Thursday, March 25, 2010

The NFL's Priorities 

In terms of profits and TV exposure, the NFL appears to be the most successful sports league in North America.  But I am starting to wonder about those people.  The collective bargaining agreement between the league and the players' union expires at the end of next season and there is no agreement in sight.  The parties are not even negotiating right now. The 2010 season has no salary cap, and the effects of this are still unknown. 

In the midst of all this uncertainty, the team owners held their annual league meeting this week in Orlando.  What was the major item on the agenda?  Making sure that the deck chairs on the Titanic were perfectly arranged.  Changing the overtime rules in the postseason to reduce the impact of the coin flip that determines who gets the ball. Never mind the looming possibility of a work stoppage in 2011, and the complete lack of agreement about the salary cap. That stuff is trivial. There have been 27 postseason overtime games since 1958, roughly one every other year, and the fact that a team could lose one of those games without ever getting possession of the ball has been keeping Roger Goodell up nights. Even worse, neither the players not the coaches are happy with the decision that the owners made about postseason overtime games.  In another strange turn of events, the Minnesota Vikings, who lost a playoff game last season in overtime and didn't get an offensive possession, were one of the four teams that voted against the rule change.  Good work, guys!


Wednesday, February 17, 2010

NFL Uncapped Year 

The NFLPA and the NFL are negotiating a new collective bargaining agreement. As you may know, the NFL decided that it would not extend the current CBA set to expire soon. A number of issues about the "uncapped year" arise, but they are for another day.

Today's issue is "How we arrived at this point in NFL labor" which just happens to be a post heading (dated February 10th) at NFL Labor News, the league's website dedicated to explaining the issues. The NFL tells us
"The principal issue is ensuring that the agreement is structured in a way that provides incentives for the clubs to invest, innovate and improve the game for the benefit of the fans over the long term."
I doubt the players would see that as the principal issue. Rather, I would guess the players would take the subtext of the following as the underlying issue:
"The NFL clubs earn very substantial revenues. But they also have very substantial expenses. The largest of these expenses is player compensation. The clubs have been obligated by the CBA to spend more than half their revenues on player salaries and benefits. In addition, the clubs must spend significant and growing amounts on stadium construction, operations and improvements to respond to the interests and demands of our fans."
In other words, the owners want a bigger slice of the revenues that professional football generates. Ownership views ALL the revenue as theirs, and only agreed to give a substantial portion of it to players because they were forced to do so. Like there would be any revenue without players. I wonder how many people pay to see the Cowboys because Jerry Jones is the owner? I am sure many Redskin fans would pay to get that franchise AWAY from Daniel Snyder.

The NFL view continues with:
The current labor agreement does not adequately recognize the costs of generating the revenues, the majority of which go to the players; nor does the agreement recognize that those costs have increased substantially — and at an ever increasing rate — in recent years.
Lest we forget, clubs do actually AGREE to player contracts. When Matthew Stafford signed his rookie contract with the Detroit Lions in 2009, worth $72 million with $41.7 million of it guaranteed, the ownership of the Lions had to sign too. The thing about contracts entered into voluntarily is that both sides can say no if the terms are not to their liking. Labor costs aren't rising all by themselves; the owners are influential participants in their increasing.

But more importantly, the logic is backwards. Players and owners negotiate a share of the revenues from the enterprise that will be paid to the players. If the revenues rise, then the dollars going to players rise too, but the percentage is fixed. Likewise, if revenues rise, the dollars going to the owners also rise but, again, the percentage is fixed. In other words, player compensation goes up because revenues go up. And the only ways player compensation goes up at an ever increasing rate are 1) if revenues do, 2) if the owners negotiated a contract that calls for the share of revenues going to players to rise each year by an ever increasing amount, or 3) both 1) and 2) hold. The CBA that the owners opted not to extend called for player shares of revenues net of benefits of 57.5% in 2008 and 2009, and player shares of 58% in 2010 and 2011. These figures mean the share going to player compensation is only rising at an ever increasing rate if revenues are doing so or if benefits are doing so. Perhaps it is benefits, on which I have no information, but I doubt that is the main issue.

This post is already getting too long. I commend the NFL Labor website to anyone interested in learning about the uncapped year and the issues at hand. Just remember this website is the NFL owners' view of the situation. Players surely will view it quite differently. As a football fan I can only hope that the two sides reach an agreement quickly and amicably so we fans don't have to go through a strike, lockout or canceled season.

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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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Tuesday, December 08, 2009

Revenue Sharing and Salary Caps: Will the NFL End Up Like the Big XII? 

Many folks point to the NFL revenue sharing system and its salary cap as the determinants behind the more-or-less balanced competition between the teams.

As we edge closer to a potential labor-management dispute, the NFL has decided to put part of the revenue sharing system on hold. From Chris Mortensen at
In a significant move that could impact the flow of money to potential free agents and the competitive balance of teams, the NFL has notified the players' union that effective in March, owners will pull the plug on the $100 million-per-year revenue-sharing program that has subsidized lower-revenue clubs, multiple sources said.
The classic 1956 JPE paper by Simon Rottenberg contains the well-known and frequently-studied invariance hypothesis (IH). According to this hypothesis, the distribution of players does not depend on who has the right to tell players where they can and cannot play. Instead, each player tends to the market that values him the most at the margin.

Since a salary cap does not change the marginal value of players, it shouldn't ceteris paribus alter competitive balance.

Revenue sharing, on the other hand, reduces the difference between the amount of revenue teams can keep and, thus, can alter the value of players. Altering the system as the NFL appears to have done will, if it remains in place over the long haul, may create more of a disparity between "large" market and "small" market teams.

As a comparison, look at the Big XII conference in football. The Big XII (and every other college conference) is bound by a salary cap with player salaries = $0. When it comes to TV revenues, the Big XII operates under a split-pool revenue sharing system* where all television revenues are pooled together. Then half of the pot is divided up evenly among the 12 teams and the other half is divided up among the teams depending on how many telly appearances each team has made.

This means that teams like Texas, Oklahoma, and Nebraska, which have the biggest football followings and appear on TV most-often, get a bigger ladle from the money pot than teams like Baylor, Iowa State, and Kansas State.

In terms of the spread of championships, the Big XII has not been balanced. Nine of the fourteen championships have been won by either Oklahoma or Texas, including that classic game played between Texas and Nebraska last weekend. Throw the Huskers into the championship count, and 11 of the 14 championships have gone to the big market teams.

But they spend equally on players (if not coaches - click on the Big 12 link for more info).

With the divisional format in the Big XII, it is possible that an upset will occur where a "small" market team wins the overall championship over a "large" market team. Kansas State winning over Oklahoma in 2003 and, to a lesser extent, Colorado's 2001 defeat of Texas bear this out. But the spread over time tells a different story.

So we have a league with a salary cap that drives equal spending on player payments ($0) and unequal market sizes in terms of the amount of revenue received by teams when all is said and done.

So the question is this: Aassuming this descision by the NFL sticks (the NFLPA is challenging it, according to Mort), will the NFL begin to resemble the Big XII in terms of the spread of championships over time? Stay tuned, sports fans.

*Here, here, here, here, here, here, and here, are some posts and articles that describe the revenue sharing system in the Big XII and some of the surrounding controversies.

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Wednesday, October 28, 2009

Black Sunday in Vegas 

Yahoo Sports columnist Dan Wetzel had an interesting column yesterday about the beating that Vegas sports books are taking on NFL games this season. The "standard" model of sportsbook behavior predicts that point spreads are set to attract an equal volume of betting on either side of a game. Since point spread betting requires that bettor to risk $11 to win $10, when betting is equal the bookie collects $11 from losers, pays $10 to winners, and pockets a tidy 10% profit from the vig. However, when the betting is unbalanced, the sports book "takes a position" on the game, and can either win big or lose big. There is a huge academic literature indicating that point spreads are efficient in that on average the spread is equal to the expected point difference on games, but this does not mean that betting volumes are equal on games.

There are a lot of bad teams in the NFL this year. According to this article, the Vegas books are unable to set lines big enough to attract equal betting on games involving the dregs of the league (Lions, Rams, Bucs, Chiefs, Redskins, Titans, etc.), leading to big losses.

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Tuesday, October 06, 2009

My Limitations as a Forecaster 

I am a terrible forecaster. I used to teach a class on economic forecasting. After teaching the class several times, my forecasting limitations were painfully revealed each semester. Just last week I told a reporter that I thought Chicago would get the 2016 Olympic Games.

In early August, when discussing the Michael Crabtree holdout here on TSE, I wrote " I expect that Crabtree will eventually sign a contract worth less than Heyward-Bey's before the start of the season." Crabtree is still holding out, again demonstrating my limitations as a forecaster, even though his contract will almost certainly be worth less than the one signed by Heyward-Bey. Of course the holdout also demonstrates Crabtree's limitations as a rational economic decision maker, but that's his failing, not mine. Anyway, a recent media report claims that Crabtree is now ready to resume negotiations because he is "getting bored just watching games this season." No word about whether he is "getting tired of not drawing a paycheck" or "worried about how far he might fall in the 2010 draft if he sits out the entire season."

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Friday, September 25, 2009

Sports Economists Weigh in on American Needle v. NFL 

Earlier this week I described the American Needle v. NFL case that will soon be argued before the Supreme Court. The most recent filing in the case is an amicus curiae brief filed by a group of sports economists (including TSE co-bloggers Berri, Coates, Fort, Szymanski and yours truly). The brief rebuts many of the arguments made by the NFL, and points out in detail exactly how a ruling in favor of the NFL will result in a loss of consumer welfare. Roger Noll was the driving force behind the brief. From the introduction:
Our principal conclusion is that economic research provides a clear basis for distinguishing between collaborative activities among members of a league that enhance economic efficiency and benefit consumers from collusive activities that are not essential for the efficient operation of a league and that benefit league members by reducing competition among teams. We believe that a ruling that any
sports league is a single entity in which teams cannot engage in anticompetitive collaboration in “core venture functions” is inconsistent with the consensus among economists about the efficient scope of league authority and the nature of competition in professional sports.

As citizens and professional economists, we have a substantial interest in fostering the appropriate use of economics in antitrust and in assuring that the economic assumptions that guide decisions in antitrust litigation do not conflict with the consensus from economics research both generally and with respect to professional team sports. The NFL Respondents highlight our interest in this matter by referring to their preferred approach to the single entity concept as “a more nuanced, economics-based approach.”
Roger Noll was the driving force behind the brief. Here is a link to the brief.

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Monday, September 21, 2009

A Gathering Storm? 

A case currently before the US Supreme Court could have a huge impact on professional sports and sports fans in North America. The case, American Needle v. NFL, started out as an innocuous antitrust case. American Needle is an apparel manufacturer that some NFL teams contracted with to produce hats, t-shirts and jerseys. In 2000, the NFL signed an exclusive contract with Reebok to provide apparel to all 32 NFL teams. American Needle sued the NFL, all the NFL teams, and Reebok for restraint of trade, and lost. Appeals ensued.

What was once a relatively minor anti-trust case has somehow made its way to the US Supreme Court. The issue before the Supreme Court is no longer a piddly restraint of trade case about who has the rights to manufacture NFL licensed merchandise. The Supreme Court will instead rule on whether or not the NFL can be considered a "single entity" in all its business functions. If the Court finds that the NFL constitutes a "single entity," the NFL would have a blanket antitrust exemption, in all cases except where the NFL would collude with other sports leagues to fix prices. Such an exemption would have consequences in input markets, affecting players and coaches, and output markets, affecting television broadcasts. It would also increase the power of the NFL and other sports leagues to extract subsidies from taxpayers for facility construction and operation. It could also affect other North American leagues - the NBA and NHL have both filed Amicus Curiae briefs. The Supreme Court will rule on this case in the upcoming 2099-2010 session.

For those interested in learning more about the case, I have set up a resource page with links to relevant filings, like the NBA and NHL briefs, and other information like blog posts. I will keep this page up to date as more information becomes available.

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Thursday, September 03, 2009

Out with the family! 

What's up with the Carolina Panthers? Last February, owner Jerry Richardson was on the operating table, getting a heart transplant. Son Mark Richardson ran the team and son Jon managed the stadium. But on Tuesday came news that Dad was more than alive and kicking: he fired both his sons!

This was a bit of a shock -- it was front page news in Charlotte -- especially as Mark had a reputation as an effective and innovative team president. So what's going on? One hypothesis is that a family business structure is an anachronism when the business in question has a market value of a billion dollars. From that perspective, if Mark Richardson is as talented as many perceive him to be, he should have no trouble finding a position as CEO of another one billion dollar business. If he's not, then it is probably a sound business decision to replace him.

I would not be surprised if thinking like that is behind Jerry Richardson's decision to fire his son. I've always found him to be an interesting character, a maverick of sorts. I use one of his surprising decisions as an example in my class on sports economics. Jerry Richardson's career as an NFL player lasted but two years. He played tight end for the Baltimore Colts, during the Johnny Unitas era. Under the "reserve system" in effect at the time, Richardson was paid less than his true value, as were most all players. Having been successful though, he negotiated for a raise, but was turned down by Weeb Eubank. So he quit! In basic economic terms, he had a high opportunity cost of playing football during the low wage, reserve system of his time. If Jerry Richardson was going to be under-paid, he had better things to do. Like become a mega-millionaire.

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Monday, August 31, 2009

Mixed Grill 

The Dallas Morning News reports that the Cowboys "stand to make as much as $4.2 million from the team's new Texas Lottery scratch-off tickets." In May, the NFL dropped a ban on team sponsorship of lotteries, and about half the teams are poised to capitalize this season.

I've puzzled over the NFL's motive in its recent lawsuit to stop Delaware from offering point spread wagers (so far successful, see Brad's post below). This news on the Texas Lottery strengthens my suspicion that the motive behind the Delaware suit is 100% pecuniary. How can they walk in to court with a straight face?

Looking ahead to the NFL and NBA seasons, here are two pieces on the challenge of selling tickets in the current economic environment. NFL teams with strong traditions like the Bears and Broncos (and one suspects, lengthy waiting lists for season tickets) will play before sellouts at home, as usual. But new wrinkles on promotions are being tried in Jacksonville, and across the NBA. The wackiest one: "In Philadelphia, the 76ers are running a Back 2 School promotion: four tickets to the home opener, two backpacks, two T-shirts and two hats for $75." Ay caramba! I'm sure the seats suck, but that's a lot of schwag!

Finally, on a different note, John Tamny has a piece at Forbes on the collapse in the baseball card market. Remember those card shops that sprang up in shopping malls 15 to 20 years ago? The failure rate was enormous: of "5,000 card shops in the early '90s, according to Sports Collector's Digest, there are only 500 now." Tamny points out that the card market was undone by entry: at the peak, "Fleer, Donruss, Score, Stadium Club and Upper Deck joined more established card company Topps in pursuit of large gains." What were once collectibles became commonplace. No matter what marketing spin the card companies could put on a Derek Jeter or Greg Jefferies card, ultimately the flood of cards undermined the essential element -- scarcity -- on which a market for collectibles is based. The card market might come back in a couple of decades, but I'm not betting on it.

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Monday, August 24, 2009

Hold Your Bets 

A three judge federal appeals court ruled today that betting on individual football games in Delaware is illegal, according to an Associated Press report. The NFL and the NCAA filed for an injunction stopping Delaware from allowing bets on single games. But rather than rule on the injunction, the appeals court upheld the NFL/NCAA claim that allowing bets on individual games violated federal law.

At one point I thought I understood the legal aspects of sports betting in the US. I thought that the the Professional and Amateur Sports Protection Act (PASPA) of 1992 outlawed sports betting in all states except Nevada, Oregon, Montana, and Delaware. And I thought that those four states were grandfathered into legal sports betting because they had previously allowed some form of legalized sports betting. So much for my knowledge of the law. It's a good thing I'm an economist.

As an economist, I have trouble understanding the resistance to sports betting in the US. Watching sports and betting on sports are complementary activities. Sports betting is legal in the UK and the Premier League seems to function well in that environment. The NCAA's rabid anti-gambling stance arises because they continue to pay student-athletes a fraction of their marginal revenue product. As long as that continues, there will be incentives for NCAA student-athletes to shave points. Never mind that office pools contribute heavily to interest in the NCAA Men's Basketball Tournament, which happens to pay a lot of the bills at NCAA headquarters in Indianapolis. Kids, don't bet on sports. Bettin' on sports is baaaaaad, m-kay?

But the NFL caters to betting on one hand, and deplores it on the other hand. What's up with that? In the major North American sport leagues, the famous gambling scandals involve Tim Donaghy, Pete Rose, and the Chicago Black Sox. One is a certified numbskull, and the other two might not have happened if not for relatively low pay. Beyond that, what are the big gambling scandals in the pros? Paul Hornung and Alex Karras in the early 1960s? See my comment about low salaries.

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Wednesday, August 19, 2009

The "Favre Effect" 

The Favre effect is in full swing, and this short AP article gives some numbers to things I alluded to in my post below. The Vikes have sold 3,000 season ticket packs and about 10,000 single game tickets since the news broke yesterday. I just checked and was quoted a price of $741 as the price for the best available season tickets plus a $75 flat fee. Here's a couple of screen shots for those who might be interested.

If all season tickets were bought at this price, then the 3,000 sold would lead to $2,223,000 in additional season ticket revenue. The 10,000 single-game ticket sales, assuming a low-ball price of $40 per ticket gives an additional $400,000 in ticket revenue for a grand total of $2,623,000. Remember that the Vikes get to keep only 60% of this money, or $1,573,800 with the other 40% going to the visiting teams. Moreover, some of these tickets would have been bought even if Favre weren't going to play for the Vikes.

While this is a nice bump for the Vikes, they've got a long way to go to get the cash to pay his salary.

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Is Brett Favre Worth $25 million over 2 Years? 

If you live in a hole or do not follow American sports whatsoever, then you may have missed the big news of the day: Brett Favre, formerly of the Green Bay Packers and formerly retired, unretired for the second time in the past two years. Not only did the former Face of Green Bay unretire, he unretired to join the Packers' hated rival, the Minnesota Vikings. At least last year he had the common decency to play in New York for the Jets when he unretired.

In Wisconsin, someone, somewhere is making a purple-wearing #4 Brett Favre doll and green and yellow push pins - with barbs that have barbs, probably rusty ones.

But I digress. Favre has reportedly signed a one year contract with a club-option for a second year that would pay him $25 million over the two years. Is he worth it?

In economics, the gross worth of a resource in a profit-maximizing world, depends on that resource's marginal contribution to revenue.

  • Favre's signing won't impact league-wide media revenues, which are set by contract and account for somewhere around 60% or so of league-wide (and thus per-team) revenues. His signing should have little impact on local radio revenues for the Vikes as well.
  • Favre should have a positive influence on ticket revenue earned by the Vikes this year and next. Keep in mind that ticket revenues are shared 60-40 between the home and visiting teams. The home team gets 60%.
    • Favre is a star. Even if his marginal contribution to team wins is 0 over the next two years, he'll still have drawing power this year. If you go to (at least as of today), you are greeted by a smiling Favre, not by a smiling Sage Rosenfels.

    • Most NFL games are sellouts because of the blackout rule. Favre's signing should have little if any impact on attendance at Vikings games, home or away, per-se.
    • Ticket prices are set before the season begins, so Favre's signing won't affect them this year.
    • According to the Vikings website, as of this morning there were season tickets still available for Viking home games (see the picture above). Favre's signing should drive more of these sales. Teams like season ticket sales because they guarantee that a seat will be filled.
    • Favre's signing should help the Vikings avoid any price discounting required to sell remaining tickets to games that would otherwise be blacked out.
    • Likewise, when the Vikes travel, Favre's signing should help Vikes' opponents sell more tickets to their game against the Vikes at face value.
    • If Favre is successful in leading the Vikes to the playoffs, Viking home ticket prices will be higher next year.
    • If Favre is successful in helping lead the Vikings to the playoffs, season and single game ticket sales should be higher next year.

  • Merchandising sales will be up for Vikes apparel. Merchandising revenue is shared equally among the teams, so while more Vikes apparel will be sold this year, the Vikes will only get 1/32nd of the revenue. Still, he'll drive more revenue into the Vikes' coffers although the amount will be relatively negligible.
  • Luxury revenue is not subject to sharing in the NFL. The Vikings' luxury revenue situation is one of the worst in the NFL, and a big reason why they were dead last in overall revenue, according to the most recent data generated by Forbes. Even so, Favre's signing should help the sales of luxury tickets this year and, especially if the Vikes make the playoffs, next year.

So Favre is likely to generate more revenue for the Vikes. According to Forbes, the Vikings generated $195 million in revenue in 2008 from all sources combined. Did I mention that was dead last in the NFL? Yes, I did.

Anyways, if you take that $195 million figure as a spot-on estimate and if you hold all else equal for the 2009 season, the signing of Favre for $12.5 million per year tells you that the Vikes expect Favre to generate at least 6.4% more in revenue this year than if he did not sign (did I bother to mention the overall economy???). That seems a stretch for a 39 year-old injured QB, albeit a star.

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Baseball Beaning & Brawls 

John Kruk and Eric Young provide a humorous analysis of the "right way to fight in baseball" following the Red Sox Kevin Youkilis charging of Detroit's Rick Porcello a week ago n ESPN MediaZone.

Beaning (which Porcello's pitch may not have been), on the other hand, does not amuse me. Baseball has long had the tradition of permitting even blatant hitting of batters and inevitable retaliation as "part of the game." In recent years, MLB rules have limited retaliation, but only rarely will umpires eject the initiator as happened this season to John Lackey of LAA. Defenders of this policy view self-enforcement mechanisms and incentives as sufficient with statements like "if you do let these things work out in small ways, it blows up into bigger things." Detractors, like myself, see vigilante justice that, while admittedly involving a degree of self-enforcing incentives, permits a lot of plunking of players with a dangerous weapon and blows up into bigger melees now and then.

Inter-league comparisons throw cold water on the "let them work it out" philosophy of baseball. In a high emotion and intensity game such as football, fights rarely occur and brawls practically never at the professional level. If operating by baseball's "code," a defensive lineman who thought an offensive player gained too much advantage in some way or pulled some dirty maneuver would simply raise up before the next snap and and kick the offensive lineman in the groin. Instead, the league punishes much less egregious behavior with personal fouls and would immediately eject and likely suspend any player engaging in such "settle the score" tactics. the Albert Haynesworth "stomping incident" is a case in point -- ejection, suspension, end of story with no need for the Cowboys to plot their "retaliation" against the Titans and no appearance of any thing of this sort of malfeasance across the league.

One reply might be that Haynesworth's actions left no doubt whereas pitches sometimes "get away." No doubt, no one can perfectly discriminate pitches that are intentionally thrown at batters from pitches thrown inside with no intent to hit anyone. Based on game situation (score, pitch count ...), game history, team histories, pitcher characteristics, and pitch characteristics, MLB players and umps (especially catchers and umps) can likely determine with at least 95 percent accuracy whether a pitch is intended to hit someone or be so far inside as to be equivalent to intending to hit the batter. I can tell with probably 85 percent accuracy watching at home.

The cultural differences that have developed in baseball and football extend beyond just the penalties. In baseball, not only were pitchers like Bob Gipson, Don Drysdale, and Nolan Ryan revered for their ability to get batters out, but a whole folklore of admiration developed around their willingness to throw at batters. Reggie White was a great defensive end, but no one would have thought him better for picking up a QB and dumping him on his head or punching some offensive tackle in the face. Hall of Famer or not, such behavior would diminish his stature. Can anyone imagine a punch to the face of a receiver who just caught a TD pass being acceptable behavior that's "just part of the game"?

Robin Ventura's farcical charge of Nolan Ryan resulting in Ryan's headlock on Ventura made me belly laugh along with everyone else. To my point, here, however, there's nothing funny about Ryan (one of my favorite players) hitting Ventura with a 95 mph fastball. Rather than the futile rush of the mound, Ventura might have called out Ryan -- why does a future Hall of Famer with the stuff that Ryan had find it necessary to throw at people? Why is this accepted behavior?

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Thursday, June 04, 2009

Judge Sotomayor & Sports Labor Relations 

Joel Maxcy, Coordinator of the University of Georgia's Sport Management Programs, has started a blog, Sports Labor Relations. In this post, Joel examines Judge Sotomayor's decision in the Clarett case in light of the precedents set in the well known Mackey vs. NFL case. His careful analysis strengthens my belief that Sotomayor's decision steamrolled useful and efficient legal precedent in favor of a union-friendly finding.

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Wednesday, June 03, 2009

Cowboys Stadium, reviewed 

The new football palace in Arlington is reviewed by an architecture writer from Massachusetts, in the Dallas Morning News. Very interesting. Refers to "the new sports economics" when "new economics of stadium design" would be more appropriate, but that's ok.

The opening act is a George Strait concert this weekend, which seems appropriate. The place will be swingin' with big hats.

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Wednesday, May 27, 2009

From the Archives: Judge Sotomayor's Decision in the Clarett Case 

In addition to her injunction which brought an end to the baseball strike of 1994 (on this, see Richard Sandomir's piece in the NYT today), Supreme Court nominee Sotomayor played a significant role in the recent Maurice Clarett case. Clarett, of course, was a college football star who was running out of chances in the NCAA, and sued the NFL to overturn the eligibility rules which precluded a sophomore from entering the draft.

Here's my commentary on Sotomayor's ruling at the time, along with a renewed link to the decision itself. TSE's old posts have lost their formatting over the years (nice one, blogger!) so I've copied the content in it's entirety below.

Tuesday, May 25, 2004
3-0 to the NFL

The NFL won its appeal in the Clarett case. Greg Skidmore at the Sports Law Blog finds the decision satisfactory. I find it both illuminating and evasive.

Judge Sotomayor's decision references a number of cases upholding the exemption of restrictions in collective bargaining agreements from antitrust, both in sports and elsewhere. The discussion is authoritative and informative. It notes that the exemption does not apply when the restriction imposes harm on business competitors who are not party to the contract. This is not the case here: the harm is imposed on an prospective employee who is not party to the contract.

The court points out that CBAs encompass numerous issues, and that selecting one clause for antitrust scrutiny may upset the balance of compromises among employers and employees. It is not obvious to me that this concern should protect an anticompetitive restriction - simply address the issues without violating the law! Nevertheless the sanctity and primacy of collective bargaining to this court is readily apparent in the decision, making it clear that an antitrust challenge faces heavy going. The decision clearly implies - and the 2nd circuit has said this before in reference to the NBA draft - that if the NFL wants to cap salaries, the union can offset the negative effect on their wages by limiting the wages paid to future players in subsequent drafts. Prospective players are clearly harmed by this, but the restriction passes muster under the 2nd court's interpretation of the law.

The decision is evasive on two major counts. First, apart from mentioning the NFL's claim that the rule protects young players from physical harm, the decision wastes nary a sentence on the issue. The reason is clear - since labor law trumps antitrust, there is no need to judge the reasonableness of the restraint. Second, in announcing this in unabashed terms, the court tiptoes around the real issue here:
In the context of this collective bargaining relationship, the NFL and its players union can agree that an employee will not be hired or considered for employment for nearly any reason whatsoever [emphasis added] so long as they do not violate federal laws such as those prohibiting unfair labor practices ... or discrimination.
That the restriction is discriminatory is obvious. But youth is apparently not a protected class, unlike minorities or the elderly. I find this odd.

Not all courts allow collective bargaining as much latitude as the 2nd circuit. In the Mackey case, the "Rozelle rule" on free agent compensation was struck down by the eighth circuit. Following Supreme Court precedent, one of the tests applied was whether the restriction "primarily affects only the parties to the collective bargaining relationship." This test clearly conflicts with the approach of the 2nd circuit to labor problems. The decision simply notes that the approaches disagree, and not surprisingly, the decision in Clarett sticks to the precedent adhered to in prior cases in their circuit. An appeal to the Supreme Court might establish which approach they prefer, and thus clarify matters.

I'm not as enamored with labor law as Judge Sotomayor, and I'm not as pleased with the decision as Skidmore. By resting so completely on its "labor law trumps antitrust" basis, the appeals court ducked the most interesting questions in the case. Nevertheless, the decision is clearly exposited and informative, so it will go on the reading list for my sports economics class.

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Saturday, April 25, 2009

A Little Fascinating NFL Draft History 

Although it took the Wagner Act to get the ball rolling, American sports unions have thrived for two reasons. First, they serve a group of people with very specialized skills that work for a cooperative body: the league. Leagues are little more than the collection of team owners. They are cooperative bodies in two senses: 1. in terms of setting schedules, the season play-off format, etc.; 2 the cooperate in the labor market in a cartel sense. The unions fight this monopsonistic cartelization

Second, sports teams and, by extension, leagues, enjoy a mlot of market power in their markets, which leads to higher profits and more rents that can be extracted by a union. Unions don't thrive very often in competitive markets because the competition restrains profits which thus restrains the rents that can be obtained through collective bargaining. Despite the "peculiar economics" of sports leagues, the leagues themselves are not operating in a competitive output market.

John Palmer (Eclectecon) sends this fascinating Slate piece by Eriq Gardner about the history of NFL draft along.

In 1968, the Washington Redskins used their first-round pick (12th overall) on Smith, an All-American defensive back from the University of Oregon. The rookie signed with the team for $50,000, and his unremarkable first season culminated in a career-ending neck injury during Week 14. Smith seemed destined for quick obscurity. Then he sued the NFL.

Two years after his retirement, Smith went before a judge and asserted that the draft constituted an unreasonable restraint of trade in violation of the Sherman Antitrust Act. Had it not been for the draft, he argued, he would have been able to negotiate a more lucrative contract for his one year as a professional. And he demanded that the NFL make up the difference.

The case succeeded at the district court, securing $276,000 in treble damages for Smith, and he won again when the league appealed. In 1977, the U.S. Court of Appeals for the District of Columbia Circuit ruled the "draft inescapably forces each seller of football services to deal with one, and only one buyer, robbing the seller, as in any monopsonistic market, of any real bargaining power."

Gardner notes that it looked like the Smith had the case won. But the NFL knew that it could effectively get an exemption from the Sherman Act if the players' union would agree to it. How did it get the union to agree to it?

Keep in mind that any collective bargaining relationship is composed of three groups: the employer, the unionized workers, and the union leadership. One of the interesting things about the NFLPA is that the leadership is largely composed of senior union workers, and Gardner argues that it is this arrangement that has led to the draft being kept.

The union's leadership is determined by seniority, with the upper echelon composed of veterans whose financial stakes conflict with those of the rookies. For example, take the way that draftees are paid by their assigned teams. According to the current collective-bargaining agreement, each club is allotted a set amount of "rookie pool money" to sign its draft picks. (Here's last year's breakdown of pool money.) It benefits the veteran players who run the union to keep that pool small: Since the NFL maintains a hard cap on the total amount of money distributed to players throughout the league, less money for rookies means more for the old-timers.

Lawyers for the professional sports leagues argue that is a perfectly acceptable arrangement, as wages and benefits go up with seniority in many other industries. But pro football is not like other industries. According to the players association, the average NFL career lasts about three and a half seasons. That just about covers the term of service that a player must devote to the team that drafts him before he's eligible for unrestricted free agency.

These days, draft reform is a very low priority for the union, especially since any serious demands for change would probably require other sacrifices during the collective-bargaining process—such as lowering player salaries or allowing more restrictions on free agency. In fact, there's buzz that in the next agreement, the union will accept an even tighter wage scale for rookies.

...In other words, those who wish to challenge the NFL draft in the post-Yazoo Smith era should think hard about their target. It's not the league. It's the union.

There's little that young players can do but hope they don't get hurt so they can stick around long enough to get the seniority that allows them to get the really valuable stuff out of the union contract.

Cross-posted at Market Power

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Thursday, December 11, 2008

Arbitration in Burress' Future 

In a case that somewhat reminded me of the Terrell Owens case in 2005, Plaxico Burress has been suspended by the NFL's NY Giants for, among other things, harming his human capital.
The New York Giants have refused to pay suspended receiver Plaxico Burress a $1 million portion of a signing bonus from a contract signed in September.

Burress has been put on the reserve-non football injury list, making him ineligible to play the final four games of the season and the playoffs. The Giants also suspended him and fined him an extra week’s salary for conduct detrimental to the team.

The NFL Players Association filed a grievance for Burress over the four-week suspension and said they will file a claim for him to receive the signing bonus.

The grievances will be heard by an arbitrator after the season ends.

Which they well-should. Unions are supposed to work to serve the interests of the workers they represent. Among other things, they need to take steps to make sure that the people they represent are being treated as the collective bargaining agreement says they should be treated. Yes, sometimes folks need to hold their noses when filing grievances in some cases. And according to the article, Burress has been no giant when it comes to being a team leader.

He has admitted to being fined dozens of times for violating team rules. In addition to his suspension in September, he also was fined $45,000 by the league for abusing an official and throwing a ball into the stands in a game with San Francisco on Nov. 19.

But, bad boy or not, the union needs to grieve this. It's part of the territory for unions.

Here's the CBA for the NFL. Articles VII, IX, and possibly X come into play here. Here's my previous thoughts on the Terrell Owens ruling (from Market Power).

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Tuesday, December 09, 2008

When the going gets tough... 

...the tough get cutting:
The N.F.L., widely considered the most successful sports league in North America, will reduce its staff by about 150 employees after the Super Bowl in response to the slumping economy, Commissioner Roger Goodell told staff members in a memo Tuesday.

The N.F.L. has a total of 1,100 employees at its New York headquarters, at NFL Films in New Jersey and at the Los Angeles offices of the NFL Network and Although voluntary buyouts are being offered now, the league will not determine the breakdown of cuts until after the championship game on Feb. 1.


...Some franchises have started to trim their own staffs, as well. The Denver Broncos made cuts earlier this year, and the New England Patriots recently laid off about 5 percent of the staff from Gillette Stadium — about two dozen people — in anticipation of reduced trade-show and special-event business there next year.

The Patriots also closed their one-person China office, which opened when the team was scheduled to play a game there. With the N.F.L. focusing its overseas plans on regular-season games in Europe, the China game has since been canceled.
Here's the story, from Judy Batista in the NYT.


Wednesday, November 19, 2008

Two tensions in modern American sport 

1) Athletics vs. academics on campus

The allocation of time spent by student-athletes between sport and study is a long running source of tension on America's campuses. This rather lengthy piece at USAToday focuses on a University of Minnesota task force that dealt with the issue. It should be clear that a school has a problem when degree programs are established or designed for the purpose of athletes (using funds meant for general education), although the article doesn't quite get to that point. Support programs which allow student athletes to compete with their peers in the classroom -- but not cheat, which was an issue at Minnesota -- are the right way to enable students to excel both off and on the field. I find the approach of the Minnesota wrestling coach on this point (to paraphrase, athletes can get an MA later if they are interested in a real degree) somewhat annoying.

Update: Via Glenn in the comments, I see that the story linked above is part of a spread at USAToday. The lead story is "Athletes guided toward 'beating the system'." Glenn points to a particularly interesting graphic, "Same team, same major." The graphic itself is a bit kludgy to use, but the data can be seen in Table form by clicking the "View List" button on the right. You can narrow the list by clicking on your favorite school and or sport in the "Show Results By" box. For Clemson Football, the major is "Parks, Recreation, and Tourism." But note that the stats are for teams with 25% or more of the athletes in the same major, and the figure for Clemson Football is 11 out of 33 players. Some sports have most of the team included, but for football the figures are uniformly low for most schools. The highest number of players listed in football is 59 at the Naval Academy, where 20 are majoring in ................. (drum roll) ................. Economics!

2) Retired vs. current NFL players

I missed this when it came out, but in case you haven't seen it, here is a snip from Alan Schwarz' report on a class action lawsuit between retirees and the Players Association:
Ending the three-week trial in United States District Court, the jury on Monday found that the union’s licensing subsidiary, Players Inc., had used the identities of thousands of retired players without compensating them. A key example was the union’s agreement with EA Sports, which generates at least $25 million a year for the use of player identities in the popular Madden video game series.

The majority of sports licensing revenue derives from the use of active players. The Madden game features more than 100 past teams, like the 1966 Green Bay Packers, and players on those teams argued that although their names and pictures had not been included, many of their individual characteristics — talent level, experience, height and so on — were. The players argued that the group licensing agreement they had signed with Players Inc. required that revenue from such deals be shared with them.

Herb Adderley, who played cornerback on the 1966 Packers, was the name plaintiff for the class that filed suit.

“They betrayed us,” Adderley said of the union in a telephone interview. “We put our trust and faith in them, and they betrayed us.”
Here is Schwarz' story in the NY Times, and here is a transcript of the closing arguments. Apparently, the NFLPA took an active role in "anonymizing" the former players in the Madden video game. It's not clear to me why this would be in the interest of EA Sports. If I were to "re-play" the Ice Bowl on Madden NFL, I'd want Herb Adderly, Don Meredith, Bart Starr et al. to be an explicit part of the experience. It is possible that "likenesses" for well known players and explicit anonymity for all was the optimal solution for EA Sports, but that doesn't negate the right to licensing revenue for the people who took part in the original performance.

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Monday, November 17, 2008

Weekend Wrapup 

Quite a weekend in sports economics...

Pittsburgh, San Diego, and Vegas

There was an interesting finish in the game between the Chargers and the Steelers. On the last play of the game, Steelers defensive back Troy Polamalu appeared to return a fumble for a touchdown that would have given the Steelers an 18-10 victory. However, the referees later ruled that an illegal forward pass occurred prior to the touchdown, resulting in a final score of 11-10. This was reportedly the first 11-10 final score in NFL history, an odd outcome since 10 is a common score and 11 can be generated a number of ways (3FG+Safety, the outcome in this game, TD+2 Point Conversion+FG, and the unlikely FG+4 safeties). The interesting angle on the game is that the Steelers were a 4 or 4.5 point favorite in the game. If Polamalu's TD counts, the Steelers cover; after the reversal, bets on the Chargers paid off. According to the betting volume data available on Sports Insights, 70% of the straight bets against the spread were on the Steelers, the home favorite, so the reversal put a lot of money into the pockets of Vegas sports books and bookies.

Mark Cuban and the SEC

Dallas Mavericks owner, and wanna be Cubs owner Mark Cuban has been charged with insider trading. According to reports, Cuban owned 6.3% of the shares in search engine in 2004, making him the largest individual stockholder. The SEC claims that Cuban dumped his 600,000 shares prior to a public offering of additional shares that he had inside knowledge of, thus avoiding $750,000 in losses.

In March of this year, Cuban's estimated net worth was $2.3 billion, which begs the question of why he was willing to break the law to avoid a piddly $750k loss. Recall that Martha Stewart did five months in a federal correctional facility for insider trading a few years ago. I wonder if Cuban will also wind up in the slammer?

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Monday, October 06, 2008

Sports econ potpurri 

NFL ticket prices are up this year, in some venues. The average price is 8% higher.

But the bloom may be off the rose. Along with other bits of anecdotal evidence, David Moulton reports that 10,000 seats are covered with a tarp in Jacksonville. Moreover:
Something strange happened on our radio show this week. We had Miami Dolphins tickets to today’s game against the San Diego Chargers to give away.

No one wanted them! Free tickets to an NFL game and they had less value than a station T-shirt. 2007 Dolphins tickets, I could totally understand, but these guys just drilled the Patriots.

Now, this moment could have been a fluke, but I don’t think so. I think the sports landscape is changing.
The question is whether the change is cyclical or permanent. Here's more on the cyclical worries for franchises.

At Time Magazine, Sean Gregory discusses the new "Jock Market" at, where you can trade shares in players. Problem is, there is no intrinsic relation between the value of a share at OneSeason and player performance, other than what traders think of it. I refer to it as "the ultimate beauty contest" and state that I expect the market to collapse. Which would be too bad, because the market is based on real money transactions and the price changes would be interesting to study. Stocks and real estate are passe', so perhaps OneSeason is the next bubble ;)

Finally, anyone who has read this far must be a TSE junkie, so here's the obligatory stadium subsidy piece. This installment has facts and figs on the new stadium for Real Salt Lake, which will have its debut on Thursday. The pics are pretty (pdf).

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Wednesday, September 24, 2008

NFL Team Valuations & the Corporate Stadium 

Forbes has their annual valuation of NFL franchises up.***

Some of the interesting bits:

--The average NFL team is valued at $1 billion, up 8% from last year and 66% from five years ago. Dallas is worth the most, at $1.6 billion. Minnesota props up the valuation table at $839 million.

--Each of the top ten teams is playing in a modern stadium, or will be by 2010. Minnesota, Oakland, Atlanta, and Buffalo are not, and are listed as likely "to be sold or moved to a new city."

--The NY Giants and Jets are each "expected to net an additional $125 million" in annual revenue from their new (shared) stadium.

--TV revenues "no longer cover player expenses. Team owners now dig into cash from luxury suites and stadium advertising to pay players." (Poor Jerry Jones!)

The story oddly fails to consider the implications of a strategic focus of the NFL and pro sports in general on corporate money. On this issue, Bob Ryan has an interesting "Don Quixote rant", written in the context of the new Yankee Stadium: "You do not matter. The Yankees are only interested in the kind of people who will populate the luxury suites and who will pay somewhere between $500 and $2,500 per person, per game, to sit in the first five to eight rows of the new ballpark."

Ryan's rant and associated quotes from the Yankee marketing effort are quite eye-opening, but the big issue is how the focus on corporate money will work out given the meltdown in the financial sector. This Forbes story - How Wall Street's Woes May Whack Sports - states that one quarter of the $10 billion in annual corporate sponsorship in sports comes from the financial services industry. That's not chump change. My hunch is that the market price of luxury suites will be moving up and down with the value of CDOs for at least the near future.

***(Here is the Forbes story, with lots of links to stats, but sundry annoyances too. Here is a cleaner presentation of the story at Yahoo Sports.)

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Wednesday, September 10, 2008

"Naming Rights and Historical Wrongs" 

In this NYT article, Sandomir discusses the prospect of the NFL's Giants and Jets playing in Allianz Stadium:
The Giants and the Jets face moral and public-relations questions as they negotiate the possible sale of the naming rights to their new stadium with Allianz, a Munich-based insurer and financial services company with disturbing connections to Nazi Germany.

Allianz insured facilities and personnel at concentration camps like Auschwitz and Dachau. Kurt Schmitt, its chief executive in the 1930s, served as Hitler’s second economics minister and can be seen in a photograph from a rally wearing an SS-Oberführer’s uniform and delivering the Nazi salute with Hitler standing in front of him.

Like other insurers in Germany at the time, Allianz followed anti-Semitic policies by terminating or refusing to pay off the life insurance policies of Jews, and sent cash that was due beneficiaries and survivors to the Nazis.

It also became the insurer of Jewish valuables taken by the Nazis.

Gerald Feldman was a historian asked by Allianz in 1997 to produce an unfettered history of its role in Hitler’s Germany. He wrote in “Allianz and the German Insurance Business, 1933-1945” about when the company extended its group accident insurance for engineers working for the notorious I.G. Farben chemical company at Auschwitz.

“It was just one more piece of business in the Third Reich,” he wrote in his book, which was published in 2001, “but it demonstrated that such pieces on any large scale made contact at some point with all that is represented by the name ‘Auschwitz’ — from slave labor to extermination — virtually inescapable.”

A deal with Allianz would not be easy to sell publicly, like Citigroup’s with the Mets. The possibility of an Allianz Stadium will make some people cringe, especially in a market that is home to many Jewish people, and in which the Tisch family, which owns half of the Giants, has supported many Jewish causes.

“There must be sensitivity to the psychological impact this would have,” said Elan Steinberg, a vice president of the American Gathering of Jewish Holocaust Survivors and Their Descendants. “Survivors are still alive. It would not be appropriate to affix the Allianz name to a stadium name in an area where a lot of survivors still living.”
This is an intriguing dilemma. At some point - as with slave reparations in the U.S. - one must decouple form the past and take actions which make for a better a future. Allianz is not the only German company with past Nazi ties, and as Feldman's history and the related facts suggest, the company has owned up to much of it. But the weird thing to me is this: what does Allianz expect to gain from having its name on the stadium? Is this kind of visibility (Allianz is a big, but behind-the-scenes insurer in the U.S.) worth paying for?

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Thursday, August 28, 2008

A Longer NFL Season? 

From the Washington Post (via DOL):

Sentiment among NFL leaders to reduce the preseason to two or three games per team and lengthen the regular season to 17 or 18 games, up from the current 16, is growing, and it seems generally accepted that such an adjustment likely will be made within the next few years.

"I think it would be a positive," New England Patriots owner Robert Kraft said this week, "and I do think it will happen."

...More regular season games would mean more revenue in television rights fees, which are worth about $3.7 billion per season in the current deals with NBC, Fox, CBS, ESPN and DirecTV.

"The players' view can be really simple: If I get paid for two extra games, I'll play two more games," former San Francisco 49ers offensive lineman Randy Cross said. "The fans' view is: More of the real stuff is better. The realistic view is: It's a way to generate more revenues."

Players aren't paid during the preseason; instead, they're paid in 17 installments during the regular season. The owners make big money by charging regular season ticket prices for preseason games, but still could come out ahead if the additional regular season games boost TV rights fees considerably.

The drawbacks to adding games would be diluting the product, and limiting chances for younger players. The small number of regular season games makes each weekend vitally important. Adding too many games could detract from that, but the owners don't seem to fear they're nearing that point yet.

Fewer preseason games, however, would mean fewer opportunities for unheralded young players to prove they deserve roster spots. Kraft called that his only concern, and Cross said it would be particularly detrimental to the development of young quarterbacks. He pointed out that the league already shut down its developmental league for young players in Europe.

Consider a two-team league with a large market team and a small market team. If the season is only one game long, then that game is very important and randomness is a bigger part of the outcome of the game than if the season goes longer. In other words, the more games teams play, the more likely the cream will rise to the top.

So if a small-market large-market differential between teams arises over time, the schedule change makes playoff appearances by the large market teams more likely (one of the points that Whitney made in his 1988 Economic Inquiry paper). Not that there's anything wrong with that.

Cross-posted at Market Power

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Thursday, August 14, 2008

The Production Value of Brett Favre 

Former students Andy Weinbach (now teaching at Coastal Carolina) and Mark Wilson (St. Bonaventure) were discussing this with me. Their assessment, derived from market prices: pretty small. Here's their take:
How valuable is Brett Favre to the New York Jets?

The Jets acquired Brett Favre, believing their team would be improved, but what do the markets reveal about this move? For proposition bettors wagering on the number of regular season wins by the Jets, the move seems to be an improvement.

Betting markets can provide insight into how much the Jets have improved, but the answer is unfortunately not straightforward. Many books temporarily took the Jets regular season wins proposition off the board in reaction to the Favre acquisition. Bodog sports currently offers the Jets at 8 wins (-155o),(+125u). If this is assumed to be an unbiased forecast, (which is a reasonable, but not necessarily accurate assumption), using some statistical wrangling, and ignoring pushes, assuming all money will be refunded in the case of a tie, this translates to a roughly 57.8% chance that the Jets will win more than 8 games and a 42.2% chance that they will win fewer (Again, this assumes ties are not possible. While ties are indeed possible, they should be revenue neutral for bettors).

Unfortunately, we don’t have the Bodog price from July. However, a reliable source tells me that a local shop had the Jets priced at 7 wins (-150o),(+120u) on July 22nd, when Pennington was still the expected starter. As of August 10, that same shop offered the Jets at 8 ½ wins (-115o),(-115u). If we ignore the possibility of a tie, the July 22 price at this shop would suggest a 56.9% chance of winning more than 7 wins, and a 43.1% chance of winning fewer. The current price suggests a 50% chance of 9 or more wins, and 50% chance of 8 or fewer.

While these figures are not directly comparable, a loose and perhaps fair interpretation might be that the acquisition of Brett Favre is expected to return one additional win for the Jets this season.

Meanwhile, in the fantasy league, current rankings indicate a recent increase in value for Jets receivers Laveranues Coles and Jerricho Cotchery, suggesting fantasy players believe Favre will have a positive impact on the two wide receivers.

The same reliable source reports that the local shop has priced in slightly lowered expectations for Miami (Pennington’s new team) since July. In July, the price was 5.5 wins (-125u) and (-105o), but has now moved to 5.5 wins (-130u) and even.
Obviously, one additional expected win at this stage might represent a significant boost to a team's playoff chances. That would be another calculation worth making. If you know or can quickly determine the answer, do leave it in the comments.

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Wednesday, July 16, 2008

Could the Steelers' sale be a tax issue? 

From today's WSJ Opinion Page:
One of the league's iconic teams, the Steelers have been owned by the Rooney family since 1933. The five sons of the original owner, Art Rooney, control 80%—and they are getting into their 70s. With the team's value estimated at $700 million or more, the 45% federal death tax rate could put each brother on the hook to the IRS for tens of millions of dollars.

That may be more than they can afford. NFL franchises have appreciated quickly in the past decade, and the more a franchise goes up in value, the greater the challenge for estate planning. While a given brother's share of the team may be worth more than $100 million on paper, that doesn't mean he or his heirs have half again that much in cash to fork over to the IRS.

Daniel Rooney, the eldest brother who runs the team, is offering to buy his four brothers out of their shares. He has said he will do "everything possible to ensure my father's legacy" and keep the team in family hands, and in Pittsburgh. Good luck to him. Challenging Mr. Rooney's offer to buy about a third of each of his brothers' stakes now with more down the road is hedge-fund billionaire Stanley Druckenmiller, a man with considerably deeper pockets.

Adding urgency to the Pittsburgh transaction is the prospect of a Democratic President in 2009 who opposes repeal of the death tax and wants to raise the tax rate for capital gains. Barack Obama has promised to raise the rate from 15% to at least 25%, and perhaps the Clinton-era peak of 28%. The artificial timeline adds appeal to a buyer like Mr. Druckenmiller who has the dough to complete a transaction before the end of this year.
The estate tax certainly gives an edge to buyers other than the elderly Mr. Rooney. I haven't read much about the other four brothers. They might not see things the same way. Legacies can be costly to protect, and this is no longer their father's NFL.

Also in today's WSJ, an article on the cost of the Beijing Olympics. Here are the opening paragraphs:
China's record spending on the Olympics, estimated to total $42 billion, is a big sum for a developing country to put into a two-week sports show. While much of the money is going into infrastructure projects with long-term value, at least some of the spending is drawing criticism for wastefulness.

The tab for China's massive Olympic projects -- ranging from a $3 billion airport terminal to the $500 million "Bird's Nest" National Stadium -- dwarfs the Athens Olympics budget of $15 billion, which helped drive Greece into debt. London, host for 2012, is already embroiled in controversy over its Olympics tab.

In Beijing, few details are being spared. Along Jing Shun Lu, a formerly dusty road in the capital's suburbs, the government spent $30 million for an Olympics facelift, including trees, flowers and an ornamental wall. The road is a secondary access route to the city's airport, and near the rowing venue. People who used to live along the road have been given a small sum in compensation and forced to move.

China can afford the financial cost of the biggest Olympics in history. The bill amounts to a small fraction of the country's gross domestic product, expected to be nearly $4 trillion this year, and corporate sponsors have underwritten some of the costs. Moreover, most of the spending isn't going toward running the Games, but toward roads, subways and airports.

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Saturday, April 19, 2008

A New Stadium and a Bargaining Chip for the NFL? 

Edward Roski Jr. has unveiled plans to build a new stadium in the Los Angeles metro area to entice a team to move to the nation's second-largest market.

The proposed 600-acre site, near the southern intersection of the 57 and 60 freeways about 20 miles east of Los Angeles, would be surrounded by a shopping mall, and located on a vacant property which Roski already owns. Roski said around 12 million people live within 25 miles of the site.

“We are aware of it and are monitoring all stadium-related developments in southern California,” NFL spokesman Brian McCarthy said from his New York office.

Roski said the cost would be around $800 million, adding the stadium will be built into a hillside meaning far less steel will be required. And that, he said will result in a cost of about $400 million less than it might be otherwise.

Roski notes that there will be no public money involved in the construction of the stadium. The LA market that has been without a team since 1995, probably in part because it is such a lucrative threat point for teams seeking public funding for new stadiums in their current cities.

So, how does this announcement change the stadium game being played by the Minnesota Vikings, who have been trying for years to replace the Metrodome, and the other three teams mentioned in the article as possible tenants (the Saints, the Jaguars, and the Chargers)?

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Saturday, March 22, 2008

PSLs in NYC 

They played in Charlotte, and now it's time to see if they'll play in the Big Apple. Personal Seat Licenses (PSLs) will be used to finance the construction of the new football stadium being built by the Giants and Jets in New Jersey, according to an article in the New York Times.

In economic terms, a PSL is a two-part tariff, where fans pay an up-front lump sum fee for the right to purchase tickets at face value. The PSL allows the team to capture some of the consumer surplus it generates. PSLs were first used to finance stadium construction in the early 1990s by the Charlotte Panthers. Since most PSLs are put in place when a new facility is built, and no new sports facility has been built in NYC in decades, this is the first opportunity for a New York team to implement them.

The key issue is how much the Jets and Giants will charge for a PSL. Historically, teams priced PSLs under $10,000. But Jerry Jones upped the ante last year when the Cowboys priced their PSLs between $16,000 and $150,000 in their new facility that is scheduled to open in 2009. Will the Jets and Giants feel the need to keep up with the Joneses?

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Thursday, March 13, 2008

The strange world of the NFL Salary Cap 

If you write player contracts with incentive bonuses that are likely to be met (i.e. with application, effort and good fortune), you create cap room for next season. Paid bonuses -- normally a happy, desirable outcome of incentives -- reduce allowable spending in the following year. Enter crafty management, and incentive clauses purposefully designed to not be attained. And coaching decisions to ensure this result when cap room next year is more valued than your best effort now. I detect a slight whiff of rent dissipation: the cap creates rent for the owners, and the accountants dissipate it. Reuben Frank has the details.

Via Newmark's Door.

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Monday, February 04, 2008

Anomalies: Super Bowl Coin Toss Betting 

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

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

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

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

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

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Thursday, December 06, 2007

Threat Point - The Vikes 

This week in Sports Economics I talked about the effect sports teams and sports stadiums have on their local economies (not much). That doesn't keep owners from trying to get public subsidies. The Star Tribune notes that Vikings owner Zigi Wilf seems to be publicly turning up the heat to get public funding for a new Vikes stadium.

"The Vikings and the NFL understand and respect the priorities and pressing issues facing the state, but at the same time, the stadium issue needs to be resolved in the near future," Wilf said. "Construction costs are rising significantly each year that we delay and there is an urgency to reach a solution."

Given the subprime mortgage crisis, might this not lower the rate of inflation of construction costs? But I digress.

The state's answer puts the project — a retractable roof stadium along with housing and business development on the Metrodome site — up against a tight deadline.

Sports economists agree: sports stadiums are not the boon of economic development that they are often portrayed to be and, thankfully, public money has not been as easy to come by in many instances. That's why some recent public financing packages include plans to have ballpark villages developed as a part of an agreement for public financing. Otherwise the secondary development is not likely to happen.

The development is unlikely to occur because the returns for the development do not justify private investment. Otherwise we'd see a lot more "spontaneous" economic development surrounding stadiums. In other words, the people who frequent stadiums don't really care all that much about shopping/bars/restaurants/condos etc. around ballparks. They want to go to the event, do what they do there (get their private benefits), get in their cars, and go home. So politicians are seemingly more resistant, thankfully, to giving subsidies just for stadiums by themselves. But package in some secondary development (which, if it draws any extra economic activity to the site, will probably draw it from elsewhere in the region) with the subsidy request and see if you can get the necessary votes.

But if private financing isn't forthcoming for the housing and business development, is it really that good of an investment for the government? In other words, what are the public goods associated with the ballpark villages?

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Friday, September 07, 2007

Today's NFL: a brave new media world? 

As we mentioned previously, the media are buzzing over the new approach of the NFL to media. The rule limiting online video at non-NFL sites is particularly nettlesome and controversial. Michael McCarthy's story at USAToday, "NFL calls own number in new media game plan" describes the move:
On the Internet, the NFL took hands-on control of from CBS SportsLine last fall and has relaunched the site with more video content, according to the league., and the 32 individual team websites, offer one thing other sports and news websites can't match: highlights from games that can be tailored to focus on each fan's favorite players and teams.

The league also is trying to boost the relevance of its four-year-old NFL Network by running more exclusive programming, including eight prime-time games on Thursdays and Saturdays late in the regular season, three college bowl games and the NFL's college scouting combine in the spring. has turned into a significant revenue-generator for baseball, so it only makes sense for the NFL to pursue a similar strategy. But the issue has become intertwined with "controlling the message" that is put forth by the media. As McCarthy puts it:
The nation's richest and most powerful sports league has launched a behind-the-scenes effort to seize greater control over what fans see, read and hear — and chart an even more lucrative course for itself in the process. It's taking a series of steps to drive more fans and advertisers toward its own NFL Network cable channel and website. And at a time when the NFL is trying to clean up its image by cracking down on athletes who run afoul of the law, the league also is imposing new — critics say onerous — restrictions on how the independent media cover its players, coaches and teams.

Together, the moves represent an unprecedented attempt by the NFL to manage how it's portrayed to the public. They also could offer a glimpse of where sports programming is headed: Former White House spokesman Ari Fleischer, now an image consultant and adviser to Major League Baseball Commissioner Bud Selig, predicts sports fans soon will confront an increasingly cluttered media landscape in which more sports leagues, and college conferences, offer their own TV channels and websites.
On the fundamentals, this is right on the money. We are in a period where a dominant trend is disintermediation, literally speaking, in broadcast coverage of sports. More and more coverage is being produced by the "upstream" firm, i.e. a team (as in the Yankees and YES, or in a more limited way, by Notre Dame and NBC) or a league. The Big Ten Network is leading the way in college (and with App State beating Michigan, what a debut! Sorry, Rod).

But I think the issue of image control is overrated. The Michael Vick and Pacman Jones episodes show that when negative issues arise, media spin is difficult or impossible for the NFL to control. You can't keep the cameras away from the perp walk.

The NFL is pushing existing media aside to make way for its own production. It can do this because today's broadcast and broadband technology enable it to bypass an intermediary and former ally. It's not about image. It's simply about the money.

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Thursday, May 24, 2007

Super bowl impact figures 

The local organizers have released a study of spending on Super Bowl 41 in Miami. Their bottom line, as reported by the Miami Herald: 112,000 visitors, spending $688 per day, for a direct spending infusion of $298 million. (The typical visitor spends about $200 per day - these are high rollers.)

Phil Porter has skeptical take on this:
Philip Porter, a University of South Florida economics professor, said $280 million in Super Bowl spending is too much for South Florida -- equaling 72 hours of total economic output throughout all of Miami-Dade County.

''In order to accomplish this, every sales line would have to double,'' Porter wrote in an e-mail. ``This is impossible. You'd have to sell twice as many cars, televisions, washers and dryers, etc., to accomplish this.''

Still, there's no doubt the game brought a major boost to the hospitality sector. Hotel taxes in Miami-Dade surged 15 percent in February and room revenues surged between 11 and 21 percent from Fort Lauderdale to Key West, according to state and industry data.
Porter's comparison is a useful reality check. It does miss the fact that hotel rooms and the like are fully priced during Super Bowl week. A decent chunk of the additional spending is a price effect rather than quantity.

Pat Rishe is also quoted: '"No question the Super Bowl attracted more [economic] activity than otherwise would have been the case in Miami that weekend," Rishe wrote in an e-mail. "But at the same time, Miami would not have been a ghost town either."'

The study was done by the Sport Management Research Institute, whose website has list of news references to their work, but no link to the study itself. A rather detailed executive summary is available via the Herald.

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Tuesday, February 13, 2007

GM v. Coach: Optimal Disagreement 

Marty Schottenheimer's firing last night came down to conflict with general manager A.J. Smith. reported Schottenheimer as saying
"There is and has been no relationship" with Smith. Since when? "How long's he been here?' ...

Schottenheimer tightened up the time frame a bit, saying: "In the last couple of years, there has been very little, if any, dialogue."

In San Diego, the GM survived the feud. A month ago, bad feelings between head coach Jeff Fisher and GM Floyd Reese led to the "resignation" of the the longtime GM. In the Reese v. Jeff Fisher bout, it appears that owner Bud Adams, who liked both, viewed a good coach as harder to replace than a good GM. In the Schottenheimer v. Smith case, the coach's age already made him a short-timer, so the GM won out.

Coaches and GMs walk a fine line. Some very successful partnerships, such as Joe Gibbs and Bobby Beathard in the 1980s were reported to be constantly on the brink. As economists, we like pointing out how there is an optimal amount of just about everything, even "bad" things like pollution. Disagreement between coach and GM fits the tag line. If they agree on every personnel matter, the GM is superfluous. If they disagree too much, well, you get Schottenheimer-Smith or Fisher-Reese.

In earlier days, the coach-GM duties often resided in a single person. (Lombardi may have been a better GM than a coach, but that's a different post.) Once revenue growth made specialization of the jobs and "decision rights" the norm, there has been continual friction. This friction led to a movement in the 1990s where successful coaches sought "total control" over football-related matters (the same happened in other sports also). Although the idea worked in a few cases such as Belichick (the second time around), it tanked for coaches like Mike Holmgren. I have preliminary evidence that combining the roles, on average, hurts performance. This makes some sense for several reasons. One is shortage of time for coaches to evaluate players. With combined roles, coaches must also struggle with personal relationships influencing personnel decisions -- cutting disliked players too quickly or holding on to liked players too long. The latter problem is especially acute in the salary cap era where holding on to good, but not great players for too long can quickly lead to salary cap purgatory. The Reese-Fisher breakdown likely had a lot to do with such issues.

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