature, partially surveyed by D&E, provides supporting evidence. A 2008 article by TSE's Stefan Szymanski using "contingent valuation" survey methods echoes this literature. Much less sexy, Coasian-style accounting work quickly backs the idea of a positive impact. For example, some estimates of fantasy football players puts the number at about 30 million who average 9 hours per week in time. At $19 per hour (average wage and benefits) for 17 weeks, this amounts to over $80 billion in time value and does not even begin to include the time spent talking about the team, reading about it, and so on (of course, it may also lower productivity on the job). Players unions have tried to capture some of this value. Whether these values should accrue to a particular team or the league as a whole is disputable.

The time spent on sports, the attention in media (outside of sports pages) to teams like Northwestern during their Rose Bowl run, the sports-related merchandise, and even the popularity of this blog all point toward sizable intangible effects for sports relative to the size of its revenues. Again, let me reemphasize, even the existence of large effects does not provide an open-and-shut case for supporting publicly-financed stadiums.

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permalink posted by Brian Goff @ 9:02 AM

Thursday, February 04, 2010

College Football Scheduling 

State legislators across the country have periodically inserted themselves into the scheduling of athletic events of their state's universities and colleges. During the period when the Southwest Conference was breaking apart, Texas legislators threatened funding of UT and Texas A&M if they split the conference. The argument at that time was that there was value to the state of games played between the Longhorns or Aggies and other Texas institutions like Rice and the University of Houston. (Craig Depken and I have a paper in the Eastern Economic Journal looking at sales tax collections in the cities that host major college football in Texas motivated in part by the assertion made by the Texas legislators.) A similar argument was made by the governor of West Virginia who wanted WVU to schedule Marshall. Likewise, a state legislator from North Carolina introduced legislation a few years ago that would have mandated that UNC and NC State schedule games against East Carolina University. Again, the supposed economic benefits to the state of such games was touted.

A state Delegate from Maryland has recently offered a bill that would require the University of Maryland to schedule games against Towson University and Morgan State University. The Baltimore Sun article reporting the bill does not indicate that economic benefits to the state are a primary motivation for the Terps to play games against the Tigers and Bears. Instead, the rationale is that the Terps, an FBS institution, schedule FCS institutions from out of state (last season they played James Madison University), so they should play in-state FCS institutions Towson and Morgan State instead, at least once every four years. The kicker is, FBS schools make big payouts to schedule FCS institutions. If the FBS school can make a big payday for an out of state FCS, why not make that big payday for an in-state FCS? In other words, the athletic department from College Park ought reasonably to subsidize in-state schools rather than out-of-state schools.

Why such subsidies and the attendant micro-managing implicit in the legislation is good public policy is not explained. We are told by the athletic director from Morgan, however, that "It would help us enhance our student support programs, invest in summer school programs and would be a key part in our budget planning." Kerr also commented that while the scheduling might be good for Morgan, "I'm not sure about legislation being necessary to accomplish it". In fact, both Towson and Morgan are already scheduled to play games against the Terps in coming years, and this scheduling occurred without the threat of the legislation.

A broader issue is what happens if Maryland passes this legislation, and then fails to schedule games against out-of-state FCS schools. Perhaps other states pass similar legislation. Then the out of state FBS schools that have scheduled Towson and Morgan will be unable or unwilling to do so. The Maryland colleges will no longer get the subsidies from FBS schools from out-of-state. Even if that does not happen, the games against the Terps reduce the number of available games for scheduling out-of-state FBS teams, and reduce the subsidies Towson and Morgan will collect from them. Whether the scheduling of games against the Terps is a net gain or a net loss for Morgan and Towson is not obvious. In any case, it is likely to have little material impact. Of course, alternate legislation could impose the restriction that Morgan and Towson must schedule games against out-of-state FBS schools, as doing so results in revenues. (Whether those revenues cover the travel and other costs is another issue.)

So, for me, legislation such as this is a) likely to have little benefit or cost, and b) the best people to make decisions in the best interests of the institutions are the people leading those institutions. Regarding the first point, if there is little benefit or cost, it is hard to imagine that state legislators don't have better things to do with their time than debate such "issues". Regarding the second, it is clear that adding constraints cannot result in an improved ability to attain the institutional goals. Reducing the ability of the institutions to find scheduling arrangements that are the best for them by limiting their options will, at best, have no effect and at worst make matters worse.

permalink posted by Dennis Coates @ 7:47 AM

Wednesday, February 03, 2010

"Own the Podium"? Why bother? 

The 2010Winter Olympics will soon begin in Vancouvre, BC, and environs. In the media build-up that is taking place in Canada, we are beginning to hear more about a programme called "own the podium", embodying the goal of some politicians, athletes, and bureaucrats for Canadian athletes to win more gold medals than the athletes of any other country.

Alan Adamson is distressed by this programme:
Why should my taxes pay to support aspiring athletes? This simply seems absurd to me. We have an idiotic program called 'Own the Podium' - apparently the government's goal is for Canada to score magnificently at the Olympics. This for a country of 30 million against countries with a lot more people, and also some, like Norway and Austria, with a lot fewer people, but a lot more fundamental and historical excellence than Canada has ever managed. ...

What is the point? A gold medal is useless to me unless I win it, and if I want it, I can decide to train for it. There are real rewards, and lots of people with crazy dreams and a poorly developed sense of reality will train to win gold medals. But why should I pay?

I think we need to change 'Own the Podium' to 'Let the Podium Go to Those Who Care Enough to Spend Their Own Money and Time and not Take away any of Mine'. That is of course too simple for the CBC or likely for our government.

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permalink posted by EclectEcon @ 7:43 PM

Monday, February 01, 2010

Football vs. Football 

While the United States is focused this week on the Super Bowl, a report released today by the consulting firm Initiative states that soccer's Champions' League Final attracted a higher global television audience than the Super Bowl last year. 109 million viewers watched the game in its entirety, eclipsing for the first time the 106 million fans who watched the Super Bowl . Given the worldwide popularity of the game of soccer, the report also noted that the Champions' League Final also had substantially more room to grow.

While America's premier event may have lost its perch atop the worldwide television ratings, the Super Bowl still dominates its competition when it comes to inflated economic impact statements. The NFL claims the 2007 Super Bowl generated $463 million in economic impact for the South Florida region while the 2008 Super Bowl produced over $500 million for Arizona. By contrast, this compares to a mere 35 million euro ($49 million) windfall for Moscow in 2008 and 45 million euro ($63 million) for Rome in 2009.

Of course, the Europeans aren't trying as hard to justify large subsidies for sports franchises. Either that or American economists consultants are just more talented at making stuff up than their European counterparts.

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permalink posted by Victor Matheson @ 3:19 PM

Sunday, January 31, 2010

Seeding in Grand Slams 

The Australian Open concluded on the weekend. The Swiss master Roger Federer prevailed in three sets (6-3, 6-4, 7-6 (11)) against the Scot, Andy Murray; while the night before, Serena Williams ended the fairytale comeback of Belgin Justin Henin in three sets (6-4, 3-6, 6-2).

New attendance records were set (653,860, up 8%) , and As a moral if not economic boost for us locals, Tennis Australia (governing body for Tennis in this nation), in conjunction with the Victorian State Government, announced a plan for a $363 million AUD redevelopment and extension of Melbourne Park, the home of the Australian Open since 1988.

However, some newspaper and radio coverage in Melbourne has suggested the Open was a bit lacklustre this year.

Rising attendances (a new record of 653,820, up 8% on 2009) and record day-night crowds on the Wed and Sat of the first week would suggest otherwise, but I agree that 'the feel, the vibe, the atmosphere' was lacking until we reached the finals. Perhaps this was caused by the bad weather at the start of the Open - rain instead of the usual stifling heat was an unusual start to the tournament? Maybe the slightly later start than in years gone by (a week later than iat the start of the 2000s) means more Melburnians are back into work mode after the Christmas break? Maybe the local broadcaster, the Seven Network, did an awful job? (They have been almost universally whacked for a shocking telecast this year.) Perhaps attendance growth can be explained by the great missing variable of sports economics research - (the compounding effect of) marketing/advertising expenditure?

So, (a) if we could measure 'enthusiasm', (b) has the seeding of 32 players (up from of the 16 seeds prior to 2001) influenced this variable, (c) how? And (d) if attendance is rising, does it really matter, or will there be a lagged detrimental impact upon attendance?

Julio del Corral addressed some related issues in the Dec 2009 J Sports Eco, suggesting a significant reduction of competitive balance in men's Grand Slam tennis (but not for the women) since the 32 seeds were introduced. Check it out.


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permalink posted by Robert Macdonald @ 5:49 PM

Thursday, January 28, 2010

Markets that can sustain franchises 

If people already had seen this, I apologize. A reporter called me yesterday to ask if I thought Cleveland could sustain its three professional sports franchises. The question arose because of a Portfolio.com article from early December which calculated the ability of cities to sustain franchises.

People at Portfolio.com used total personal income (TPI) from a city net of the minimum income needed to support the existing franchises to produce an available personal income. If this value was greater than the minimum income base for supporting a franchise, then the study concludes the city could sustain a franchise in that sport. The presence of minor league franchises and collegiate teams in a city was not addressed. One could easily question this methodology, of course, as it makes no attempt to control for fan interests or any role for the success of a franchise in attracting fans.

But I am more interested in the suggestions that many cities have the wherewithal to support franchises in numerous sports. Interestingly, only baseball seems to be covering nearly all the viable locations, according to the study. MLB franchises could, the study suggests, be supported in only two additional cities. The NFL, NBA, and NHL, on the other hand, could expand considerably.

Eighteen markets currently outside the NFL have enough money to maintain a football franchise. The National Basketball Association (NBA) has 17 open markets with sufficient TPI, the National Hockey League (NHL) has 16, and Major League Baseball (MLB) has only two.


Forty-two cities without MLS clubs could support a Major League Soccer franchise the study concludes.

At the same time, the study indicates that many cities with franchises are spending beyond their means to support the teams they have.

Nineteen areas are overextended, with Denver, Cleveland, Pittsburgh, and Tampa facing the worst problems. The income bases of these overextended markets are inadequate for their existing teams, let alone any new ones.


If this article is correct, it suggests that there is scope for new leagues to spring up to compete with the NFL, NBA, NHL, and especially the MLS. The history of professional sports in the US is strewn with leagues that have failed, been co-opted by the existing leagues, or been driven out of existence by those leagues.

As we all know, it takes more than a city having the income to sustain a club to warrant entry into the monopoly closed leagues. Existing clubs will require new entrants to add more to their bottom line than is lost by splitting up league-wide revenues more ways, by losing high attendance games against long-standing rivals to play the upstarts, and in expanding the demand for playing talent bidding up salaries while watering down the talent pool. In other words, the good folks at Portfolio.com are not making a case that will lead to cities without clubs getting them.

permalink posted by Dennis Coates @ 5:52 PM

Something for Everybody: MLB's Mechanism Design 

Continuing my recent Yankees theme ... in a curiously long post on his blog, SI writer Joe Posnanski considers the effect of MLB's playoff structure on the Yankees' performance :
And in that way the expanded playoffs have been genius for baseball — not only because they are milking television for every dime but because the short series have been baseball’s one Yankee-proofing defense against the ludicrous unfairness of the New York Yankees. Hey, if the game is rigged, rig the game. The Yankees spend a lot more money than any other team. As a direct result, they had the best record in the American League in 2002, 2003, 2004, 2006 and 2009. They made the playoffs every single year but one this decade (and going back to 1995). They are the best team with the best players every year — that sort of big money virtually guarantees it.
Stefan Szymanksi made similar observations in his 2007 TSE post, A Measure of Success and Dave Berri in 2006 with Is Revenue Sharing Working? However, Posnanski isn't exactly mollified by the relatively small number of World Series titles. In fact, he sees that as part of the plot:

So, you create a system where the best team doesn’t always win. In fact, you create a system where the best team often doesn’t win. For years the Yankees didn’t win. They lost to Florida. They lost Anaheim. They blew a 3-0 series lead against Boston. They lost to Anaheim again and Detroit and Cleveland — and how could you say that baseball is unfair? Look, the Yankees can’t win the World Series! See? Sure they spend $50 million more than any other team and $100 million more than most. But they haven’t won the World Series! Doesn't that make you feel better?

And this has been the Wizard of Oz slight of hand game that Baseball has been playing for a long time … ignore the man behind the curtain who makes more money off of baseball than anyone else and can buy just about any player he wants. Ignore the absurdity of it all. Just remember: The Yankees haven’t won in a while! Just remember: Anything is possible.

Posnanski's on the mark about the system's effects, but I would turn his sarcastic rant about it on its head. Yes, MLB is having it's cake and eating it too, but rather than nefarious "slight of hand" or "absurdity," it's "surdity". As he later observes, the Yankees dwarf the rest of MLB by their payroll, but this is because they dwarf the rest of MLB in their fan base. If I'm running MLB, do I really want the Yankees (as much as I dislike them) at the same performance level as Kansas City and Pittsburgh over a decade?

The playoff structure isn't outside the system, tricking everyone as Posnanski seems to imply. It's an integral part of he system. If the Yankees lose in the playoffs, I enjoy that maybe as much or more than them losing in the regular season. Whether by design or serendipity, the expanded playoff format reduces their chances of winning it all while not taking them "out of the hunt" more frequently as a more constraining revenue-sharing system would. The large Yankee fan base gets something while non-Yankee fan bases get to see some team take them down with a degree of regularity. To use prevailing econ jargon, it's a very useful design mechanism.

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permalink posted by Brian Goff @ 8:58 AM

Wednesday, January 27, 2010

Negotiating Over the Rules of The Game 

The saga of the America's Cup moves from the courtroom to the sea next month, off the coast of Valencia. Two billionaire tycoons, Ernesto Bertarelli and Larry Ellison, have been battling thus far with lawyers and design teams, will set sail to determine who has the fastest "boat." Maybe. There's one more lawsuit to sort out, and the holder of the cup (Bertarelli) claims that if he loses, he'll forfeit the race.

The issue of interest to economists here is the system in place for determining the rules of the game. Here is how Christopher S. Stewart describes it, in Men's Journal:
The original rules of the Cup are as open to interpretation as symbolist poetry, but essentially say that a Cup defender picks a challenger of record, and then the two determine race terms — rules, venue, type of boat — for the next race. The other boats are beholden to these rules. But after Bertarelli won the last America’s Cup in 2007 (the race is held about every three years), a year in which Ellison didn’t even make it out of the challenger eliminations, he picked a little-known Spanish yacht club as challenger of record for the next face-off. Ellison quickly pointed out that the Spanish club was a “sham,” a puppet of Bertarelli — it didn’t have any facilities, officers, or recent regattas, all requirements to be a challenger of record. He believed that Bertarelli, whose boat represents Swiss yacht club Société Nautique de Genève (SNG), was trying to rig the race. “[Bertarelli] wanted to cheat,” he told me. “He wanted the jury to work for him.”

So Ellison’s team and the club it represents—the Golden Gate Yacht Club— sued in New York Supreme Court, the official race arbiter, winning the case on appeal and thrusting themselves into the official Cup challenger slot. Most thought this would make way for simply finalizing race terms, but the two billionaires couldn’t seem to agree on anything. Cup rules dictate that if race terms cannot be agreed upon, the competition simply reverts to the rules set out in the DOG (ed: deed of gift) and becomes a simple one-on-one between defender and the first challenger. “It’s like George Steinbrenner on one side and George Steinbrenner on the other,” John Rousmaniere, noted chronicler of the Cup, told me. “And there’s no baseball commissioner to bring order.”
The reliance on the original deed of gift, and its de minimus approach to defining the rules has allowed the race to evolve with changes in technology and economic conditions. But the absence of rules and a system of arbitration makes this game ill-suited (or perhaps only suited, depending on your point of view) for the especially aggressive combatants required to finance the competition. Moreover, a peculiar combination of one specific archaic rule governing construction of the ship, and the absence of a well designed set of rules in general, have contributed to the current bizarre situation.

The archaic rule requires that the ship be built in the country of the Yacht Club sponsoring it. In the modern age where materials, design, and components are routinely outsourced, this rule boils down to an assembly requirement, which Bertarelli is alleged to have violated by having his sail manufactured in Spain, rather than Switzerland (this interesting story has the details). It is not clear to me why Ellison is suing to keep Bertarelli from using this sail, except perhaps as part of his negotiating tactics over such issues as the wind limit and other rules of the race. Hopefully the dust will settle from the courtroom battle and the race will go on. If it does, the race will be like no other America's Cup in history. For starters, it will be the first between multihull vessels. Stewart notes that Ellison's 90 foot long trimaran can reach speeds over 50 mph, "three times faster than previous America’s Cup boats." It basically flies through the air, keeping just enough contact with the water to hold a course and retain the right to be called a yacht.


This year's version of the America's Cup is a prime example of no holds barred competition, taken to the limit. One worry is that the race will be over before the horn sounds, with one design, perhaps Ellison's, proving to be dominant... if the thing doesn't blow up from the sheer force it generates.

The issues raised by this year's edition of the America's Cup highlight the importance of a well designed system for determining the rules of competition. This is an issue that co-blogger Stefan Szymanski has written on extensively. Relying on the competitors themselves to determine the rules of the game creates the potential for bargaining failure. This lawsuit-happy bunch has confirmed that prediction in spades! But it also enhances the possibility of producing a competition of minimal interest to fans. Technological dominance could result in the latter outcome next month. Certainly, the duration of the race will be shorter given the record speeds they'll be traveling at. If so, some attention might profitably be given, not to yacht design, but design of a better system for determining the rules of the race.

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The odyssey for the post began at Newmark's Door.

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permalink posted by Skip Sauer @ 8:22 AM

Friday, January 22, 2010

Classroom Example Using Recent Vikings News 

I read the following posted by John Whitehead over at the Environmental Economics blog. Some TSE readers may find it to be a useful discussion tool for the classroom.
TOPICS: Sports Economics

SUMMARY: Some Minnesota Vikings fans believe fandom is priceless. According to economists, it's worth $530.65.

CLASSROOM APPLICATION: The article summarizes "Estimating Local Welfare Generated by an NFL Team under Credible Threat of Relocation" by Aju Fenn (Colorado College) and John Crooker (University of Central Missouri, Southern Economic Journal, July 2009. The article is background reading for a lively classroom discussion about the value of NFL franchises to cities and their inhabitants, and how economists measure these values. Considering measurement, the article touches on the paper's methodology, namely contingent valuation, and criticisms of this methodology.

QUESTIONS:
1. (Introductory) What are the sources of value of an NFL franchise to a city?

2. (Advanced) What methodology do economists use to measure the value to a city of an NFL franchise?

3. (Advanced) Should cities and states finance the construction of NFL stadiums? In particular, should Minnesota finance the constructions of a new Vikings stadium?

Reviewed By: James Dearden, Lehigh University
Here is a link to the article.

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permalink posted by Phil Miller @ 3:17 PM

The "Tiger Effect" and Economic Impact 

The Buick Open this year will be without Tiger Woods who is out with his well-publicized, but self-inflicted, "injury." So what effect does this have on the Buick Open and specifically the local economy of San Diego?

According to an economic impact study published by the tournament, the 2007 and 2008 Buick Opens, each won by Tiger Woods, both attracted roughly 45-55,000 out-of-town visitors and generated economic impacts of around $30 million for the city. Out-of-towners represented 26% of the crowd in 2007 and 37% of spectators in 2008.

"Tigerless" tournaments generally attract 10-25% fewer spectators than those with the sport's premier player. Taking the economic impact numbers at face value, an admittedly unusual move here at The Sports Economist to be sure, if the reduction in attendance is evenly distributed between locals and non-locals, Tiger Woods' absence means a reduction in economic impact for the city of 10-25% or roughly $3 to $7 million.

But there is ample reason to believe his absence is not uniformly distributed. Even without Tiger, the Buick Open is a fun event for locals to attend right in their own backyard. However, the tournament may no longer be worth a long trip for the serious golf fan. Indeed, tournament officials have hinted that out-of-town visitors may comprise fewer than 10% of spectators this year. Since out-of-towers represent the only real source of potential economic impact, this represents a possible reduction in economic impact of 60-75% or a fall of $18-22 million from the previous $30 million figure.

Looks like Tiger might owe an explanation to all of the poor economic analysts in San Diego.

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permalink posted by Victor Matheson @ 2:58 PM

Thursday, January 21, 2010

Why Are Economic Models so Complex? 

We sports economists have become accustomed to inflated economic impact statements made in documents used to support subsidies for sports. Economists Craig Depken and J. C. Bradbury have recent posts on their blogs about this issue. First, in a post over at Division of Labour, Craig posts an excerpt from a Miami Herald article on the economic impact of Super Bowls in Miami.
Advocates of the Super Bowl as an economic engine dismiss its academic skeptics as using complicated formulas to obscure the obvious. And they note that the reports bashing NFL figures bring the professors coveted media coverage as the big game approaches.
Simplicity? You want simplicity? J.C. has a story about simplicity over at his Sabernomics blog. He writes about a call he got from a reporter regarding the economic impact of the Richmond (Va.) Flying Squirrels. An executive with the Flying Squirrels claims that the team generated $40 million in economic impacts in the Richmond area. J.C. wondered how they could come up with such a big number, so he asked the reporter about the methodology used in the report. The reporter responded:
"That figure, he said, is based on a Minor League Baseball formula that takes the amount of revenue generated by the organization and multiplies it by five."
It doesn't get much simpler than that.

The US Bureau of Economic Analysis uses input-output modeling to calculate multipliers for specific products in a whole host of geographic locations. You want the multiplier for butter in Columbia, Mo.? The BEA has one. Are you interested in a multiplier for the state of Minnesota? The BEA has got you covered. From my experience in using these multipliers, most of these BEA multipliers are around 2.

But we must account for the fact that spending on sports largely comes from within the local region. Such spending represents spending redistribution, not creation, and the resulting multiplier is closer to 0.

But, of course, the economist's methodology is so complicated that it obscures the obvious.

I do not deny the complexity of our models. One reason that they are complicated is that observable economic outcomes, whether we are talking about ticket prices, personal income measures, employment numbers, etc. are the product of a complicated process. Just like a tornado is the product of an extremely complicated atmospheric process, so economic outcomes are the product of extremely complicated market processes.

Another reason our methods are complicated is that we are dealing with samples, samples often not under our direct control. When we try account for the random process inherent in these samples, the process gets even more messy. Yes, our models are complicated. But that's because the world is a complicated place.

Maybe next time we should multiply our numbers by 5 and be done with it and wait to see our names in the papers.

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permalink posted by Phil Miller @ 11:53 AM

Baseball ticket prices 

The Baltimore Orioles announced ticket prices for the 2010 season. Games against the Yankees and Red Sox will have higher prices than those against other teams, by about 10%. Tickets bought at the door will sell for $1 or $5 more than the same seats purchased in advance. With these prices changes, average ticket prices for Orioles games are still below the league average.



Asked about the price increases, here is the response as reported in a Baltimore Sun article by Kevin Cowherd:


"In 2000, our average ticket price was $19.50," Greg Bader, the team's director of communications, said Wednesday. "To think it went up only $3.50 in all that time, I think that's pretty remarkable."


Price discrimination - price differences unrelated to cost differences - tells us that the firm will charge a higher price for the good whose demand is least elastic. In other words, charge a high price to those buyers who are least likely or able to reduce their purchases of the product; charge a lower price to the people most able and willing to respond to the price change.

It is important to think about where cost differences might exist but go unrecognized. Early purchasers of airline tickets get lower prices than last minute purchasers. The airline bears risks of flying with empty seats, and the higher last minute prices capture the opportunity costs of selling the seats earlier, for example. Of course, virtually no one has to suddenly and unexpectedly rush to a ball game, so holding seats open for these last minute purchasers cannot justify the higher prices for game day purchases.

The team's spin on the new game-day ticket pricing is that it rewards fans who buy tickets in advance.


It isn't clear to me how it is a reward to advance ticket buyers to know that day of game ticket buyers paid a higher ticket price. It is even less clear to me that a "reward" to the buyers least likely to alter their purchasing behavior is a profit-maximizing business move. In other words, it seems to me the Orioles have their pricing with respect to day of game tickets versus advance tickets exactly backwards.

Cowherd points this out as well:

In fact, instead of raising ticket prices for same-day sales, maybe the Orioles should do what some theaters do.

For instance, if you're in Manhattan and want to take in a Broadway show that day, you can go to one of those TKTS booths and buy tickets discounted up to 50 percent.

And here in town, the Baltimore Symphony Orchestra and Center Stage offer discounts on same-day ticket purchases.

Their philosophy is simple: They want to fill seats.


The higher prices for tickets to Yankees and Red Sox games, on the other hand, makes perfect sense. First, games against those teams are far bigger draws than games against any other teams the Orioles play. Part of that is, of course, that Yankee and Red Sox fans travel to Baltimore for games because the tickets are cheap and getting here from NY and Boston is simple. Second, Orioles fans who made advanced purchases are thought to be very willing to sell even premium seats to the visiting Yankee and Red Sox fans. By charging more for the tickets, the Orioles are able to capture some of the surplus generated on the re-sale.

In the end, Kevin Cowherd chastises the Orioles for the ticket prices in these rough economic times and because of the sorry results of the last twelve years. Here is documentation of the history he references, the Orioles' attendance and winning percentage since 1997, the last time they won over half their games:

Year Attendance Winning %
1997 3,612,764 0.605
1998 3,684,650 0.488
1999 3,432,099 0.481
2000 3,295,128 0.457
2001 3,094,841 0.391
2002 2,655,559 0.414
2003 2,454,523 0.439
2004 2,744,018 0.481
2005 2,624,740 0.457
2006 2,153,250 0.432
2007 2,164,822 0.426
2008 1,950,075 0.422
2009 1,907,163 0.395

Count me as doubtful that higher ticket prices are the thing to fix what ails this club.

permalink posted by Dennis Coates @ 11:30 AM

Wednesday, January 20, 2010

Show me the Money 

Show me the money #1

The salary data for the New York Yankees (see below) makes for an interesting contrast to the recently released Business Review Weekly annual survey of Australia's highest paid athletes, as reported by Australian Associated Press.

BRW estimates the great white shark Greg Norman to be our highest paid athlete ($15 million AUD) - not bad for a fellow who mostly plays the senior tour. NBA #1 draft pick Andrew Bogut ranks at no. 2 with estimated earnings of $14m.

That most of Australia's richest athletes earn their money outside of Australia is unsurprising - we've only got a population of 22 million - but the rising earnings of Australia’s best cricketers is noteworthy. Australian test & one day international captain Ricky Ponting ($4.26m), Australian test and one day international vice captain & Twenty20 captain Michael Clarke ($2.54m), "Mr Cricket" Mike Hussey ($1.39m) and former test and one day international players Brett Lee ($3.52m) and Andrew Symons ($1.22m) all make the list. The advent of the Indian Premier League T20 competition has certainly bumped up the salaries of the latter two (for pre-2008 IPL salaries, see a 2008 piece from Ben Dorries in the Brisbane Courier-Mail ). These salaries don’t quite add up to the value of the starting lineup of the NY Yankees (see below for the earlier post from Brian Goff), but the IPL remains an interesting experiment in turning both the labour market and competition structures of a global sport upside down.

Show me the money #2

In an interesting article by Ken Belson in the New York Times, it has been noted that the NFL is seeking to cut the smaller retailers of licensed merchandise out of the game:
The league said it will only allow online shops that bought at least $3 million worth of licensed merchandise from Reebok last year to apply to offer the line this year. More traditional stores that also sell online will have to meet a minimum threshold of $2 million in purchases last year.

This story appears just after the US Supreme Court heard oral argument in the American Needle v NFL case. Whether the USSC rules in favour of the NFL or not, this is a good example of ample market power being flexed by the NFL.

permalink posted by Robert Macdonald @ 5:55 PM

Inference from 1 data point 

The Baltimore Sun reports that the Maryland Stadium Authority has authorized $100,000 for a study of the financial viability of building a stadium for the purpose of attracting DC United of Major League Soccer.

Apparently Baltimore Mayor Sheila Dixon convinced the Stadium Authority to conduct the study which will be paid for by the City of Baltimore. This is the city that has furloughed employees and enacted rolling closures of fire stations among other measures to cover a budget shortfall. It is also the same Mayor Dixon who was recently convicted, and subsequently resigned her office, for spending, or otherwise using for her own purposes, gift cards given to the city to make a happy Christmas for poor children. The donor of the cards was the Mayor's then-boyfriend, a real estate developer. The Sun report mentions where the stadium would be built. It does not mention who owns the parcel.

Ms. Dixon was so excited by the sold out match held in Baltimore between Chelsea and AC Milan in July 2009 that she felt compelled to see if it makes sense to build a soccer stadium in Baltimore. Of course, it makes sense that one should infer from attendance at a single match between two of the top soccer clubs in the world that a city in budget turmoil ought to spend money on a facility to attract its own team. Interestingly, the Maryland Stadium Authority had already decided building a stadium for DC United just down the interstate in Prince George's County, Maryland, was a money losing proposition.

An interesting additional piece of this situation is that the very successful in-door soccer club in Baltimore was nearly evicted from the First Mariner Arena so the city could build a new arena on the same site. I blogged on this before, here and here. During demolition and construction the club would have had no place to play.

permalink posted by Dennis Coates @ 9:55 AM

Tuesday, January 19, 2010

Portugal's Hangover 

Portugal hosted Euro 2004, a fantastic tournament with a surprise winner in Greece. But as the financial crisis unfolds, some Portugese feel a tinge of regret over the expense involved. Not just the capital costs of building "seven modern stadiums from scratch" and renovating three others*, but also ongoing maintenance expenses:
Second-division Beira Mar can’t afford the upkeep of a 30,000-seat, $94 million municipal stadium in Aveiro, while first-tier Uniao de Leiria doesn’t have enough revenue to maintain the city’s $120 million arena. On the south coast, lower-league teams Farense and Louletano rely on taxpayers’ money to bankroll the $61 million stadium they share.
Some are calling for the stadiums to be demolished. The bloomberg story breaking this news notes that this may be relevant to Ukraine and Poland, cohosts of Euro 2012, who seem wary of overspending. A representative of the soccer players union claims that the complaints over stadium expenses are just political posturing, and indeed if most of the costs are sunk, to may be efficient to keep things as they are. But calling attention to $100 million investments that are now used in, let's say unusual ways, is perhaps a political statement worth making:

Municipalities are finding other uses for stadia. The Leiria stadium, whose annual electricity bill this year will be about 111,000 euros according to published accounts, hosts corporate events. Rooms at the Faro-Loule stadium are being used for temporary classes as a local school is renovated. In Coimbra, the municipal stadium will stage a concert by rock band U2 in October.

Still, the situation is unsustainable, according to Pereira, the Aveiro deputy. He said the town should consider demolishing its stadium.

“It was a mistake building it in the first place,” Pereira said. “Now we have to do something about it.”

Maybe Bono can figure something out.

* reported here

A tip of the hat to Allen!

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permalink posted by Skip Sauer @ 12:34 PM

"Yankee Premium" Updates 

In 2005 I explored the "Yankee Premium, how much of the Yankee payroll reflected a revenue advantage relative to the rest of baseball and how much reflected the ability of NYY players to negotiate away the revenue advantage into their own pockets.

Here's an update for 2009 salary data where I match Yankee players with players from other teams whose productivity are "in the neighborhood" of the Yankee. The question is, what is the pay rate of a comparable players in terms of production and freedom of movement. I'm not using any sophisticated matching technique, so there's plenty of room to quibble, sometimes that that the match is not good enough and sometimes too good. There's not offensive match for A-Rod among third basemen, but someone like David Wright would be much cheaper than Mike Young. Joe Mauer's years of service are much less than Posada, but Mauer is mobile. The point is not any specific match, but the aggregate amounts. Where one player is considered a better fielder, I've tried to compensate with batting stats such as Mike Cameron and Johnny Damon in a position, CF, where fielding matters more.

Player (Salary, Career OPS or ERA, Years)

1B: Teixeira ($20.6, 0.923, 7) Howard ($15.5, 0.961, 6)
2B: Cano ($6.0, 0.818, 5) Kinsler ($3.2, 0.814, 4)
SS: Jeter ($21.6, 0.847, 15) Tejada ($14.8, 0.810, 13)
3B: Rodriguez ($33.0, 0.966, 16) Young ($13.0, 0.798, 10)
C: Posada ($13.1, 0.885, 15) Mauer ($10.5, 0.892, 6)
OF: Damon ($13.0, 0.854, 15) Cameron ($10.0, 0.788, 15)
OF: Matsui ($13.0, 0.852, 7) Werth ($2.5, 0.827, 7)
OF: Swisher ($5.4, 0.869, 6) Hawpe ($5.5, 0.875, 5)
SP: Sabbathia ($15.3, 3.62, 9) Buerhle ($14.0, 3.80, 9)
SP: Burnett ($16.5, 3.84, 11) Fuentes ($8.5, 3.47, 9)
SP: Pettitte ($5.5, 4.20, 15) Garcia ($10, 4.08, 10)
RP: Riveria ($15, 2.25, 15) K-Rod ($9.1, 2.53, 8)


Yankees: $178m Non-Yankees: $116

A close-to-comparable team has a labor market price tag of about 65 percent of the Yankee total for these key positions. In other words, the Yankee players extracted nearly 40% in "rent" above their market values from the Yankees because they are just as aware as anyone else of the Yankee revenue advantage.

My point is not that the players dissipate all of the revenue advantage of the Yankees. Rather, using gross payroll differences vastly overstates the Yankees advantage. The rent capture by players means that the Yankees must spend their money wisely to make it translate into wins, as the period of the 1980s-early 1990s showed.

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permalink posted by Brian Goff @ 11:11 AM

Monday, January 18, 2010

Gold Medals, Red Ink: NBC to Lose $200 Million on Games 

A number of media outlets are reporting that NBC will lose about $200 million dollars on the 2010 Vancouver Olympic Games broadcast. The network paid $2.2 billion of the US broadcast rights to the 2008 and 2010 games, and a reported $820 million of that was for the Winter Games. However, this loss is based on a comparison of the amount paid for the broadcast rights fees compared to the advertising revenues for the Games. The calculation does not take into account any spillover benefits that NBC gains from broadcasting the Games. For example, if more people watch non-Olympic related programming on NBC, and the network is able to charge higher ad fees for those programs, then broadcasting the Games produces additional revenues for months or years after the Games end.

Similar claims have been made in the past about networks losing money on broadcast rights for other sporting events, like the NCAA Men's Basketball Tournament and the National Football League. When interpreting claims of large losses by networks on sports broadcast rights deals, it is important to keep in mind that broadcasting sports events like the Olympic Games adds more than the revenues from advertising during the Games to the bottom line of networks.

Hat tip to Nick at the IJSF Blog.

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permalink posted by Brad Humphreys @ 9:12 PM

Saturday, January 16, 2010

BraveRocks? Brave Lochs? Curling and Congestion in Scotland 

Last week it looked as if the Royal Caledonia Curling Club (RCCC) would be able to host a Grand Match of curling on Lake of Monteith near Aberfoyle, Scotland. The Grand Match is a gigantic curling competition in which as many as 2000 curlers compete, and the weather has co-operated so little that it has been held only 38 times since 1837; it was last held in 1979.

This year the temperatures had been below freezing for several weeks leading up to the planned event and the ice was forming nicely on Lake of Monteith, which has nice ice for curling when the weather conditions hold up. The last time the Grand Match was held, there were over 6000 people attending, and it was anticipated there would be as many as 10,000 in attendance this time.

And that caused a problem.

A week before the planned event, the RCCC called it off, citing safety issues. The safety concerns were not due to ice conditions. Rather, the RCCC was concerned about access and congestion. From The New Scotsman [h/t Brian Ferguson]:

Colin Grahamslaw, chief executive of the national governing body, defended the decision of the Grand Match Committee.

He said: "Since Monday, we have been working with the police and the emergency services and the local authorities to try and achieve this and make it work, but, in the timescale, it has just not proved possible.

"You are talking about trying to move 2,000 curlers and an unknown number of spectators on and off the site safely. There is only one road in and one road out, and the police and emergency services were really concerned that you could get one snarl-up and there would be gridlock."

Mr Grahamslaw stressed: "We weren't worried by the ice, because the ice would have been thick enough by next week, if it isn't thick enough already."

Mr Grahamslaw said it would have been "irresponsible" to ignore the advice of the emergency services and that the decision to call off the match was deeply disappointing.

I'm not persuaded by these arguments. When I look at the map, I see access from several different directions. I'll admit that access to the site is likely limited, but probably no more so than for other large events in rural areas.

More importantly,though, this would have been a perfect time to institute temporary congestion charges. If the RCCC doesn't have the authority to charge for the use of the roads, then it could charge high admission fees for contestants and spectators.

But if it is too costly to monitor and exclude people from the event itself, then with some planning and co-operation, temporary congestion fees could easily be implemented by the local authorities, possibly in the form of temporary toll charges for non-residents. After all, according them, "There is only one road in and one road out..."

What I am saying is that fears of congestion are not necessarily a good reason for having called off the event. Good old Pigouvian taxes could easily have been implemented to reduce congestion. And with the examples of the congestion charges in the city of London, people would likely have a reasonable understanding of why and how they work.

Even though the RCCC declined to sanction the event, and against the advice of local authorities, many curlers still planned to show up for an unofficial version of the Grand Match:

Some told The Scotsman that many enthusiasts were already making plans to stage an unofficial match on the Lake of Menteith within the next few days in protest.

One Glasgow-based curler said: "There are an awful lot of angry curlers who want that match to go ahead with or without the RCCC. I am certain that some sort of Grand Match will go ahead.

But in the end, temperatures rose, the ice had lots of water on it, and very few people showed up.

Ian Fleming, owner of the Lake of Menteith Hotel, said he has been monitoring the situation over the last 24 hours.

"The ice is solid enough just now but the water on it just makes it treacherous to walk on. It's the first time I've ever seen a curling stone causing bow waves.

"There are a number of hardcore curlers out there now, around 28 to 32 players but it's hard to see the rinks under all the water.

Cross-posted at EclectEcon and at Curling

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permalink posted by EclectEcon @ 7:03 AM

Friday, January 15, 2010

Capital-Labor Substitution in Production: Sports Writing Edition 

Newspapers are in deep trouble. That has been clear for some time. It looks like things just got worse for sports writers. The Intelligent Information Laboratory at Northwestern University has developed a program called Stats Monkey that takes the box score from a game and some play-by-play data as inputs and produces a newspaper story about the game, complete with headline. The program uses statistical modeling to figure out what the important events were in the game and to pick out key plays along with a "library of narrative arcs that describe the main dynamics of baseball games." Here's a link to a New York Times blog post with a sample of the output from the program based on a recent MLB playoff game.

This is a classic example of substituting capital for labor in production. Just last month, the Washington Times announced a 40% cut in staff, including the entire sports desk. I wonder if they are using Stats Monkey to generate sports page content? I interact with a lot of print reporters, primarily in interviews about my research on the economic impact of professional sports, and have found that the ones working the sports desk generally have the most trouble understanding my research (unlike business desk reporters who seem to quickly grasp the importance of substitution in local entertainment spending for explaining the results in the literature).

The Stats Monkey web site doesn't appear to list a price for the program, but it has to be a fraction of the cost of a staff of sports writers. I doubt that this sort of capital-labor substitution can save the print newspaper industry, since much of the industry's problems are on the revenue side of the business.

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permalink posted by Brad Humphreys @ 3:29 PM

Thursday, January 14, 2010

American Needle v. NFL Oral Arguments 

The Supreme Court heard oral arguments in the American Needle v. National Football League case yesterday. The central issue in the case, whether or not the NFL is a "single entity" and exempt from anti-trust law, could have profound effects on the way the league does business.

Newspaper reports on the arguments suggest that the Court was not receptive to the NFL's arguments. The NFL argued that the sale of merchandise with team logos was not aimed at making profits, but instead was intended to promote the league. The New York Times coverage emphasized the skepticism of the justices. The Washington Post coverage focused more on the idea that, if the NFL wins, it could gain a blanket anti-trust exemption. Both articles clearly indicate that the tone of the arguments indicated that the court was not buying the NFL's arguments.

It typically takes several months for a decision to be issued.

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permalink posted by Brad Humphreys @ 9:39 AM

Wednesday, January 13, 2010

Constraints a Good Thing? 

Aside from the endorsement income aspect covered in several posts in TSE, the Tiger Woods story has generated Internet buzz about a variety of tangent issues ranging from public-private domains, to domestic behavior, sex addiction and beyond. An aspect with particular economic implications revolves around the role of constraints in life. In general, economists take the reducing of various limits (financial, time, ...) as welfare enhancing for the individual.

Woods is a case study in a larger topic -- how do people behave when the typical constraints of life vanish? A (possibly apocryphal) story exists from an elite Ph.D. program where the professor was covering the technical details of choice theory and a foreign student from a very wealthy background asked, in sincerity, how does this all work when there is no budget constraint? To be honest, we have not studied that or related questions much in economics. There is some work on self-constraining behavior such as weight-reduction plans and groups.

Exposure to constrained choices may result in important learning by heightening awareness of tradeoffs and implications of choice. On the flip side, the lessening of constraints may dull these abilities over time. It's a twist on Machiavelli's observation about the tendency of absolute power to corrupt in more expansive ways. Trey Fleisher and I raised questions about the (sometimes) negative behavioral implications of rising affluence for society at large in Spoiled Rotten, making only a brief reference to the unique world of the super-affluent.

Top sports figures, Hollywood celebrities, top-level CEOs, and high level political figures live in worlds without the usual limitations, with differences in the limits among these groups. For many, financial limits all but vanish. In addition, limits on behavior imposed by associates diminishes as those "doing business" of any sort with them become highly deferential.
In the case of Woods, he reached a point where even the usually ever-present scrutiny of the media had become more of a fawning Tiger PR tool.

Individuals living in such worlds not only engage in extreme, self-damaging (financially, physically, ..) behavior at times, but they make choices that seem to reflect a dulled sense of where boundaries are anymore or of the almost certain implications of some actions. There are "discreet indiscretions" and then there are the emperor without any clothes kind of indiscretions screaming for an audience. For example, Mark Sanford's (South Carolina Governor) thinly veiled foray to Argentina under the cover of an Appalachian hiking trip was about as likely to stay hidden as Tiger's activities. Tiger wasn't some anonymous business person on a convention trip. Everyone of his associates knew exactly who he was. In the TMZ world, such secret liaisons are almost certain not to be secret in the long run. So for behavioral explanations, we are either left with Tiger is stupid (which he is not), Tiger really enjoys lots of lost income and turmoil (not highly convincing), Tiger is sex addicted (maybe, but this may be the result, not the cause), or Tiger's unbounded world encouraged over-indulging and under-assessing.

In the end, I'll come back to a key econ dictum: there's an optimal amount of everything -- maybe even constraints.

permalink posted by Brian Goff @ 9:44 AM

Monday, January 11, 2010

No More Super Bowls in Miami? 

A story in today's Boston Herald reports that posted prices for Super Bowl tickets range from $2,000 to $5,000 in the secondary market. Here are some interesting quotes from market participants:
"The corporate orders are way down. Definitely the corporations are under scrutiny because of what’s going on in the world," said Michael Lipman, president and CEO of Miami-based Tickets of America, which sells Super Bowl tickets. "This is a total fan-driven Super Bowl. What teams are in is going to dictate the market and prices."

That doesn’t necessarily mean it will be an easy ticket, though.

"This year because of it being in Miami, it’s extremely popular," said Robert Tuchman, executive vice president of Premier Global Sports, which arranges corporate and group travel to sporting events. "Also, because the economy has bounced back a little bit, there’s more interest than last year in Tampa."

Tuchman’s company, which runs sportstravel.com, has already sold out of packages at the Fontainebleau Hotel in Miami Beach and Epic Hotel in Miami.
Not bad for a recession-wracked economy. As I read the story, I recalled an opinion piece in the Miami Herald last week, which excoriated Commissioner Goodell and the NFL for the following threat:
As Super Bowl XLIV approaches, the National Football League has delivered a not-so-sporting message to hosting South Floridians: Bend over.

NFL Commissioner Roger Goodell warned local officials that this might be the last Super Bowl game held at Dolphin Stadium unless the facility is refurbished at a cost of $250 million, give or take.

Although the league is wallowing in profits, it has no intention of bankrolling the renovations. The Dolphins haven't said how much, if any, the team would contribute.

Most likely, the money would have to come from public funds, possibly hotel bed taxes collected in Miami-Dade, Broward and Palm Beach counties.

It's old-fashioned extortion, but the NFL has no shame. You'd have better luck negotiating with the Gambino family.

Forget the recession. Forget the fact that our boneheaded politicians just committed $490 million to a new baseball park that is doomed to be a budgetary suckhole for decades.

And forget the fact that the football stadium was renovated just a few years ago for $200 million-plus, and that the Dolphins admit they don't need any upgrades for regular-season games.

Mr. Goodell is a fussy fellow. He would like swankier skyboxes and new hi-def lighting, please. He would also like an expanded roof on the stadium to prevent raindrops from dampening the festivities.
Now, it strikes me that the statements of market participants quoted in the Boston Herald ring true: people are willing to pay top dollar for a Super Bowl ticket in February, because it is paired with a trip to Miami Beach, warm weather, and so on. Can stadium amenities really be worth an investment of an additional $250 million, for a single game once every six to ten years, in which the city itself and its natural surroundings, more than anything else, dictate the demand for this particular location?

If this is indeed a standard "relocation" threat being foisted on local taxpayers by the NFL, it does not seem credible to me.

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permalink posted by Skip Sauer @ 7:50 AM

Friday, January 08, 2010

Inside the Business of Bowls - A Money Loser for Some 

Besides the game, the University of Missouri lost money on their trip to Houston's Texas Bowl this past season.

For the second year in a row, a bowl trip will leave Missouri’s athletic department in the red, making Thursday’s Texas Bowl a losing endeavor in more ways than one.

When the last of MU’s travel and hotel expenses are paid, Missouri projects a deficit of $10,000 to $20,000 for its trip to Houston, Senior Associate Athletic Director Mark Alnutt said.

That’s a modest loss for playing in one of the league’s least lucrative bowls, but it comes on top of the damage suffered in the game itself, a stunning 35-13 defeat to Navy.

“When it’s all said and done, that’s not a huge deficit,” Alnutt said. “Our goal was to break even, but given the economic indicators and what we’re dealing with by going to a Tier 3 bowl, I think we did a tremendous job trying to get that number even.”

Missouri lost $30,000 on last year’s Alamo Bowl trip and broke even on the Cotton Bowl two years ago.

To my knowlesge, the accounting losses don't measure the marginal effect on such things as donations, subsequent year ticket sales, and whatever advertising value there might be among other things.

The article makes one thing clear: if a team's fans don't travel to bowl games, they are going to be knocked down in the bowl selection pecking order (as Missouri has been each of the past three years).

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permalink posted by Phil Miller @ 5:09 PM

"Blogometrics" - Ranking the Econ Blogs 

A little shameless self-promotion here. Franklin Mixon and Kamal Upadhyaya have ranked economics blogs in this Easter Economic Journal article entitled "Blogometrics." The abstract:
This study gathers information on a wide array of economics bloggers and blogs in order to develop a ranking of economics bloggers that is based on citations to their academic research. This ranking is used in an iterative process that next presents a ranking of economics blogs that is based on the ranking of economics bloggers, and finally a ranking of economics departments that is based on the ranking of economics blogs. The ranking of blogs included in this study is positively correlated with an external ranking based on their productivity (popularity), whereas the department ranking presented here comports quite well with department rankings in Coupé (2003) and Roessler (2004) that are developed with more traditional measures, such as the impact of the scholarship of an economics department's faculty.
The Sports Economist ranks #21 out of 40 economics blogs. You might remember that TSE was named an honorable mention econ blog in a list of top 25 econ blogs by The Wall Street Journal this past year.

Congrats and beers to all my co-bloggers here at TSE.

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permalink posted by Phil Miller @ 5:03 PM

Information, Reputation, and the Impact of College Athletics: My story about TCU 

[Note: this was originally posted at EclectEcon, but Phil urged me to cross post it here. I've revised it slightly.]

Way back in the days before people ranked economics departments according publications or citations to publications by their faculty members, departments' reputations seemed to be based more on who knew whom, on who had written important papers, and (perhaps sadly) whether you had even vaguely heard of the school or any of the people who taught there.

When I was finishing my PhD at Iowa State University and beginning to look for a university job, like all good job seekers I went to economics conventions, did my best to meet people and find out who was hiring economists in my field, scoured job listings, and tried to arrange as many job interviews as I could. But in my naivete and ignorance, I had little to go on. And my lack of information and my ignorance let me down several times, with some interestingly poor fits.

One instance that I remember involved Texas Christian University [TCU]. Growing up, I had heard of TCU because of the prowess of their football team, even back then. So when I learned they had a position open, I thought, "Hey, I've heard of them. They might be an okay place." I don't remember thinking that, explicitly, but I certainly behaved as if I did. In fact the only reason I had heard of them was because of their football team, not because of their economics department.

I know, I know. My behaviour likely doesn't seem very smart or very rational. But I bare my soul here for the purposes of illustrating a point.

It turned out they were looking for someone who was willing to teach 4 courses per term ("only" three preparations) and do so for less pay than was offered by other economics departments. I'm sure things have changed since then.

In the end, they weren't interested in me and I wasn't interested in them. But when I saw them playing in the "Impolitic" Bowl this past week, I realized that the reputation created by their football team had at least gotten them in the door with me (so to speak).

National television exposure due to a winning football team is undoubtedly worth something. The question is, how much? And is it worth the costs?

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permalink posted by EclectEcon @ 11:59 AM

Thursday, January 07, 2010

Andre Dawson, Collusion, and the Hall of Fame 

Andre Dawson was elected to Baseball's Hall of Fame yesterday. Those of us who watched him when he played with Montreal Expos really enjoyed watching him. And there is no doubt he was a VERY good player.

And yet, as many sabremetricians will surely point out, Dawson's performances probably contributed less to his teams' winning percentages than did the performances of Bert Blyleven or Tim Raines or even possibly Jack Morris (I really am having hard time understanding why Robbie Alomar received so many votes).

Let's face it. There is one important reason that Dawson was elected to the MLB Hall of Fame, and it is the same reason he won the National League's Most Valuable Player Award in 1987 despite there being other likely more suitable candidates. Leading up to the 1987 season, Dawson made it clear that because of his ailing knees, he no longer wanted to play on astroturf but with his free agency would seek a contract with a team that had a natural grass outfield. He was especially interested in signing with the Chicago Cubs, but this was 1986-87, and no one would sign him to a contract.... No one, despite his potential contributions to a team. 1987 was, it turned out, a year of collusion among MLB teams, and most free agents found no takers other than their original teams (at monopsonistic salaries).

To deal with this collusive situation in the 1987 MLB, Dawson essentially signed a blank contract, gave it to Dallas Green (then general manager of the Cubs) and told him to fill in the numbers. This gesture, plus his overall good performance that season, helped Dawson win the hearts of fans and sportswriters. And it was this gesture that put him over the top in the MVP balloting that year and in the Hall of Fame balloting this year.

Without that action, Andre Dawson would be another very good player just on the cusp of being elected into the Hall of Fame. With it, he became a hero to many who were disgusted by the collusive behaviour of the MLB owners.

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permalink posted by EclectEcon @ 1:28 PM

Monday, January 04, 2010

A Little Bowl Politicking 

What's bowl season without a little politicking?

The focus is college football but the look and sound are purely political. Taking a page from his own political playbook, the former campaign finance counsel for the McCain-Palin presidential campaign is taking aim at college football's Bowl Championship Series.

Washington lawyer Matthew Sanderson is co-founder of the Playoff PAC, a group dedicated to electing members of Congress who will throw the yoke of oppression from non-BCS college football teams that excel on the field but can't get into the BCS championship game.

Sanderson is a graduate of the University of Utah, an undefeated team last year when it beat Alabama in the Sugar Bowl. But Utah was left out of the national championship game, as are Boise State and TCU this year. Both are also undefeated and play each other tonight in what some are calling the "Separate But Equal" bowl but is actually the Fiesta Bowl.

So, Sanderson and his BCS-busting buddies at Playoff PAC have a TV ad ready to run in scorned non-BCS cities in advance of Thursday's national BCS championship game. The ad planned for Salt Lake City, Dallas and Boise features TCU and Boise State and their stellar 2009 records.

The link has the commercial embedded within for those who are interested*. Surely the incumbent bowls will be doing their own politicking. Enjoy the game, TSE readers.

*Update: I see that the embedded video appears in the posted version although it did not appear in the blogger window I wrote the post in.

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permalink posted by Phil Miller @ 7:37 PM

Four on Facilities in Major College Football 

As we end the near of this football bowl season, here are four links on facilities in college sports.

Being like Boise: the Nevada Wolfpack look to emulate the success of the Blue Field Boise State Broncos. To do that, they need "support, deep pockets, and improved facilities".

Speaking of Boise State, the Broncs are also in the facility upgrade mode and are emulating the NFL's Packers by selling a type of stock - a stock that does not "receive any dividends" and which "doesn't appreciate" to raise some of the necessary funds. The "purchase" is also tax deductible. To me it sounds more like creative fund raising than a real stock sale. A rose by any other name...

The Wiz of Odds links to an ESPN Outside the Lines video on Rutgers football and its facility upgrades.

Mark Yost writes about facility building on major universities. You can't invest in players because of the salary cap/price ceiling imposed by the NCAA. So you invest in coaches and facilities.

By the way, Mark Yost's most recent book entitled "Varsity Green: A Behind the Scenes Look at Culture and Corruption in College Athletics" is slated for release shortly. I reviewed an early draft of Mark's book last spring and found it well-written, provocative, and very interesting. After I received the manuscript last year, I was going to wait for a couple of weeks before reviewing it. But I began skimming it while giving a test and immediately became riveted. I finished the review within a few days. The first chapter about the attitude that some in athletic departments hold about student athletes says it all: "The Entertainment Product." Recommended.

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permalink posted by Phil Miller @ 5:41 PM

USC, Mayo, Third Party Punishments, and Price Ceilings 

USC has self-imposed* major penalties for infractions involving former player O.J. Mayo. According to this article, an events promoter funneled cash and goods to Mayo while Mayo was at USC. As penalty, USC will have to forfeit all its wins from the 2007-08 season, it must return the NCAA tournament money it received when Mayo was on the team, and it won't be able to participate in post-season tournaments this year.

Mayo currently plays in the NBA and Tim Floyd, the USC coach during the period in question, resigned last spring. While you can't say those two get away scot-free (Tim Floyd's reputation is damaged, for instance), the people who arguably bear the brunt of these sanctions - current coach Kevin O'Neill, his staff, and the current USC players - had little to do with what apparently went down with Mayo. If a man knows that a third party will have to pay the penalty if he breaks the rules, he's more likely to break the rules. Tails, I win. Heads, you lose.

The root of these sorts of side payments, of course, is the fact that the NCAA maintains amateur status in regards to paying players, despite the millions of dollars in revenues and donations generated by the revenue sports. When there are monopsonistic restrictions in place, a wedge exists between the marginal revenue product generated by the average player and the average player's salary. Without such restrictions, we expect players to be paid more-or-less what they are worth. Of course some players will be paid more than they are worth and others less (mainly due to uncertainty about a player's true worth), but on average the two values should come close to balancing.

This pay restriction is a classic case of a price ceiling, the "price" in this market being the salary. An effective price ceiling acts like a barrier that keeps the price from rising above the specified level. In the NCAA, the price ceiling for players is set at $0. The equilibrium salary, especially for the star players in the revenue teams, is above $0. Because this price ceiling does not change the fundamental value players have on their teams - their marginal revenue product - it drives interested parties to find ways around the barrier, much like water tries to find ways around a dam in order to find the lowest spot.

In Principles of Economics, we teach our students about some of the ways people find ways around price ceilings: black market transactions, tie-in sales, etc. We see these in the market for college athletic talent. What has apparently happened with the USC-Mayo case is a type of side-payment, basically a black market transaction. When a player takes money from gamblers in a point-shaving scheme, we have another type of black market transaction. When a player's father gets a coaching job at the school his son just signed with and then resigns immediately when his son leaves, that's an indication a tie-in sale has occurred. I'm not saying this is always the case when a dad gets a college coaching job at his son's school, but to me it's a flag.

As long as the NCAA generates millions of dollars from sports while a. the players get payed nothing and b. third parties bear the brunt of penalties, these sorts of shenanigans will continue to get played.

*Update: thanks to commenter Michael for noting that the NCAA did not impose the penalties on USC as I had originally written. They were self-imposed and I have edited the post to reflect this. But the NCAA probably would have imposed similar penalties had USC not self-imposed them.

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permalink posted by Phil Miller @ 11:59 AM

Thursday, December 31, 2009

When is a Pro Bowler not a Pro Bowler? 

The Baltimore Ravens and the NFL are involved in a dispute over the number of times Ray Lewis was a Pro Bowler. You must be asking yourself, "Is this serious?" Well, I am not joking, but I hardly take the issue as serious.

It seems that a couple of years ago, 2006 I believe, Lewis was voted to the Pro Bowl but was injured and did not go to Honolulu for the game. Instead, he chose to stay home so that the alternate, his friend and teammate Bart Scott, could go. Having been voted to the Pro Bowl, Lewis was paid the incentive money stipulated in his contract by the Ravens. The Ravens also paid Scott the incentive for making the Pro Bowl.

Where the dispute arises is that the NFL does not count that year as a Pro Bowl season for Lewis, while the Ravens do. Why does this matter? If that season is counted as a Pro Bowl season for Lewis, his recent selection this year moves him into second place for the most Pro Bowls by a Linebacker. Not counting it, Lewis is tied with two or three others. More to the point, with it counted, Lewis is one closer to passing Junior Seau for the most Pro Bowls by a linebacker. That seems to be important to some people, and I suppose in a way it is.

The NFL apparently feels that Lewis cannot be recorded as a Pro Bowler for that season because counting it as a Pro Bowl season is one of the incentives to get players to participate in the game. It is important as a marketing tool to get the stars to show up. By not attending, Lewis apparently reduced the luster of the game and opened the door for other stars to not attend but to still be called a Pro Bowl player. That move seems to threaten the NFL's cash flow from the game, which is apparently the whole point of what is otherwise a pointless game.

One further note on this issue. Perhaps the NFL ought to figure a way to have Pro Bowl players actually be those having special seasons. Perhaps players who have missed substantial proportions of the season, like Ed Reed who has missed a quarter of his team's games and Troy Polamalu who has missed (I think) 7 of 15, should not be eligible.

permalink posted by Dennis Coates @ 10:29 AM

Wednesday, December 30, 2009

Brinksmanship in Lubbock 

The saga of Mike Leach, the mad genius football coach continues today in a Texas courtroom, at a hearing of his plea to be reinstated for Saturday's bowl game. This is the latest in a bizarre sequence of events, reminiscent of an 19th century duel.

Most readers know the precipitating events. A player, Adam James was diagnosed with a mild concussion, and in subsequent practices was isolated from the team and treated with, at a bare minimum, a big pinch of disrespect. James' father, ESPN commentator and former SMU star Craig James, complained to the university about the treatment, and subsequently made noise in the media that the issue was the coach failing to act in the interest of his players' safety given Adam's treatment after his concussion.

Here's my somewhat speculative take on the saga. The escalating event occurred when school president Guy Bailey attempted to deal with the issue by getting Leach to sign a letter of apology to James. Leach refused, forcing Bailey to execute his threat, suspending Leach from the bowl game. This is not the outcome Bailey wanted. As a school president, Bailey is a politician, and when he turned into a mediator between a well known TV analyst and his coach, he acted like one. Fairly typical, but in this case it was a big mistake.

Leach turned Bailey's move into a blunder by refusing to cooperate. Why? I think there's another game being played out in the background. Subsequent reports indicate that the coaches (not just Leach) had issues with Adam James, referring to him in one case as "unusually lazy and entitled." Unwelcome interventions from his father had apparently taken place before. So what's going on? James is a redshirt sophomore who doesn't get many touches, apparently a pain in the buttocks and perhaps corrosive to team chemistry (He may even have a "fat little girlfriend" a phrase comment from Leach that is somehow being used to imply he's unfit to coach!)

I think Leach & co. were trying to run him off. The concussion gave Leach the impetus to send Adam James to the proverbial woodshed. But instead of planning to transfer to another school (which will surely be forced by these events anyway), his dad decided to create a stir. Apart from the impetus and the response, the concussion has little to do with the story. This is a story about control of the program in the face of unwelcome intervention by parents and blundering administrators. The president should have anticipated that Leach would not go the apology route when control of the program is on the line.

A similar scenario played out at Clemson in January of 1990. Clemson's most successful football coach, Danny Ford, and the university president got into a tangle over building a dorm for athletes. The president had political capital tied up in an effort to ban these facilities (something that would ultimately take effect), and the coach had raised a few million bucks to build one. Neither would budge, and the feud escalated until first, Coach Ford was fired, and two four years later, the president. As is happening today in Lubbock, the fans in town were lined up on one side only, in favor of the most successful coach in school history, camping out in front of the President's house.

I've always thought this episode revealed a big flaw in the leadership ability of Clemson's president. Good presidents (and they are rare) can get past the politics and look at the end result. Danny Ford had raised the money for a new building, and the president should have let him build it. Once all-athlete dorms were banned, the president would have captured most of that dorm as the athletes were spread across campus. In turning the issue into an all-or-nothing fight, Coach Ford and the president destroyed a potential asset for the university, and lost their jobs on account of it. The football program stunk for most of the next decade as well. All of the above are in the cards for the duelists in Lubbock.

Update: Leach was fired, minutes before the hearing was to start! Ok, so you are firing a guy for not apologizing, and then for filing a restraining order?!! Omg, this is nuts. Texas Tech is out-Clemsoning Clemson!

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permalink posted by Skip Sauer @ 8:12 AM

Monday, December 28, 2009

Event study pegs cost of Woods scandal at $12 billion 

A press release from UC Davis discusses an event study done by economists Chris Knittel and Victor Stango, which examines the stock market returns to Woods' sponsors in the wake of the scandal. Here's the punch line:

To assess shareholder losses, the economists compared returns for Woods’ sponsors during this period to those of both the total stock market and of each sponsor’s closest competitor.

Knittel and Stango also reviewed returns for four years before the car accident to determine how each sponsor’s market performance normally correlates with that of the total market and of competitor firms.

The study focused on nine sponsors for which stock prices are available: Accenture; American Express; AT&T; Tiger Woods PGA Tour Golf (Electronic Arts); Gillette (Proctor and Gamble); Nike; Gatorade (PepsiCo); TLC Laser Eye Centers; and Golf Digest (News Corp.).

Overall, Knittel and Stango concluded that the scandal reduced shareholder value in the sponsor companies by 2.3 percent, or about $12 billion.

“(This) pattern of losses is unlikely to stem from ordinary day-to-day variation in their stock prices,” the researchers wrote.

Investors in the three sports-related companies (Tiger Woods PGA Tour Golf, Gatorade, and Nike) fared the worst, the study found. They experienced a 4.3-percent scandal-generated drop in stock value, equivalent to about $6 billion.

Two to four per cent of your company is a lot to have tied up in a wayward athlete. I don't doubt the measurement that Knittel and Stango have done, but the magnitude of such studies sometimes has a whiff of excess response to information. Here's a link to the study itself (pdf), which seems worth a read when you get the chance.

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permalink posted by Skip Sauer @ 1:49 PM

Friday, December 25, 2009

Subsidies: The Gifts that (taxpayers) Keep on Giving 

Happy holidays, loyal TSE readers. Here at The Sports Economist, we like to keep track of who has been naughty and who has been nice in the sports economics world. And as a long time practitioner of the Dismal Science, I am obligated to provide an update on the naughty part of the list on this festive holiday occasion.

The New York Times has an interesting article today that serves as a reminder that you, the taxpayer, continue to pay, pay, pay to keep your local sports teams outfitted in the finest facilities that subsidy dollars can buy. The first paragraph of the article, titled "Stadium Boom Deepens Municipal Woes," sums up the current state of sport facility subsidies quite nicely
Years after a wave of construction brought publicly financed stadiums costing billions of dollars to cities across the country, taxpayers are once again being asked to reach into their pockets.

From New Jersey to Ohio to Arizona, the stadiums were sold as a key to redevelopment and as the only way to retain sports franchises. But the deals that were used to persuade taxpayers to finance their construction have in many cases backfired, the result of overly optimistic revenue assumptions and the recession.
I couldn't have said it better myself. The article goes on to describe events in Cincinnati, where sales taxes dedicated to paying for the new facilities built for the Reds and Bengals in the past 10 years have not generated enough money to pay for the facility operation and service the debt on the bonds floated to build these stadiums. In order to make up the $14 million annual deficit associated with these two facilities, Hamilton County now "plans to cut basic services, lower its legal bills and drain a bond reserve fund with no plan for paying it back." Worse, the sweetheart deals given the Reds and Bengals only require the teams to pay rent on the facilities until 2014, at which point the deficit will get even bigger. A similar situation has arisen in Indianapolis, a city famous for its sports-led downtown redevelopment plan. Like Cincinnati, Indianapolis is struggling to find funds to operate Lucas Oil Stadium and Conseco Fieldhouse.

In this season of giving, the lesson to be learned from Cincinnati, Indianapolis, Columbus, and the other cities discussed in the article is that sports subsidies don't necessarily end when the shiny new stadium is built and turned over to the local team. In many cases, the generous terms of the long term leases given to teams mean that taxpayers will continue giving the teams that play in theses facilities significant subsidies for decades.

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permalink posted by Brad Humphreys @ 5:56 PM

Tuesday, December 22, 2009

More on the Economics of Bowl Games 

Inside Higher Ed reports that a number of teams participating in bowl games will not be taking the marching band, as well as reducing the number of cheerleaders and the size of the "official party" of administrators, faculty and staff that often travel with teams to bowl games. Boston College and Nevada will leave the band at home; Minnesota will reduce the number of band members and cheerleaders traveling to the Insight Bowl in Tempe. The reason? The bad economy, and the high cost of travel. Airfare (or charter flights), hotel rooms, food, practice facilities at the bowl site for the team and band all add up to large travel costs associated with playing in bowl games.

That's just the tip of the iceberg. An article in the San Diego Union-Tribune exposes the dirty little secret of bowl games: on average, schools lose money when they participate in bowl games. Although participants in the BCS bowls will each receive $18,000,000 this year, some of that revenue must be shared with other conference members, reducing the payday to individual participants. Also, all bowls require participants to purchase a certain number of tickets, usually more than 10,000, to the game, no matter how many they actually sell to fans. Last year, Western Michigan was stuck with over 10,000 unsold tickets to the Texas Bowl, costing the university over $400,000. The Union-Tribune article claims that unsold ticket guarantees cost bowl participants over $15 million last year, and expects the cost to rise this year as fewer fans travel to bowl games across the country.

Bowl games are viewed as local economic development projects by host communities. The losses incurred by many participating institutions suggest a subsidy flowing from college football fans to cities that host bowl games. Worse, the existing evidence indicates that college bowl games actually do not actually generate much local economic benefit for host cities.

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permalink posted by Brad Humphreys @ 11:08 AM

Monday, December 21, 2009

The Politics of Bowling, Fiesta Style 

The Arizona Republic has an interesting article on the Fiesta Bowl. The author, Craig Harris, argues that bowl employees were urged by Fiesta Bowl executives to make campaign contributions to particular politicians and were then reimbursed by the bowl. The hope according to Harris, of course, was to keep the Fiesta Bowl a BCS bowl and to fend off competition from traditional NYD bowls, such as the Cotton Bowl, from taking the Fiesta's BCS status.

It's not illegal for individual employees to make campaign contributions to keep the politicians on the side of the bowl. But it is illegal for bowl executives to direct the employees to make contributions and then reimburse them. Let's see if and how this story develops.

permalink posted by Phil Miller @ 9:30 AM

Sunday, December 20, 2009

"Frustration and Temptation." A Q&A with Mizzou AD Mike Alden 

This morning's Columbia Daily Tribune has a very interesting interview between the Trib's Joe Walljasper and University of Missouri athletic director Mike Alden. Mr. Alden discusses in detail many of the issues surrounding the Big 10's public announcement that it will consider expansion and the fact that Mizzou is frequently mentioned as a potential new member.

Read the whole thing, but one thing that caught my eye was this passage a little over halfway down in which Alden discusses the club theory I blogged about on Tuesday (here).

Q: You mentioned the difference of $12 million in TV football revenue between Missouri and Illinois. That’s $12 million you wouldn’t have to work the phones to get. Wouldn’t that have to play a role in the decision?

A: It would be for anyone. When the Big Ten takes a look at expanding, they have to look at: You’re splitting it 11 ways now, and you’re going to have to split it 12 ways. What’s the value that people are bringing to the table revenue-wise, household-wise, competitive-wise — all of this athletically — but also academically, what are you doing as far as similarities with our institutions? … If I’m one of their institutions, I want to make sure if I’m getting $21 million now, I continue to get $21 million.

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permalink posted by Phil Miller @ 3:14 PM

Friday, December 18, 2009

Two Observations on the Mark Mangino Settlement with KU 

The University of Kansas has released the details of the settlement it reached with former football coach Mark Mangino.

In the afternoon, KU athletic director Lew Perkins released the details of the settlement agreement between the athletic department and Mangino that will pay Mangino $3 million as he exits. Mangino had four years remaining on his contract, which would have paid him $9.2 million ($2.3 million per year).

The settlement will be paid through private funds raised by Kansas Athletics; no state taxpayer funds will be used.

Here is the copy of the settlement. Mangino will get the $3 million in a lump sum by Christmas eve.

One thing this tells me is that Mangino and KU, by settling on 36.8% of his contracted salary ($8.16 million in present value assuming a 5% discount rate for both parties), were implicitly saying that the chances were about 63% (3/8.16) that he would have been found to have violated his contract. Had the chances been 50-50, we'd expect Mangino to have gotten closer to $4.08 million.

Mangino and KU agreed that KU would pay Mangino's life and health insurance premiums for a few months, but these premiums will likely be miniscule compared to the $3 million lump sum payment. So it's safe to ignore them.

Of course, I have assumed that there are other things behind the scenes that could have driven the settlement away from the midpoint (differences in legal expenses, differences in underlying preferences for negotiation, different discount rates, etc). Moreover, $3 million is a nice chunk of change... but it's not $8.16 million.

Secondly, where will this $3 million come from? I assume that by "private funds" that KU is going to raise the funds through donors. If so and given that donors have a fixed budget constraint of some sort, what will these "private funds" come at the expense of?

There is an implicit assumption made by some people that donors have a fixed amount to donate to a given college. If so, when an additional dollar is donated to athletics, it must come at the expense of academics. There is some empirical evidence of this (I'm thinking of papers by Stinson and Howard (2004 and 2007). But the same authors also have empirical evidence that they are not subsititutes (2008).

But it also possible that additional donor dollars come from budgets that would otherwise be allocated to other charities or to consumption. It could also come from a fixed donor budget allocated towards athletics. If so, the academic interests at KU have nothing to worry about.

Cross-posted at Market Power.

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permalink posted by Phil Miller @ 11:49 AM

The DH and Broken Windows Fallacy 

Frederic Bastiat's broken windows fallacy: if a window maker breaks windows to increase business, he certainly benefits (if he doesn't get busted, of course). But society is made worse off. Resources used to fix broken windows support window repair jobs, but would have been used in alternative ways and would have supported other types of jobs. Moreover, we'd expect that if fixing broken windows were optimal, people would have gone out and destroyed their own windows.

What the H-E-double toothpicks does this have to do with sports? This:

We've heard a lot over the past year about job creation. Everything is jobs, jobs, jobs. Such rhetoric is typically followed up by policy proposals (whether from right or left) that are nonsense, nonsense, nonsense. But since we're on the topic, the crack staff at the Tax Foundation has come up with one policy that would definitely create a lot of good-paying American jobs:

"The N.L. Should Be More Like the A.L. Act of 2009," which would "mandate that the National League enact a designated hitter rule or MLB lose its anti-trust exemption; and that the total number of roster spots increases by one. "

At first, this would create 16 new jobs (number of N.L. teams). But think of all the other jobs. There will likely need to be more balls and bats produced because a D.H. is more likely to break a bat or foul a ball off during a plate appearance than a pitcher batting. This will increase the demand for wood and forestry products. Think of all those jobs. We may even need another bat boy. Pitchers will wear out faster, thereby compounding this issue. And pitchers will probably be more likely to be hurt during the season due to more wear and tear (every 9th batter won't be essentially a free pass). Therefore, more replacement pitchers will be needed. Plus, this wear and tear will create more jobs for medical trainers. That can only be a good thing. More uniforms will need to be produced—more jobs! And Chuck Schumer will be sure that those uniforms are produced in America by a hard-working American as opposed to some "foreigner." The multiplier effects of this policy are just off the charts.

I realize this is sarcasm, but let me note that the broken windows fallacy applies. MLB roster spots are fixed in number. When a team places a DH on the roster, it comes at the expense of another player's roster spot, resulting in no new net jobs in MLB.

Moreover, the DH doesn't play in the field, so he doesn't need a glove. That means fewer jobs for the craftsmen and women who make baseball gloves. What will they do? They'll starve or be forced to eat their pets (ew!). Oh, the huge manatee!

HT to Kip via Doc.

Cross-posted at Market Power

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permalink posted by Phil Miller @ 11:07 AM

Winners and Losers in College Bowl Games 

It's well-known that in terms of accounting entries, many college athletic departments lose money. Some economists have questioned whether the expense and revenue entries are an accurate measure of the costs and benefits associated with athletic departments. One reason given is that athletics may benefit other parts of the school. Even if the athletic departments bleed money, other areas of the school may benefit.

A second argument given is that the revenue and expense entries are convoluted by the accounting conventions used by colleges. If athletic souvenir revenue is entered in the general university revenue account, then the athletic revenue accounts understate the "true" level of revenue. Similarly, it's not at all clear that the true cost of an athletic scholarship is as high as the posted tuition and room and board rate. If not, then athletic expenses as entered overstate "true" expenses.

In any case, the San Diego Union-Tribune has recently posted a couple of interesting stories about who benefits and who doesn't benefit from college bowl games. The answers may (or may not) surprise you. Here is one story. Here is the other story.

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permalink posted by Phil Miller @ 10:45 AM

Wednesday, December 16, 2009

Arn Tellem on the NCAA Ban on Advisors 

Arn Tellem has an interesting piece in the Huffington Post on the NCAA's ban on player advisors (agents). Here are the first two paragraphs:

Of all the injustices heaped on college athletes, the most draconian may be the NCAA's ban on the use of attorneys during contract talks with professional teams. Athletes and their parents are allowed to get advice about proposed contracts only if their advisors don't represent them openly in negotiations. Athletes and their advisors can discuss the merits of a deal, but to maintain eligibility at NCAA schools, the advisors may not act as a go-between or be present during bargaining sessions or have any direct contact with the team on the athlete's behalf.

The rule is intended to keep agents away from amateur athletes. By rendering agents powerless, it effectively turns them into potted plants. But if you're hammering out a deal with someone, isn't it your prerogative to get professional advice? Absolutely, wrote an Ohio judge in a 2008 judgment against the NCAA. He likened the rule to "a patient hiring a doctor, but the doctor is told by the hospital board and the insurance company that the doctor cannot be present when the patient meets with a surgeon because the conference may improve his patient's decision-making power."

Arn Tellem is a sports agent and surely has a dog in the fight with the NCAA on this matter, but he makes some excellent points regarding the rights of athletes negotiating with pro teams. It's a bit like going to gun fight with a knife handle but no blade.


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permalink posted by Phil Miller @ 2:18 PM