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Wandering thoughts on the economics of sports

RF: The field [economics of sports] seems to be gaining popularity within the profession. Why do you think there is more research being done in this area now?

Sauer: I think it comes down to two things. One, economics is data-driven, and there are a lot of good data available in sports. Second, sports are popular and are a market like any other so they present useful opportunities to take economic theory and apply it to issues that interest a lot of people.

RF: Each of the four major North American sports leagues, with the exception of Major League Baseball, has faced a rival league over the past 40 years. In some cases, the rival league has introduced changes that the dominant league eventually adopted. And some of the rival leagues’ franchises eventually became members of the dominant leagues following mergers. But none of those leagues was able to supplant the incumbent. Why? Can you imagine conditions under which one of the incumbents could be driven out of the market by a new entrant?

Sauer: I think it would take a colossal mistake for one of the major leagues to be supplanted by an upstart. There’s a tremendous amount of social capital that is embedded in loyalty to teams, rivalries, and so on. That goes beyond appreciation of the game itself. This is true in the North American leagues, but the best example is European soccer. If you watch the Italian Soccer League, for instance, you will see that the fans are packed behind the goal, which is one of the worst places to actually view the game. You get a much better view from being at midfield. But they are behind the goal for purely social reasons. So it’s something other than the game itself that is capturing the attention and imagination of the fans. That’s an extreme example of what I am talking about, but we see it in almost all sports. It’s not easy to re-create that loyalty even if you introduce a new league with great talent and innovative rules.

I think the existing leagues have figured this out, and they design their competition to take advantage of it. Once upon a time, sport was performance art, like figure skating or boxing. It’s not an event any longer. It’s a drama that unfolds over the course of a season, which is a pretty long time, and leagues have structured themselves accordingly.

That's a clip from an interview produced by Aaron Steelman for Region Focus, the Richmond Fed's quarterly magazine. Talking with Aaron was lots of fun, and there's more here, when you have the time.