The Sports Economist

The following is a guest post by Dr. Dan Kuester, the Director of Undergraduate Studies and the Roger Trenary Chair for Excellence in Economic Instruction at Kansas State University.  Dan and I were graduate students at the University of Missouri back in the 90’s.

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I’m a bit obsessed with conference realignment and the influence that big money television contracts have had on college football.  Ever since the NCAA lost the 1984 Supreme Court decision which stated they were in violation of antitrust law, the influence of television contracts in college athletics has grown dramatically.

I have seen this influence from a couple of different perspectives as I am an alumnus of Missouri who has taught at Kansas State University for nearly eleven years.  Fans of those respective schools typically have very different views of those schools which have moved conferences for a perceived better deal.  (I do highly recommend “The 100 Year Decision” by R Bowen Loftin for a very insightful perspective on Texas A&M’s move to the SEC).

While some folks continue to “cut the cord”, television contracts (which are at least somewhat ratings driven) are a huge source of revenues for all sixty six BCS level institutions (I am including BYU and Notre Dame).  Texags.com recently put together an infographic showing the ratings averages for each of these sixty six schools.  Certainly, the author enjoyed sharing the results which showed the somewhat predictable SEC dominance on the ratings and The Big 12 lagging behind in fifth place out of the five BCS Conferences.

The University of Texas tied for 34^th in the television ratings while A&M placed 12^th , the type of news Aggie fans enjoy a great deal.  The highest-ranked Big 12 team was Oklahoma at #26 while SEC teams made up twelve of the Top 25 spots.  Also, in the twenty-five most-watched football games this season (not counting bowls), SEC teams participated twenty three times, Big Ten teams participated eleven times, ACC teams participated eleven times, while Big 12 and Pac 12 teams were only represented one time each as were Army, Navy, and Notre Dame.  It is fairly obvious that the Big 12 did not have any single game that drew huge ratings.  The highest rated Big 12 game (TCU vs. West Virginia with 4.43 million viewers) finished well outside of the Top 25 rated broadcasts.  My analysis of the data also suggests that the relationship between CBS and the SEC is very beneficial for the conference even as a “loss leader” as nine of the twenty five most viewed games were on CBS.

As an economist, when I study data like this at SportsMediaWatch.com I immediately want to make sure what is being looked at is an “apples to apples” comparison.  The thing that immediately stood out to me was there are a number of games on stations like ESPNU or FS1 or FS2 that bring down the average rating for a team dramatically.

Obviously, a complete picture of television ratings should include all twelve (or more) games that a team participates in.  Unfortunately, this is not something we can figure out because of a lack of access to all relevant data.  I would suggest that games on the SEC Network or the Big Ten Network are drawing considerably more viewers than a game on the Longhorn Network. This in turn probably dwarfs the number of fans who are watching a game on K-State HDTV, which is internet-only.  But since games on all of these avenues (along with the Pac 12 Network, regional Fox Sports networks, syndicated ACC games, pay per view games, etc.) are not rated, it seems unfair to cherry-pick the games that warrant a broadcast on CBS, ABC, ESPN, FOX or other major networks and only count those games as an indicator of the popularity of a team.  For example, Florida ranks seventh in the ratings TexAgs.com compiled, but they were only on a rated television broadcast five times this year in the eleven games they played.  Meanwhile, Oklahoma was on a rated broadcast eleven times in the twelve games they played.  Clearly, if games against Kansas and Iowa State were on a station that did not report TV ratings, OU’s average television rating would go up fairly dramatically.

In order to attempt to correct for this bias, I assumed that there were no viewers for games that were not rated telecasts and then recalculated the average rating per team.  I realize that this is an imperfect method but for the most part (with notable exceptions such as the Texas A&M vs. South Carolina game on the SEC Network) the games that do not warrant a broadcast on an established network will draw a small enough viewing audience that assuming a value of zero for these games will only bias these numbers slightly.  I would encourage suggestions as to other ways to correct for this bias, but I did not want to start guessing television audiences for these non-televised games.  I do feel that the teams that are most adversely affected by this correction are SEC and Big Ten teams as the SEC and Big Ten Networks are probably drawing the most viewers for games where ratings are not available.

The TexAgs data suggests the following average ratings (I believe I have replicated this correctly).

1. SEC = 4.52 Mil 2.  B10 =2.69 Mil, 3. ACC=2.64 Mil, 4. P 12 = 2.23 Mil, 5.  B12 = 2.01 Mil

The adjusted data suggests the following ratings:

1.  SEC = 2.58 Mil,  2.  B10 = 1.62 Mil,   3.  B12 = 1.57 Mil,   4.  ACC = 1.41 Mil,  5.  P12 = 1.34 Mil

Finally in the original data there are twelve SEC teams in the Top 25, seven Big Ten teams, three Pac 12 teams, two ACC teams, and one independent team.  In the adjusted ratings there are ten SEC teams, five Big Ten teams, five Big 12 teams, three Pac 12 teams, one ACC team and one independent.  This data will have a slight “pro Big 12 bias” as over seventy eight percent of Big 12 games were rated while other conferences are between fifty three and sixty percent rated games.  To reference the examples I pointed out above in these adjusted ratings Oklahoma finished 15th in average TV rating (up from 26^th) while Florida finished 22^nd (down from 7^th).

Another important note about these adjusted ratings is BYU looks a little better by comparison when one considers they were on television nine times last year on a rated network.  Their adjusted ratings would put them right in the middle of the ACC rankings.  I personally feel (possibly a football only member) they would be a strong potential addition to the Big 12.

All of my data is available at my webpage (see the bottom of my page for the links )  and any errors in calculating the number of games each team had rated are my own.  Here is the revised Top 25.

(Assumes no viewers for non-rated games)

Team                           # of average Viewers  Conference      # of rated games

1. Alabama                               6.02                 SEC                 11/13 = 84.6%
2. Florida State                        5.73                 ACC                12/13 = 92.3%
3. Notre Dame                         4.20                 IND                 12/12 = 100%
4. Auburn                                  3.89                 SEC                 9/12 = 75%
5. Ohio State                            3.81                 B10                 10/13 = 76.9%
6. Mississippi                          3.35                 SEC                 10/12 = 83.3%
7. Mississippi State                3.04                 SEC                 8/12 = 66.7%
8. Michigan State                   2.71                 B10                 8/12 = 66.7%
9. Georgia                                 2.62                 SEC                 7/12 = 58.3%
10. LSU                                        2.62                 SEC                 8/12 = 66.7%
11. Texas A&M                          2.56                 SEC                 8/12 = 66.7%
12. Michigan                              2.52                 B10                 8/12 = 66.7%
13. Oregon                                  2.31                 P12                  10/13 = 76.9%
14. Missouri                               2.28                 SEC                 8/13 = 61.5%
15. Oklahoma                            2.17                 B12                 11/12 = 91.7%
16. Southern California           2.11                 P12                  10/12 = 83.3%
17. Wisconsin                            2.08                 B10                 10/13 = 76.9%
18. UCLA                                     2.07                 P12                  10/12 = 83.3%
19. Nebraska                               2.01                 B10                 8/12 = 66.7%
20. Baylor                                     1.97                 B12                 11/12 = 91.7%
21. Arkansas                               1.94                 SEC                 8/12 = 66.7%
22. Florida                                    1.93                 SEC                 5/11 = 45.5%
23. TCU                                         1.80                 B12                 10/12 = 83.3%
24. West Virginia                       1.73                 B12                 9/12 = 75%
25. Ks State and Texas (tie)     1.72                 B12                 10/12 = 83.3%

 Avg Ratings according to rated Data                   Avg TV Ratings “adjusted” 

1. SEC = 4.52 M                                                       1.  SEC = 2.58 M
2. B10 =2.69 M                                                         2.  B10 = 1.62 M
3. ACC = 2.64 M                                                      3.  B12 = 1.57 M
4. P12 = 2.23 M                                                        4.  ACC = 1.41 M
5. B12 = 2.01 M                                                        5.  P12 = 1.34 M

President Obama’s proposed budget to Congress presents a fairly strong challenge to Republicans. It redistributes income from the rich to the middle class often by eliminating loopholes that benefits the wealthy. Spectator sports will take two big hits if this budget gets passed.

First, college sports teams will no longer be able to package sports tickets with a deductible charitable donation to the college or university. Currently many teams require season ticket holders to make a donation to the college in order to purchase season tickets. Why charge, say, a $1000 donation plus $500 for season tickets instead of just charging $1500 for the tickets in the first place? Because the $1000 is tax deductible for the purchaser allowing the season ticket holder to get back $200 or $300 dollars on their tax returns. Basically, this works like a mail-in rebate for season ticket holders paid for by the federal government allowing colleges to charge more for tickets.

Second, municipalities will no longer be able to issue tax exempt bonds for stadium construction if private teams are the primary recipients of the revenues of the stadium. One might call this the “Levi Stadium Tax Avoidance Repeal Act”. While the new 49ers stadium was almost entirely privately financed and is operated by the 49ers, the stadium is still technically owned by the municipality. An examination of the financing of this stadium by Robert Baumann, Debra O’Connor, and myself found that this financing arrangement works out to a roughly $200 million tax subsidy for the stadium despite almost no direct taxpayer subsidies.

Overall, sports economists have long been critical of both of these hidden subsidies for sports and are just happy that we are so influential with the President.

Sounds like the beginning of a bad joke, doesn’t it? However, both have significant concerns about what is arguably the most significant tax loophole for upper income earners – the “stepped up basis” for heirs of appreciated property.

Currently capital gains are taxed at a top rate 23.8%. Thus, if a person buys an asset for $10 and then sells it later for $110, the seller is on the hook for income tax on the $100 gain for potential tax bill of up to $23.80.

However, if a person dies and leaves the asset to his or her children, no capital gains tax is ever paid on that asset and the cost or “basis” for the asset is reset to $110. If the children were to later sell the asset for $210, they would only pay income taxes on the change in price from the time they inherited the asset until when they sold it (i.e $210 – $110 = $100) not the entire appreciation of the asset over time ($210 – $10 = $200). No income taxes would ever be paid for that first $100 of capital gains accumulated by the family.

So what do Sterling and Obama have to do with this? Well, in yesterday’s State of the Union address Obama asked, “Let’s close the loopholes that lead to inequality by allowing the top one percent to avoid paying taxes on their accumulated wealth.”  Specifically, President Obama would change the tax code to require a person’s estate to pay taxes on any accumulated but unrealized capital gains at the time of a person’s death.

And what about Sterling?  One question many people had was why Sterling was so adamant about hanging on to his team when he was uniformly hated by his fans, his players, and the rest of the league following the release of recordings of him making racist comments. Well, Sterling had over 400 million reasons to hang on to his team. Having purchased the team for a mere $12.5 million back in 1981, by selling the franchise to Steve Ballmer last year for $2 billion, the tax bill on Sterling’s sale of the Clippers might come to as much as $470 million, although clever accountants will probably be able to whittle that down a bit. On the other hand, had the 80-year old Donald Sterling died while still owning the team, his heirs would have owed a grand total of $0 in capital gains tax on the franchise.

Under Obama’s proposed tax changes, the $470 million in capital gains tax would have to be paid either by Sterling when he sold or by his heirs when he died. Sterling would have no tax incentive to hold onto the team until his death. Of course, the chance of an Obama tax reform proposal passing under the Republican-controlled Congress is about the same as the Lakers winning the NBA title this year, but this is one tax loophole that deserves to be expelled from the league.

The St. Louis Rams want public money to build a new stadium to replace the Edward Jones Dome.  Cue the requisite speculation regarding LA:

To leave St. Louis, Kroenke would need approval from three-fourths of his fellow team owners and prove that the community was refusing to take steps to satisfy the lease.

Nixon’s efforts negate that argument for now, but it hasn’t stopped speculation that Kroenke has his sights on the more lucrative Los Angeles market, where some say the team would be worth twice what it’s worth now.

At $930 million, Forbes ranked the Rams last in the league, compared to the Chiefs at $1.1 billion and No. 1 Dallas at $3.2 billion.

Kroenke only added to the conjecture when he bought 60 acres in the Los Angeles suburb of Inglewood last winter. Then on Nov. 6, the same day Nixon made his announcement, Rams representatives met privately with that city’s mayor.

It’s a nice bargaining chip, at least to be mentioned by media outlets, that LA place.

Several teams that can exit their lease deals are considered possible transplants — the San Diego Chargers, St. Louis Rams and Oakland Raiders. All three have historical ties to Los Angeles — the latter two franchises were once based in the city, and the Chargers played their inaugural season in Los Angeles in 1960.

I’m glad that tactic wasn’t successful up here in cold, snowy Minnesota.  Wait.  What (see the third to the last paragraph)?

See here for an old post of mine at Market Power regarding how St. Louis originally got the Rams in the first place.

(Co-authored by Ann Sheehy, Department of Biology, College of the Holy Cross.)

The Africa Cup of Nations, the continent’s mini-World Cup, is played every two years by the national teams of 16 African countries who have competed in a series of qualifiers to play in the final tournament.

Like the World Cup, the tournament site moves between various host countries and, until earlier this week, the 2015 games were scheduled to kick off in Morocco on January 17. On Tuesday, however, fears that the Ebola outbreak in west Africa would spread to Morocco led the country to abandon its plans to host the upcoming event after having its request to postpone the competition by a year denied by the Confederation of African Football (CAF).

CAF is now scrambling to find another country to hold the finals and has expelled the Moroccan team from further participation in the tournament. Morocco’s refusal to host the tournament, which pandered to the worst fears about this disease, is based both on bad science and bad economics.

It is completely reasonable for any country to want to take appropriate steps to prevent the spread of the Ebola epidemic which has so far killed more than 5,000 people, primarily in the west African countries of Liberia, Sierra Leone, and Guinea. The Africa Cup of Nations, however, is an unlikely candidate to promote the further spread of the disease.

From an epidemiological standpoint, since Ebola victims are contagious only once they show symptoms, the disease is not likely to be spread through attendance at football matches. Those showing symptoms will be too sick to travel, and those well enough to travel will not be contagious. Even if a fan travelled to Morocco during the 21-day incubation period for the disease and then began to show symptoms, the fact that the disease is only spread through contact with bodily fluids, not casual contact with other fans, means is unlikely to be a significant source of transmission.

The case against a delay in the tournament is even stronger. Thus far, the overwhelming majority of victims are either those living in poverty with little or no access to sanitation or routine medical care, or people engaged in primary health care provision. Neither group is likely to have the time or the resources to make the 2,000 mile journey from the disease epicentre to Morocco this coming January.

Finally, like most boosters’ claims about the economic impact of major sporting events, Morocco’s estimates of the number of visitors that the event would bring were wildly optimistic. Morocco’s sports minister Mohamed Ouzzine said the country was expecting an influx of between 200,000 and 1m fans. The idea of one million arrivals from infected countries is scary indeed but also completely laughable.

The 2006 World Cup in South Africa, a tournament with twice the number of teams, a much higher level of prestige, and entrants from the wealthiest, most populous, and most football-mad countries in the world, resulted in an increase of roughly 200,000 visitors to the country. There is simply no way a minor continental tournament will draw even close to the same number of fans as the world’s premier sporting event.

And in footballing terms, of the three countries at the centre of the outbreak, Liberia has already been eliminated, and both Sierra Leone and Guinea are longshots to make the final slate of 16 teams. Without their teams in the tournament, there is little reason for fans from the infected countries to make the long and expensive trip to the Cup of Nations. Even if Guinea, the team with the best chance to advance, were to make it to Morocco, the number of additional arrivals from this afflicted country is more likely to measure in the dozens than in the thousands.

In the end, hats off to the Confederation of African Football for not succumbing to an irrational fear of the disease. Now the hard work of organising a new tournament in another country in less than two months begins.

This article was originally published on The Conversation. Read the original article.

In 1998, the Brewers left their old stadium in Chandler, Arizona, for Maryvale Baseball Park in Phoenix. Was that a blow to the economic development of Chandler? Not exactly, as Richard Williamson describes in an informative article published in The Bond Buyer.  The city appears to be thriving.  It “is in great fiscal health”, it’s “high-tech city hall has won architectural awards and anchors a revitalized historic downtown,” and population has increased 30%, to 240,00 (see slide 10) since the Brewers departed after “relatively contentious” negotiations.  Chandler’s bond rating has increased from AA- to AAA , moving in the opposite direction of sports-intensive Glendale (from AA to BBB-plus).

According to the article, the Brewers are have started discussions with Peoria — to the northwest of Glendale — about developing a new facility there.  The folks in Peoria, already the Cactus League home of the Mariners and Padres, might do well to look at the example set by their neighbors in Chandler.

This is a rare news story where the opportunity cost of stadium investment is vividly illustrated.  Thanks to Adam Pope for sending it.

Interesting story in today’s WSJ (ungated). The subtitle is “Why Cleveland Prefers Pen and Paper to Technology; ‘To Write Is to Learn’.” The idea is that active learning trumps passive attempts to absorb information being delivered to you. This resonates with me, as I can remember when I first posted lecture notes on the web. To my surprise, student performance in my Money & Banking course actually dropped. Part of the Browns’ approach is shaped by Coach Dave Mike Pettine’s experience (his father was a high school teacher), and part by academic findings. One recent paper mentioned in the article, “The Pen Is Mightier Than the Keyboard” seems worth checking out.

Written on a keyboard

in favor of the claim of the plaintiff, Ed O’Bannon. Her determination is that NCAA rules (again) are in violation of antitrust law. Here is the conclusion from her 99 page decision:

CONCLUSION
College sports generate a tremendous amount of interest, as well as revenue and controversy. Interested parties have strong
and conflicting opinions about the best policies to apply in regulating these sports. Before the Court in this case is only
whether the NCAA violates antitrust law by agreeing with its member schools to restrain their ability to compensate Division I
men’s basketball and FBS football players any more than the current association rules allow. For the reasons set forth above,
the Court finds that this restraint does violate antitrust law.

To the extent other criticisms have been leveled against the NCAA and college policies and practices, those are not raised and
cannot be remedied based on the antitrust causes of action in this lawsuit. It is likely that the challenged restraints, as well as other perceived inequities in college athletics and higher education generally, could be better addressed as a policy matter by reforms other than those available as a remedy for the antitrust violation found here. Such reforms and remedies could be undertaken by the NCAA, its member schools and conferences, or Congress. Be that as it may, the Court will enter an injunction, in a separate order, to cure the specific violations found in this case.

The clerk shall enter judgment in favor of the Plaintiff class. Plaintiffs shall recover their costs from the NCAA. The
parties shall not file any post-trial motions based on arguments that have already been made.

IT IS SO ORDERED.
Dated: August 8, 2014 CLAUDIA WILKEN
United States District Judge

This will take some time to digest. Judge Wilken does not pretend that she has the last word on this, but it appears at first reading to be a clear-eyed, monumental decision. Read it, and see where you come down on the issue.