Thursday, October 08, 2009

Fans as Inputs, An Apparently On-Going Series 

In an earlier post I mentioned that there aren't too many treatments in the formal sports economics literature that examine fans as inputs. One notable exception is that from David Boyd and Laura Boyd that appeared in the Journal of Economics and Finance in 1998 (issue 2/3 pp 169 - 179). They develop a model where fans are an input in winning and they use it to give an explanation as to why the common finding of inelastic ticket pricing is not inconsistent with profit maximization.

Here's the conclusion to their article.
Increasingly, economists are utilizing standard microeconomic analysis in an attempt to better understand the world of professional sports. However, since most of microeconomic theory is based on profit-maximizing behavior, the assumption of profit maximization in the sporting world must first be justified before microeconomists can legitimately apply their tools. In this paper, we have shown that some existing empirical evidence regarding the elasticity of demand for tickets to professional sporting events which, on the surface, seems to raise questions about profit-maximizing ticket pricing policy is not necessarily inconsistent with team profit maximization.

We have offered here a theory of team sports ticket pricing, based on the home field advantage, which implies that the traditional price elasticity of demand, measuring the ceteris paribus effect of changing ticket prices on attendance, is less elastic than is the elasticity of demand relevant for team profit maximization. The results of the theoretical analysis generated the prediction that accounting for simultaneity between attendance and team performance would result in a more elastic point estimate of the elasticity of demand for tickets. This hypothesis was supported using data from professional baseball. Moreover, the model generated predictions about how traditional, ceteris paribus elasticities of demand for tickets are likely to vary across different professional team sports. Again, these predictions were consistent with the results of existing empirical work on professional baseball and basketball. Although the assumption of profit-maximization as applied to professional athletics is far from fully vindicated, the results of this work can certainly be used as one piece of evidence for those who continue to use microeconomic theory to better understand the world of professional sport.
There are other reasons which were put forth by previous researchers (and mentioned by Boyd and Boyd) as well as others since this paper was published in 1998, but I won't go into them here. Here is the other part to this little series of posts.

Thank's to commenter Peter G. for his Super Bowl comment that spurred me to remember the Boyd and Boyd paper.

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Wednesday, October 07, 2009

Fans as Inputs 

After last night's Twins/Tigers game - helluva game, no? - the announcers for TBS mentioned that the fans played a big part in the Twins win. 54,000 Twins fans hollering and waving their rally towels would have been impressive to see.

This isn't the only time that fans have been noted as an important part of the game. Texas A&M officially calls their student body the 12th Man, and the team honors one of its players by having him wear the number 12. Basketball teams call their crowds the 6th man because of their effect. Gary Pinkel, the university of Missouri coach, has asked his team's fans to wear gold to tomorrow night's game against the Nebraska Cornhuskers. The last time this happened, Faurot Field in Columbia looked like grass meadow surrounded by maples turning color in fall: bright golds with reds interspersed throughout.

I'm the guy in the gold at the top of the picture.

There are a lot of things unique to the sports industry that make it interesting to economists. For instance, unlike other industries, a monopoly position is impossible to hold because the product is competition and, well, it takes two to tango (Billy Idol excused).

Another quality is that the consumer of the product can also be thought of as an input. I know that this has been mentioned in the research Cairns, Jennett, Sloane (1986), but I haven't seen it discussed much. So I ask you, Sports Economist readers and co-bloggers, this: if fans are indeed both consumers and inputs, what are some of the qualities we should see in sports that we would see if fans were mere consumers.

In other words, suppose two theoretical models were built to explain a sport, say baseball. One of the models treat fans as simple consumers and the other model treats fans as consumers and inputs, what would be the difference in terms of the results?

Here's one off the top of my head: inputs are paid for their effort. Consumers pay for their products. My sense is that ticket prices would be lower than if fans were merely consumers and not inputs.

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Friday, November 30, 2007

Non-profits Often Behave Like For-Profits 

This morning's St. Louis Post-Dispatch has an article on the Southlake (Tx) Carroll Dragons football program. Southlake, a suburb of Fort Worth, is a wealthy enclave whose residents have a high willingness to pay for the local high school football program. What the author, Tim O'Neill, describes could as well describe many major college programs and professional programs. A couple of excerpts:

The domination on the field of play:

Call it Texas football pageantry on afterburner, fired by championships. Since 1988, the school has won eight state football crowns, including three of the last four at the big-school level. Over the past five years, the Dragons are 72-2.

There is the use of two part tariffs:

The concrete grandstand includes 1,621 reserved seats for season-ticket holders, who buy $90 three-year seat licenses to ward off the long waiting list.

There are the first-rate facilities:

Having great facilities certainly helps. This suburb of airline pilots, business executives and Dallas Cowboy football players living in $500,000-plus homes provides the Dragons with three outdoor practice fields and an indoor center that covers a 60-yard-long turf field.

There is revenue sharing:

The Carroll Independent School District is among the Texas districts that pay into a "Robin Hood" fund for less-fortunate schools. This year it will send $11 million.

After having studied various facets of sports economics for the past 13 years or so, it still interests me how similar the motivations are for for-profit and not-for-profit sports programs. Of course being not-for-profit doesn't really mean that you can't have profits as your objective. All having this status does is restrict how profits can be distributed.

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