The Sports Economist

Just in time for March Madness we have two views on paying college athletes.

The first is an excellent summary of the state of college athletics by Allen Sanderson and John Siegfried in the latest issue of the Journal of Economic Perspectives. “The Case for Paying College Athletes” is available for free download from the American Economic Association website and is definitely worth a read.

In a more humorous (and more profane) vein, it’s hard to beat Last Week Tonight with John Oliver talking on Sunday about “The NCAA“.

The American Economic Association now has JEL classification codes for Sports Economics and subareas within the field.  Here are the codes:

Z2  – Sports Economics

Z20  – General

Z21  – Industry Studies

Z22  – Labor Issues

Z23  – Finance

Z28  – Policy

Z29  – Other

In an email from Peter Von Allmen, the president of the North American Association of Sports Economists,  even though the codes will not be up on the AEA website for awhile, researchers can begin using these codes immediately to classify their research.

It wasn’t all that long ago where Sports Economics research wasn’t taken as seriously as research in International Economics, Labor Economics, Industrial Organization, etc.  This is not to say that there have been no economists who have taken sports economic research seriously over the years and no important contributions from the field to Economics as a whole.  Many Sports Economics papers have been published in top tier journals over the past half century.  The field has its own journal, the Journal of Sports Economics, and many journals have published papers in Sports Economics.  However, in many circles, sports economics research was seen as fun research and not something that serious researchers would pursue as their main area.   These codes are validation that Sports Economics is not just fun.  It’s an interesting and important field within the discipline of Economics.

Thanks to all who worked to get this done, particularly Tony Krautmann who got the ball rolling last summer by suggesting this at last summer’s NAASE meeting at the WEAI’s.

Update: I forgot to give a HT to Peter Von Allmen.

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.