Sports Econ Test 1

Estimated $_____ per year that public subsidized NFL

$1 BIL - largest public subsidy we give to any business at any time

club seats sell for ___; best ticket in lower bowl costs about ___

$500 per game = $100 gate price (shared 66/34), $400 club fee is not shared at all b/c venue money $100 per game

What is formula for NFL salary cap? P = player benefits, R = league revenues

(.5R-P)/32

Larry Bird exemption in NBA

(example of exemption in soft salary cap) you can exceed the salary cap to re-sign your own player - this allows good teams to stay together & bad teams have trouble rising up

why does LA not have a team?

- LA is just as valuable as empty as it is occupied; it is used as the 3rd leg of an extortion triangle - has generated more $ on than a team would when there were 2 teams, niether sold out games

Are leagues too big or too small?

- Too big for owners: bc they are legislative monopolies, fewer teams means more monopoly power - too small for players and for fans

How does MLB solve problem of some teams being very wealthy and others very poor?

- all local money is in a pot & 31% of it is taxed & distributed among teams

Probability distribution for 4 major leagues

- average is always 50%

What is the diff. b/w structure of American and foreign sports markets?

- foreign markets are open b/c of promotion & regulation (open = bottom 3 teams demoted to lower league, top 3 teams in lower league promoted to better wage) - American league is monopoly

building stadiums in the NFL: - the smaller the market, the ____ the public share - the larger the market, the ____ the public share

- larger - smaller

sigma balance index for NBA

.33

sigma balance index for MLB

.61

sigma balance index for NFL

.66

sigma balance index for NHL

.68

if a league is perfectly competitively balanced, sigma =

1

3 types of revenue

1. Gate (ticket sales) 2. Venue (concessions, parking, luxury suites & club suites) 3. Media (tv rights, league properties)

IF team moves into new stadium, value of team appreciates immediately appreciates by ___

1/4 - 1/3

when was NFL extortion game/ had ___ finalists for ___

1993; 6 finalists for 2 spots

When did NFL expansion occur

1995

dual market theorem

2 monopoly markets are always more valuable than 1 duopoly market

with the same revenue, an MLB team will sell for about ____% less than an NFL team. Why?

25% High variance/ high risk; baseball is risky & revenue fluctuates a lot depending on how team performs; average doesnt really account for risk/fluctuation - NFL has low win elasticity; risk-free business

NHL - teams? divisions? games?

30 teams 4 divisions 82 games

MLB - teams? divisions? games?

30 teams 6 divisions 162 games

NBA - teams? divisions? games?

30 teams 6 divisions 82 games

NFL - teams? divisions? games?

32 teams 8 divisions 16 games

what % of their worth are MLB players paid in Tier 1, Tier 2, & tier 3 respectively?

33%-66%-133%

what % of ticket revenue is shared in the NFL? What type of sharing?

34%, pool

if a NFL $500 club seat ticket includes a $400 club fee, what is the split between the home/visitor shares?

466/34

Hockey players salaries over time ('93-'02)? what happened?

57% to 76% -> player lockout bc salaries were so high -- created salary cap at 56%; NHL did this to themselves

what % of income in NFL is equally shared national revenue?

60%

What's the best salary cap structure for MLB? (as % of revenue)

67% cap, 50% of cap minimum

Win probability distribution graph -- 3 curves A,B,C, getting shorter and wider... which is the correct order of curve based on length of season?

A - MLB (NHL) B - NBA C - NFL

What do we know about area under these curves?

All equal

Gate sharing

If you play an opponent the Home team keeps a share and then gives a share to the opponent

why isnt there an NFL team in LA?

LA is used by all the other teams as part of an extortion triangle for public funding for stadiums

Which 2 leagues develop their own talent?

MLB & NHL train their own players

Which league has the best competitive balance? how do we know?

MLB - same teams don't win every year

Which league's season is closest to "the truth"?

MLB -- 162 games; team that has highest winning % is the best team

it matters where you play in which league?

MLB -- hierarchy of cities dependant on market size bc $ you get from league is not as much as other leagues

NFL & NBA win distribution are very similar which indicates...

NBA is less balanced than NFL bc NFL has this distribution due to so few games; NBA does not have this excuse (82 games compared to NFL's 16)

what is the correct ranking of leagues lowest to highest (MLB, NBA, NFL) based on the σ ratio of real curve to ideal curve?

NBA, MLB, NFL

what is ranking of MLB, NBA, & NFL where league with lowest sigma is first and highest is last?

NBA, MLB, NFL. (NHL)

Dynamic pricing does *not* work in which league?

NFL

Which leagues have a hard salary cap?

NFL & NHL

Why do PSLs work in the NFL?

NFL has inelastic demand & excess demand over supply (games are almost always sold out & very few walk-up tix)

Local Revenue share in each league

NFL: 34% shared (only of gate rev, not venue rev) MLB: 34% shared NBA: 50% shared NHL: 5% shared

Revenue breakdown in each league (Local vs National)

NFL: 40/60 MLB 50/50 NBA: 60/40 NHL: 80/20

Split between tix in NFL is ____ (season vs. walkup) & ____ for MLB Why?

NFL: 80/20 season/walkup MLB: 20/80 because the MLB season is short -- easy to miss a game but cannot miss an NFL game

Salary cap in each league?

NFL: hard cap (since free agency in '94) MLB: luxury tax NBA: soft cap NHL: hard cap (since '05 lockout)

Personal seat license -- why is a 1K season ticket worth same as $500 season ticket + $5K PSL?

PSL is paid up front & last indefinitely over time; paying upfront is same as paying $1K per season but keeps season ticket prices same from year to year so its future value of season tix

What happened when Panthers sold PSLs? What do teams do now?

Panthers sold $160 MIL in PSLs but bc they sold them themselves, they had to pay income tax on them Now, (i.e. STL Rams) issue PSLs through stadium authority, so don't have to pay tax

Equation for Pythagorean Win Projection

Points For / (points For + Points against)

worse type of tax to fund stadium? ex of city who did this

Sales tax -- bc its regressive, thus shifts burden to lower income people when most of ppl attending game are affluent Kansas City

what is most likely outcome for the NFL on the West coast?

St. Louis Rams will move to LA (not san diego chargers)

Pooled sharing what affect does this have?

Teams take their share and a % is put into a pool for every game; pool is evenly shared among all - eliminates advantage of being in a popular division; i.e. Yankees will get back less than they put in, Rays (shitty team) will get back more

What is the major loophole in the MLB rev sharing system?

all local revenue is shared excluding team stadium construction expenses

NFL media revenue -- how are they different from other leagues?

all other leagues 50/50 local/national media revenue; in NFL regional is almost nonexistant & national is divided equally among teams

Players decertified as a union which allowed them to defeat the NFL. Why?

any time an agreement (collective bargaining agreement) is reached a grievance against that agreement cannot be remedied in court, so once they decertified, the grievance could be taken up in court.

local revenue is more important in NHL than in NFL. Why?

big market vs. small market team is much more important in the NHL because 80% of revenue comes from LOCAL rev

fundamental rule of cartel...

charge 1/2 the people double amount; as a monopolist, under provide & overcharge

Elliptical stadium (olympics style) gives ____ optimum; Orthogonal stadium gives ____ optimum

elliptical = social optimum (get as many people in stadium as poss; seat quality is bad) orthoganal = internal optimum; revolutionized stadium design; max. number of seats & quality

there is a stong incentive to trade ____ money for ____ money

gate $ for venue $

When NFL does revenue sharing, they share ____ revenue but not ____ revenue; are Club seats shared?

gate but *not venue* club fees not shared b/c the'yre venue revenue

does NFl use gate or pool sharing? what is consequence?

gate; NFL owners concentrate revenue sources to shelter their revenue from taxes -- causes some teams to be very wealthy & other to be poor

is the MLB loophole good or bad?

good bc it forces all clubs to share private stadium cost in proportion to their benefit

Winner's Curse

highest bid wins, not the avg. bid. makes it very hard for players to play as well as he should for the money he's making. true value is the avg. bid but the guys that gets him is the highest bid

What is the tax shelter in the MLB?

if you build your own stadium, can deduct stadium costs (1/20 of costs every season) from local revenue before sharing local revenue with rest of league

Dynamic pricing in MLB

instantaneous pricing dependent on how the team performs; secondary ticket market (money from stub hub/ scalpers)

Relationship between size of subsidy and size of market?

inverse; smaller markets pay more

Revenue sharing in the MLB - what about stadium costs & what is impact?

local revenue is split 66/34 - can deduct stadium costs from the 34% which basically passes 34% of stadium cost onto rest of the league; everyone who benefits from the stadium including visiting teams pays for some of the stadium which *creates symmetry*

Dynamic pricing is when primary ticket seller... used extensively in which league? revolutionized by which teams?

mimics the secondary ticket market so people cannot but their tix and sell for more on stubhub - used extensively in baseball - Giants & Cardinals

according to the dual market theorem, a league will never duplicate existing markets because it is a ____ ___ ___

negative sum move

_____ sells tickets, _____ wins championships

offense; defense

Club seats: what is the price breakdown, what type of revenue?

part of price is ticket price, other part is the club fee: free food & beer, etc; considered venue revenue

What would curves MLB* & NFL* look like compared to real counterparts of MLB & NFL?

peak of both MLB* & NFL* will be higher than real counterparts

main difference b/w positive and negative feedback systems?

positive feedback needs to be fixed if it is broken

Variable pricing

price schedule set up at beginning of season where price fluctuates with quality of teams coming

what happen when league is too small for the external optimum?

rival league will expand into the edge markets & duplicate existing markets

Why don't PSLs work in the MLB?

season tickets are a burden in the MLB; most tix are walkup

PSL fluctuate: what is it dependent on?

secondary markets after they're purchased - dependent on how team is performing/ demand for season tix

if something is decided in a *collective bargaining* setting, it can be...

settled in court

what is the approx. composition of NFL revenue?

shared media 60%, shared gate 20%, unshared venue 20%

what is the progression of NFL TV rights over time?

siphoning from free-to-air to cable to satellite

Distribution looks ___ & ___ the closer it is to the truth

skinnier & taller

how is 3 tier MLB system used in keeping competitive balance by playing "money ball"?

small market teams play in tier 1 while big market teams play in tier 3

Why did the NFLPA decertify after the 1987 strike?

so that individuals players could sue the NFL

NBA has a ____ salary cap...

soft salary cap -- cap can be exceed for certain exemptions

the recently instituted College Football Playoff will probably

split NCAA divsion 1 football directly in half at the $20 mil football budget line

NFL switched from gate money to ....

suite revenue

what defines a hard salary cap?

teams can be *above* salary cap in the SR, but will have to *below* it in the LR

Hard salary cap works because the NFL & NHL have...

the greatest competitive balance sigma ratios

how does MLB solve the problem in NFL from Q16? Answer: they share ____% of all ___ after ____ cost allowances

they share *31%* of all *local revenue* after *stadium cost* allowances

purpose of draft?

to increase monopsony power that NFL has over players

what's the cause of the NFL lockout of 2010?

value asymmetry b/w teams with new stadiums and those w/ old stadiums due to lack of shared *venue* money