Thursday, June 11, 2009

Cool video on point differences in the NBA 

At the end of regulation, tied scores are about twice as frequent as what you would expect from a strategy-free, i.i.d. scoring model. Using data from the last 13 years of NBA games, Cheap talk (a blog by two professors at Northwestern) presents a video which depicts how the spike emerges at 0 in the point difference distribution, over the last 40 seconds of the 4th quarter. A similar video shows that no such spike emerges at halftime -- a great visual demonstration that strategy matters.

Thanks to Patrick Warren for the link.

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Wednesday, April 08, 2009

Time to renegotiate? 

Tom Hicks, owner of the Texas Rangers, Dallas Stars, Liverpool FC, and who knows what else, has defaulted on $525 million in debt. He says its no big deal, just a negotiating tactic. This story describes how Hicks built his business and sports empire on massive leverage. Indeed the $525 million was borrowed in late 2006 against the Rangers and Stars franchises, whose value had risen well above their combined $334 million purchase price. Being fully leveraged is not ideal in a market where revenues are expected to decline.

Two aspects of Hicks' "tactical move" seem awry to me. First, if he can't get new lines of credit (would you loan to a king of leverage in this environment?), how willing are his lenders to give him more favorable terms than they did back in 2006? The notion does not make financial sense. Second, from an ethical perspective, Hicks is really stuffing it in the bankers' faces. As a group at least, the banks have taken an enormous hit as their loan portfolios have evaporated. Hicks is essentially saying, "mark my loan down too, and lower my payments or else!" The bluff is that he's willing to hand over the Rangers to his creditors. At least that is what Hicks' stance implies, in which case they won't be doing much future business with him. Alternatively, he really does need the relief, and his leveraged empire might be ready to crumble.

A few miles north in Kansas City, Missouri, the local pols are taking a second look at a $25 million deal with the Chiefs. The Chiefs were given a $25 million tax credit on the premise that they'd move their spring training camp from Wisconsin to a local venue. The pols think it was a ten year deal; the Chiefs are negotiating a five year deal (renewable), with the owners of the site, Missouri Western State University.

Absent an agreement with the public, the Chiefs are surely working on terms that make sense, with incentives for performance on the part of Missouri Western: do it right for the first five years, and we'll continue the relationship. The public subsidy -- and that's what the $25 million tax credit is, a transfer from the treasury to the Chiefs -- presumably requires a longer period than five years to pass the political smell test. The political reality creates a conflict with sensible private contract terms. But even on its allegedly original terms, this looks like a pure handout to me, one that is quite hard to justify. Stadium subsidies are one thing, but $25 million to hold a summer camp lasting all of three weeks (!!) at Missouri Western?

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Saturday, May 24, 2008

Is Steroid Use in Baseball a Positive-Sum Game? 

I don't like pitchers' duels in baseball. I like to see high-scoring games. Low-scoring games remind me too much of all the things I didn't like about pre-2005 hockey games and the old pre-free-guard-zone curling bonspiels and still don't much like about soccer.

I realize that many sports fans will disagree with me on this, but overall I suspect that most fans and potential fans share my views that low-scoring games are pretty boring no matter how artistic or professional or whatever a well-pitched and well-defenced game might be. Curling changed its rules to generate more scoring (and more fan interest). Baseball made several moves to increase scoring after the doldrums of the 1960s. Basketball added the 3-point shot. And baseball entered its revival phase as players started hitting more home runs and as teams began to score more runs.

But the past two years have been different, as Tom Boswell pointed out in last Friday's Washington Post.
This spring, for the second straight year, home run totals... have shrunk dramatically. Last season's 8 percent drop in home runs was welcomed, but with caution. ... [H]ome runs have fallen this spring by another 10.4 percent.

Suddenly, a sport that produced 5,386 home runs in 2006 is on pace for 4,442 this year — a 17.5 percent drop, or a loss of almost 1,000 home runs in just two seasons. ...

This season, major league teams have scored 8.98 runs per game. Since 1871, there have been 1,750,230 runs in the majors, an average of 9.11 per game. Warm weather, when fly balls carry farther, might bring the game almost exactly back to its long-term scoring trend.
Every sportswriter or sportscaster I am aware of has attributed this reduction in runs scored and decline in home runs to the reduced use of steroids in professional baseball. Some, like Boswell, might argue that this is "a good thing", but I am not so sure.

Typically when sports economists talk about steroid use, they/we present it as a negative-sum game: each player is made stronger, but since all players are made stronger, the benefit to each player is near zero but those on steroids must then bear the later health costs that come from using steroids. Following this logic, many of us have been puzzled that players' associations have been so reluctant to support bans on steroid use. And while this scenario seems plausible, I'm not so convinced by it any more.

So let's make some assumptions:
  1. In general, ceteris paribus, fans prefer more home runs to fewer. Again, quoting Boswell,
    "From a personal and aesthetic point of view, I like this kind of baseball better," MacPhail said. "I like a well-played game more than a slugfest. But plenty of fans like runs." [Emphasis added]. One test of this assumption will be to see what happens overall to MLB attendance.
  2. Conditional on the first assumption, (and again, cet. par.) the marginal revenue of runs is positive, the marginal revenue of home runs is positive, and the marginal revenue product of slugging is positive; i.e. for a given winning percentage, etc., if fans expect more runs and more home runs, they'll shell out more to attend games and buy team merchandise. There is an implication in the Boswell piece that general managers on the whole are relieved to see the home run totals decline since they anticipate not having to pay so much for the big-bopper-type players.

  3. The health costs of steroid use (assuming there are any) are borne by the player-users themselves; there are no negative externalities from steroid use.
I realize this last assumption is open to question. To the extent that health insurance providers do not risk-rate their premia according to steroid use, other people in the same risk pools might be bearing some of the health costs of steroid use, if there are any (and I don't accept anecdotal, Lyle Alzedo-type evidence on this score). Also, to the extent that steroid use leads to undesirable personality changes (do we know that it doesn't also lead to some desirable personality changes in many players?), that might be a cost which is not taken into account by the player-users. But if these costs are negligible or small, and if the revenue and salary gains are large, maybe overall the expected net gains to the teams and to the players from steroid use would be positive.

And maybe, just maybe, that is why professional sports teams and players' associations did NOT rush to ban the use of steroids, especially in baseball. I am less persuaded that steroid use was a positive-sum game in the NFL, which also might help explain why it was banned so much earlier in the NFL than in MLB.

[cross-posted to EclectEcon]

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