Thursday, August 14, 2008
The Production Value of Brett Favre
How valuable is Brett Favre to the New York Jets?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.
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 NFL.com fantasy league, www.nfl.com/fantasy/rankings/wr 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.
Labels: gambling, marginal revenue product, NFL
Wednesday, July 16, 2008
Could the Steelers' sale be a tax issue?
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.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.
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.
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.
Labels: franchise values, NFL, Olympics
Saturday, April 19, 2008
A New Stadium and a Bargaining Chip for the NFL?
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.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.
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)?
Labels: NFL, The Stadium Game
Saturday, March 22, 2008
PSLs in NYC
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?
Labels: NFL, PSL, ticket pricing
Thursday, March 13, 2008
The strange world of the NFL Salary Cap
Via Newmark's Door.
Labels: NFL, salary cap
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.
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.
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?
Labels: economic development, NFL, stadium subsidies
Friday, September 07, 2007
Today's NFL: a brave new media world?
On the Internet, the NFL took hands-on control of NFL.com from CBS SportsLine last fall and has relaunched the site with more video content, according to the league. NFL.com, 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.MLB.com 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 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.
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 NFL.com 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.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).
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.
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.
Thursday, May 24, 2007
Super bowl impact figures
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.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.
''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.
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.
Labels: economic impact, mega-events, NFL
Tuesday, February 13, 2007
GM v. Coach: Optimal Disagreement
"There is and has been no relationship" with Smith. Since when? "How long's he been here?' ...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.Schottenheimer tightened up the time frame a bit, saying: "In the last couple of years, there has been very little, if any, dialogue."
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.
