ECON 395 FINAL
Consider the fan demand for tickets for a sporting event/game. What characteristics of an event will make demand more inelastic?
A "rarer" game will have more inelastic demand Playoffs Championships Rivalry games
Based on the invariance principle, what is the expected impact of allowing student-athletes to be paid beyond tuition, room and board on the competitive balance of Division I college athletics?
Allowing schools to pay student-athletes would not affect the competitive balance of Division I college athletics based on the invariance principle If division 1 athletics is made up of rich and poor teams, the rich teams will not end up with all of the best players because teams need competition in the league in order to survive, so accumulating all of the best players on a team is not in that team's best interest If a team already has a bunch of talented players, hiring an additional star athlete would not be worth the salary they would need to pay that student athlete Star athletes won't come to your team if they won't get to play (difficult to hoard talent, could go somewhere else and play more) The teams that would be able to pay the most money to athletes already attract top talent through full ride scholarships and the best practice facilities, so the distribution of talented players wouldn't change
Characterize the various kinds of athletes who seem to most benefit the most from permission to exploit their own NIL and why.
Athletes with legacy names (ex: John Daly II, Bronny James, Sheduer Sanders, Arch Manning) Women's athletes Because they don't get "free" media coverage, women are much more likely to have social media presences and larger followings, positioning themselves to be important beneficiaries of NIL opportunities Ex: Livvy Dunne, Sunisa Lee, Haley and Hanna Cavinder Athletes ate universities with a more rabid fanbase will have more opportunities (ex: Michigan, BYU, Texas)
Suppose a professional sports team is regularly winning and selling out each of their games. Explain why this could be both consistent and NOT consistent with a profit-maximizing pricing scheme for the team.
Consistent: price the team is charging for tickets might not be the highest possible price because they could be wanting to capitalize on concessions/parking/merch sales in the stadium as well (profit maximizing isn't only done through getting the highest price for tickets) Not consistent: could increase the price and still sell out, but maximizing profit could be bad for building a fandom
Both the ABA and USFL were successful in attracting top talent to compete in their league. Given that, what were differences in the resolutions between the ABA's challenge to the NBA and the USFL's challenge to the NFL and why did those resolutions differ? Were there differences in initial strategies, later strategies, or how the more dominant league handled the challengers? That is, WHY did one league end up being partially successful and the other league not?
Differences: ABA teams made it into the NBA, no USFL teams made it into the NFL AFL was more well-funded than USFL ABA was able to make the NBA lose money, whereas the USFL tried to compete with the NFL too early and was not a big enough threat to cause the NFL to lose money ABA used creative accounting and NBA did not take them seriously, then took them too seriously, giving ABA an advantage Weaker USFL owners gave in to Donald Trump and tried to get the season switched to the fall to directly compete with NFL instead of waiting until NFL CBA expired NFL was more well-funded than the NBA NBA was losing money, and decided to accept 4 teams as expansion teams with serious restrictions on those teams Each team paid $3.2M to the league Would get no national TV contract money for three seasons Would not take part in 1976 draft Etc. NFL's influence over broadcasting companies essentially locked USFL out of the broadcasting market
In professional tennis, prize money for tournaments which host both men's and women's events, such as the four "Grand Slam" tournaments (The US Open, The Australian Open, The French Open and Wimbledon) is exactly the same for each gender. However, the top 200 earners on the ATP (men's tennis) tour earn about 50% more than the top 200 earners on the WTA (women's tennis) tour. Provide arguments that explain why there may not be discrimination on the basis of gender in professional tennis, and an argument why there may be discrimination, by also identifying what kind of discrimination exists using the economics typology.
Discrimination: Could be customer-based discrimination (ratings are lower, lower willingness to pay for tickets, so revenues are lower) Not discrimination: Outside of Grand Slams and Indian Wells, men and women don't compete at the same time and the tours are separate, so it is harder to argue that there is discrimination occurring (tournament is just paying based on event revenue)
Describe the methodology, findings, and implications for the world outside of sports of "Reference-Dependent Preferences, Loss Aversion, and Live Game Attendance" by Dennis Coates, Brad Humphreys and Li Zhou (2014).
Does consumer behavior follow the uncertainty of outcome hypothesis or the model of risk-averse preferences? Uncertainty of outcome hypothesis says that demand for sporting events depends on the degree to which the outcome of the game is unknown People prefer (get higher utility) from games that are uncertain in expectation of outcome Loss aversion says that people get the highest utility from going to games where they believe their team has a high probability of winning, or where they know their team will probably lose but the utility gain from winning would outweigh potential losses Based on the principle that utility loses from losing a fair bet are greater in magnitude than the utility gain from winning the bet Expected utility is lowest when playing a team that is evenly matched Researchers used regression to try to model attendance based on a variety of factors Looked to see if preferences (on the graph of probability of winning on horizontal axis and attendance/utility on the vertical axis) were concave (supporting uncertainty of outcome) or convex (supporting loss aversion) Data set consisted of attendance records from 2005-2010 MLB regular season games, except for Toronto Blue Jays games Win probabilities were taken from betting markets Findings of the model were consistent with the loss aversion model of attendance, meaning attendance increases at games where fans know their team will will Outside of sports, this finding was important because our understanding of reference-dependent consumer preferences informs how to think about economic decision making generally At a restaurant, do people want to try new things (UOH), or do they avoid doing so in case it is awful (LA)? Should firms market new models and features, or avoid drastic change because of risk aversion of customers?
Who obtains the financial benefits from college football bowl games? There are multiple elements to this answer and each might require some explanation.
Each team participating in a bowl game receives $300,000 for meeting NCAA Academic Progress Rate requirements Conferences and independent teams receive base payments regardless of performance: Power 5 conferences receive a base of $79M per conference Notre Dame receives $3.89M Group of 5 conferences receive a base $103M combined All other independents share $1.89M Four teams are selected to play in the championship tournament, and each conference with a member team in the tournament receives $6M No additional pay for being in the championship game Conferences receive $4M for non-tournament bowls from the three bowls out of the six that rotate that are not part of the playoff in that year $2.85M in expenses is provided to conferences for each game played in the 6 bowls Teams in the power 5 conferences benefit most financially from the college football bowl games Not only do the benefit the most financially, but they also have created a system that minimizes risk on a year to year basis, allowing them to set stable budgets due to revenue certainty
Explain what the "Ilya Kovalchuck" and "Shea Weber" problems were (generally), for whom they were problems, and how they were resolved as a result of the next CBA negotiation.
Ilya Kovalchuk: Signed a 17 year contract, most of which was paid in the first 10 years Only the average of the salary counts against the team's salary cap, so the Devils were paying him a lot of money in the first 10 years ($11.5M/year) while only taking up $6 million per season of their salary cap Devils thought the salary cap would increase over time, so the extra money going against their salary cap in the future wasn't a big concern to them Devils were essentially borrowing against their future salary cap NHL saw this as circumventing cap rules Individual teams had incentives to make contracts long in order to lower average value going against the salary cap, but NHL wanted to limit this so that teams could not avoid the salary cap Solution: Limit on how long contracts can be (8 years if re-signing with current team, 7 years for unrestricted free agents), restrictions on how salary payout can be spread Shea Weber: When Shea Weber became a restricted free agent, Philadelphia (owned by Comcast) offered a $110M/14y contract with significant signing bonus ($27M in first year and $13M in subsequent years) This contract was designed to be painful for Nashville (owned by local businessmen) to match Signing bonuses are due at the start of the season, whereas salary is paid out across the season For cap purposes, the contract was $7.8M a year for 14 years, but Weber was owed $40M in the first 3 years, which Nashville could not afford to do NHL wanted to eliminate signing bonuses so that big market teams couldn't bully smaller market teams and take their players Solution: Now signing bonuses cannot exceed 10% of a player's salary for that year
In professional and collegiate sports, TV broadcast rights are growing faster than other forms of sports revenue. Why is this?
In a world of ad-block software and DVRs, skipping commercials/ads on social media and other television shows is increasingly easy Sports are one of the only things people still watch live Watching live means viewers are forced to watch advertisements, so advertisers will pay big money for air time during sporting events Thus, broadcasting networks will pay big money for the rights to these games, because they in turn will profit off of the advertisers
What is the Sports Broadcasting Act and why does it create economic value to sports leagues (and its member teams)?
In the 1960s, the NFL pooled rights to broadcast games and sold them to CBS The US government sued under Sherman Antitrust Act and won Teams were cooperating with each other in an illegal way to charge higher prices for broadcasting rights Congress changed antitrust rules specifically for professional sports leagues selling broadcast rights Limits NFL's ability to "compete" against high school and college games (can't have games after 6pm on Fridays or Saturdays before December) Antitrust exemption was extended to all major professional leagues at the time (football, basketball, baseball, and hockey) All major sports leagues utilize this, which allows for a form of collusive behavior (with some limitations) Economically, the benefit was that leagues could act as a single monopolist for national broadcast games instead of teams competing against each other (bidding prices down) to sell their individual games
What are the more recent concerns (2022-2024) that WNBA athletes have regarding pay, working conditions, and the so-called "prioritization rule" ?
Increasing salary cap at a similar rate to how fast WNBA revenues are growing Lengthening the season to stabilize league and discourage players from playing overseas Increasing revenue sharing, especially with the new ESPN deal coming in 2025 "Prioritization rule" says that other than players in their first two years in the league, players must show up at training camp or be fined/suspended for the year This is meant to prohibit players from playing overseas during the WNBA off season because European/Asian league playoffs conflict with the start of the WNBA season Athletes do not like this rule Players having to take pay cuts to help retain other players on their team due to low salary cap Conditions of practice facilities
Consider the fan demand for tickets for a sporting event/game. What characteristics of an event may result in it being considered an inferior good, using the standard economic definition of that term?
Inferior good: a good whose demand decreases when consumer income increases Characteristics of an event that may result in it being considered an inferior good: Pre-season game Low quality of competition Minor league games Time and day of week of the game Obstructed views
In your own words, explain what leakages are and how they impact the multiplier effect of spending at sports facilities. Provide some illustrative examples.
Leakages describe the fact that the vast majority of spending at sports facilities go to vendors, the league, owners, and players, many of whom have high federal income tax rates, high savings rates, and do not necessarily live in the local community Athletes and owners don't put their earnings back into the local economy Spending at sports stadiums crowds out spending on other locally-owned businesses, where the multiplier effect is larger Stadiums of the 90s were built far away from downtown areas, siphoning most spending in-stadium where the multiplier is the lowest because there are not other options for restaurants/entertainment around the stadium Ex: If you buy a hot dog in the stadium, the money goes to the vendor who is likely based outside of the community vs. if you bought the hot dog from a stand outside the stadium the owner of the stand would likely reinvest some of this money in the local economy Ex: if a hotel charges 3x the price on superbowl weekend, the majority of the extra spending will flow to the parent corporation that is based outside of the community
What were the primary points of disagreement regarding the collective bargaining negotiations between the MLB players and MLB teams during the 2021-22 offseason? What major changes, if any, were made as a result of the new CBA relating to labor markets and economic considerations (not on-the-field rule changes).
Main bargaining issues: Value of franchises were outpacing that of average market returns, TV contracts were increasing, but player salaries were not increasing at the same pace Competitive Balance Tax threshold was increasing at the rate of inflation, but MLB revenue was increasing faster than both There was a greater use of younger, cost-controlled players who could only earn the minimum salary or a little bit more Union wanted to keep CBT thresholds and minimum salary increases high and increasing faster than the rate of inflation (see CBT as acting as a salary cap) Pay younger players more Increase the number of super two players Super two players are players who play only part of a season but have it counted toward their years before they can be a free agent Reach free agency or arbitration earlier Owners wanted any increase in the CBT threshold to come with much harsher luxury tax penalties so that all teams are disincentivize to overspend Owners wanted to institute an international draft so that teams wouldn't have to spend so much on recruiting of foreign players Players wanted reduced revenue sharing because they wanted big teams to keep their profits and spend more on players Changes: Increased minimum salary Extended playoffs More revenue for teams and players, but introduces randomness and disincentivizes big teams from spending more on players because it is easier to make the playoffs "Pre-Arb" bonus pool: those who are making minimum salary in their first 2-3 years will be eligible to earn money based on performance before they can increase their salaries through arbitration Increases in pension benefits 1-2% yearly increases in bottom CBT threshold Changes benefit star players and young players
In 2017, about 60% of head coaches of women's college basketball and 50% of WNBA coaches were men. Today those numbers are about 59% in the NCAA and 75% in the WNBA. The NCAA percentages are higher at larger universities. While there are a handful of female assistant coaches in the NBA and men's college basketball, none are head coaches. Does this mean that there is hiring discrimination at that position on the basis of gender? Using the standard economic typology of discrimination, state the arguments for and against there being gender discrimination in the hiring of basketball coaches.
Men are seen to be qualified to coach women, but women are not qualified to coach men People may argue that men are better leaders/coaches, or that they do better under pressure and this is why they are hired more than women for coaching positions Research has found that the performance of teams coached by men are no better than the performances of teams coached by women Research has also found that men perform worse than women as pressure increases This is evidence for there being discrimination in the hiring of coaches because there is no statistical reason why men should hold more positions than women, it must be some sort of taste-based discrimination Argument against this being discrimination: maybe there aren't as many women in the coaching profession, so discrepancy reflects gender split of the field (but this itself is likely related to discrimination earlier in the career path) There is discrimination in both mens and womens sports Coworker (relationship between coaches and players) discrimination? Fan discrimination?
As a tournament organizer, what considerations regarding prize money distribution should one take into account to maximize the overall quality of competition?
Must balance allocating money to stars and lower-rank players to fill out the competition One way to create competition is to have a "stars only" field, such as LIV Golf or F1/NASCAR, but these only work with a well-developed system to develop players and support them as they work their way up Organizers can also try to be a monopolist/monopsonist so there's fewer attractive alternatives, but that generates legal challenges Lower tier athletes will put in less effort in competitions where the jump in prize money between lower finishing positions is low Increasing marginal revenue lower down leaves less money for top prizes, which might disincentivize talented players from entering the competition Want to weigh rewarding success with also rewarding some participation to fill out the tournament and create sustainable careers Motivating lower tier vs. higher tier players Must make sure there are not too high of marginal prize money because this incentivizes cheating Tournaments with larger absolute prize pools should attract better competition
As a factual and institutional matter, what are the key differences between the NFL, NHL, NBA and MLB in terms of limitations on player pay?
NFL, NHL, and NBA have team salary caps, MLB does not NFL and NHL have hard salary caps, NBA can be stretched if resigning the same player NFL does not have individual salary caps, NHL and NBA do How early players can become unrestricted free agents (longest for MLB, tradeoff for not having a salary cap)
Can two professional leagues co-exist separately from each other and have similar levels of skill?
No, the more well-funded league will pay higher salaries to the most talented players and pull them all into their league (ex: LIV Golf) League with less money will not be able to afford to maintain a comparable level of skill in their league Two leagues competing will drive up salaries and drive down profits until they are forced to merge or one dies on its own
Provide a summary of the research paper "Racial Discrimination Among Referees" by Justin Wolfers and Joseph Price (2007) and the subsequent interactions the researchers had with the NBA, along with their follow up findings.
Paper found that when a NBA referee crew contained more whites, the rate of fouls called against black players increases relative to whites White players, on average, have more fouls called against them because of the positions they tend to play NBA commissioner saw a draft copy of the paper and was moved to conduct its own study, but included which official calls which foul (not publicly available data) NBA study found there was no racial bias among referees Study did not control for positions, veteran status, or other factors that Wolfers' study controlled for NYT commissioned an evaluation of the NBA study, but had to retract this under pressure from the NBA since they believed the economists selected to review their study had conflicts of interest due to relationships with Wolfers Wolfers' paper was published in a very prestigious journal, and the results were seen as convincing NBA argued the study only had the racial makeup of the crew, not who ACTUALLY made the foul calls, but Wolfers said that looking at entirely white vs. entirely white crews gave the same evidence Price and Wolfers published a second paper explaining the discrepancies between their work and the NBA's unpublished study Then Price and Wolfers published a third paper studying the impact of awareness of bias on referee discrimination Found that after their original paper was published, discrimination by referees ceased in the NBA The NBA still does not acknowledge that there was any difference pre and post paper, and we will never know why the difference went away because the NBA won't admit that it existed in the first place or what they did to eliminate it
Provide a summary of Jon Lanning's "Productivity, Discrimination, and Lost Profits During Baseball's In- tegration" and how it sought to illustrate the nature of discrimination against hiring Negro League players by MLB teams.
Paper looked at performance statistics from the MLB from 1947-1961 to determine what kind of discrimination was preventing teams from hiring Negro League players Wanted to determine if it was observed lack of qualified workers, statistical discrimination, or one of three types of taste based discrimination: (owner-based, customer-based, or coworker-based) Looked at team expected runs produced per at bat (EPR), wins average, and white player EPR and whether the team was integrated Found that there was no evidence of coworker discrimination or statistical discrimination Looked at attendance data and whether the team was integrated On net, there was no customer discrimination Found there was employer-based discrimination Boston had the most predicted attendance gains from integration, but they were the last team to integrate Finally, looked at minor league and Negro League indicators compared to MLB indicators and found that black player statistics were more predictive of future MLB performance than for white players, and that there was no "learning curve" No evidence of statistical discrimination
You are a WNBA player who has just completed your second season in the league. You are not a starter yet, but you do earn consistent minutes and the team has confirmed they expect you to take on a starter role next season. The league only lasts from May to September. What are your available options until the next WNBA season (based on the materials discussed in class) and how have the relative attractiveness of those options changed before and after the 2020 WNBA CBA was implemented?
Play overseas Less attractive now due to prioritization rule Also decreased market for WNBA players in overseas leagues due to collapse of Russian and Chinese leagues Offseason career apprenticeship programs and marketing agreements within the WNBA and with its partners (NBA, NBAG, Microsoft) Coaching (college teams for the most part)
Explain what roster depreciation is and how it is used to sports franchise owners' advantage. Separately, how can it benefit players?
Players are treated as depreciable assets and thus owners can deduct that depreciation from taxable income, separately from the salary itself (even if the player is young and getting better, you can claim they are depreciating) Like a tax break on player contracts Losses can be used to offset gains that the owners makes in other parts of their portfolios, owners get tax break Benefit to players: team has more money left over to increase player salaries because they can deduct them twice (as an expense and as a depreciating asset)
What are the arguments that support WNBA players potentially being "underpaid", which led to the players opting out of the current collective bargaining agreement at the end of the 2019 season? Why would paying players more make the league more economically sustainable?
Players were being paid an estimated 20-25% of league revenues, whereas players in other leagues make closer to 50% of revenues Many players were making the maximum salaries, indicating they were underpaid relative to their value to the team Low pay led to many players going overseas to play during the WNBA off season, and many would get hurt there and then miss out on WNBA season Those who didn't get hurt were fatigued from playing basketball pretty much year-round If the WNBA paid players enough to disincentive them from going overseas, the league would become more economically stable because star players would be more permanent fixtures of the league instead of having to sit out random seasons during their peak performance years due to injuries sustained overseas Helps with building fan bases and following
What are the potential positive and negative impacts the construction and operation of a sports stadium to host a professional sports franchise might generate for the economy of a particular city?
Positive: Construction spending Materials Supplies Labor Professional fees Operations spending Facility spending Ticket sales Premium seats Food and beverage Merchandise Sponsorship Parking Retail Sales Housing/office rents Sportsbook Ancillary Community Spending Lodging Restaurants Bars Service Retail Entertainment Transit Other Multiplier effect from all of this spending Negatives: Opportunity cost of federal money used to fund the construction Could be used on drug treatment, housing, direct jobs, education, transportation, and other urban problems Substitution effect (displacement) Leisure budgets are generally inflexible, so regional leisure spending increases due to a sports team will be very little (spending is just reallocated from other places) Leakages Spending at sports stadia crowds out spending at other locally owned businesses where the multiplier effect would be higher Very little of the money spent at the stadium circulates back into the local economy Crowding out For large events, normal spending in the city will be curtailed because other conventions, restaurant goers, and tourists will avoid the area Financing burden Opportunity cost of public financing: there are limits on borrowing, so if the city borrows to build a stadium it cannot borrow more money for other projects Even without public finance, the city/state almost always pays for the associated infrastructure improvements
Describe the methodology, findings, and implications for the world outside of sports of David Romer's "Do Firms Maximize? Evidence from Professional Football" (2006).
Researchers wanted to determine if firms maximize, and applied this question to whether NFL teams maximize their chances of winning Do coaches take actions which reflect maximizing wins in expectation? On the fourth down, do teams go for it or punt/kick for the field goal in optimal ways? Author says the coach should be indifferent between kicking a field goal and continuing to try and score a touchdown if the expected number of points is the same in each case, and this determination must factor in the possible field position you might give the other team if you fail on your attempt Scoring a field goal will, on average, lead to a better position for the opposing team on their next possession than failing to score a touchdown Failing further down the field might be better than scoring a field goal and the other team getting the ball at their 20-30 yard line Maximizing the expected number of points on the current possession is not the same as maximizing the probability of winning Increasing the probability that you score points could mean increasing the probability that the other team scores points Researcher determined that coaches systematically miscalculate the probability of scoring a touchdown or miscalculate the disadvantage the opposing teams have in poor field position Coaches underestimate what their own teams will do, which is an example of risk-averse preferences Found that coaches are kicking the ball on fourth downs at distances from first down where they should be going for it in order to maximize the chances of winning Since the publishing of this paper, NFL coaches have started going for it more on first downs In 20201, the NFL set records for 4th and 1, 4th and 2, 4th and 3, and two point conversion attempt rates
Describe four characteristics of sports leagues which vary between leagues but can impact, or are said to impact, competitive balance.
Salary cap system (more restrictive season increases competitive balance) Length of season (shorter season decreases competitive balance) Randomness of sport (more randomness increases competitive balance) Revenue sharing (more revenue sharing increases competitive balance) Skill dispersion (lower skill dispersion increases competitive balance) Costliness of injuries (higher costs of injury increases competitive balance) Impact of star players on wins NBA has lowest competitive balance because star players can be on the court for an entire game, MLB has highest competitive balance because there are 22 players on the field and one cannot do it all on their own In the NBA, there is an incentive for bad teams to tank even more in order to draft a star player (this is easier than signing an existing star player away from another team)
Neoclassical firm theory, taught as part of most economics curricula, implies that when a firm is profit maximizing, they will hire labor up to the point where the marginal revenue product of the extra worker is equal to the marginal cost. Using your understanding of labor markets in sports, describe as many reasons as you can that explain why this is unlikely to be true for most athletes' pay in professional team sports.
Salary caps limit bargaining power regardless of skill (rookies could be getting paid more or less than they are worth) EPL and MLB likely have the salaries that are closest to their marginal revenue product due to no salary cap Bargaining power (some players have some monopoly power of selling their labor, gets them a higher salary)
Suppose you are the owner of a professional baseball team in a major city and your league allows a second team to locate in your city or metropolitan area. On what basis should you be compensated?
Segmentation of TV market Segmentation of ticket market Segmentation of fanbase Loss of advertising sources Decrease in protected territory Reduction in quality of the league Decrease in share of ownership of the league Giving up leverage of using that city to move to in stadium negotiations
Describe the methodology, findings, and implications for the world outside of sports of McCormick and Tollison's"Crime on the Court" (1984).
Set out to answer the question of what happens when the number of police increases More cops means higher probability of detection, which implies more arrests (not necessarily more crime) Higher probability of detection implies lower expected returns to crime, which means fewer attempts at crime Overall effect on arrests is unclear because they are the product of attempts and probability of detection Authors used a decade of ACC men's basketball tournament data to investigate which impact is stronger: will more referees result in more fouls called because fouls are more likely to be "caught", or fewer fouls called because there is as stronger deterrent? In 1978, the ACC increased the number of officials from 2 to 3, which served as a controlled test of the effect of more refs on fouls Authors found that 17% less fouls were called when there were 3 officials on the court vs. 2 officials on the court Are less fouls being committed, or are refs making better calls (calling fewer false-fouls)? Researchers argue fewer "false" arrests/fouls lead to fewer upsets as the "better" team is more likely to win Bad foul calls introduce additional randomness in the game Found that a third official reduces the amount of upsets, indicating the quality of officiating increased with the reduced fouls Researchers were on the fence about this because it was only significant at the 90% confidence level, and it is difficult to evaluate if fouls are "false arrests"/bad calls Main takeaway: additional referees led to less fouls, partially due to increased quality of calls being made Applying this to the real world, additional police officers should lead to less arrests, partially due to less false arrests
Why do work stoppages (strikes and lockouts) in professional sports leagues occur? More importantly, what generates bargaining power for either side which contributes to how long they last?
Strikes and lockouts occur when there is a disagreement between players and owners regarding a CBA that is unresolved and there is no current CBA in place Disagreements surrounding payer play and working conditions Bargaining power for owners/league: Intra-player divisions Younger players vs. older players Star players vs. bench players Being able to replace players Withholding payment Bargaining power for players: Bargaining as a group (union) instead of individually gives power Having other sources of income/opportunities to play in other leagues Threatening to decertify the union and then individually sue the league for antitrust violations Tight labor market (meaning leagues can't find players of equal talent to replace them easily)
What does "NIL" rights mean with respect to NCAA athletes, how has that changed in the past 2 years?
Students are now permitted to make money off of their own name, image, and likeness, subject to state laws and some NCAA regulations Athletes must inform schools of any opportunities they take advantage of NCAA regulations: No alcohol, drugs, or gambling ads Must have school permission to use school logos Conferences can set their own rules This was not the case prior to 2021 Previously, NCAA profited off of the NIL of its athletes, but was taken to court so many times that they had to drop the issue
Is the existence of secondary ticket sellers (like StubHub) and ticket scalping an indicator that teams are not profit maximizers?
Teams are profit maximizers to the greatest extent possible at the time tickets go on sale Tickets go on sale far in advance of the game date, so it is difficult to predict how fans' willingness to pay will change as the season progresses For example, a team could be predicted to have a bad season in a rebuilding year, but their rookies end up connecting really well and the team is predicted to make the playoffs Price of tickets purchased at the start of the season for games later in the season will be cheaper than what these tickets are sold for on secondary markets because demand for the games would have increased over the course of the season Also, teams may not price tickets at the highest price possible because they hope to profit off of things like concessions, parking, and merchandise once the fans enter the stadium, which is not something that secondary sellers can profit off of
What is the Rottenberg invariance principle and how does it apply to understanding competitive balance in professional sports and in (Division 1) college sports?
The Rottenberg invariance principle says that the talent of players in a league will be distributed to the clubs who value the talent the highest, regardless of whether the players or the team owners receive the revenue generated by the players If a league is made up of rich and poor teams and the labor market for players has no restrictions, the Rottenberg invariance principle says that rich teams will not end up with all of the league's star players on their rosters Since sports teams cannot survive without competition from other teams, accumulating all of the best stars on their team is not in their best interest If a team already has multiple talented players, the benefit of hiring another star player will not be worth their large salary, especially because competitive balance is important to demand Applying the Rottenberg invariance principle to the NCAA proposal to allow teams to pay players directly to play for their team, there likely would be no change in the competitive balance of the NCAA if the change was implemented Teams with high athletic department revenues would not become more dominant because it is in their best interest to maintain competitive balance in the league, and hiring more star players than they already have would not provide much benefit, but would cost a lot of money that could be used on other team operations
When a new team enters a league, what specifically is the expansion team purchasing (from an economic standpoint) and what specifically are the other teams, represented by the league, selling (what are they being compensated for economically)?
The expansion team is buying into broadcasting contracts, support from the league, membership to the league (which has innate value when it comes to fanbase and sponsorship opportunities), and access to players in the league, prestige of being an owner in the league (very exclusive) Teams are selling part of their television revenues (hopefully will be made up for by expanding television market), access to their players (in some expansion drafts teams have to give up some of their players to the new team, also diluting quality of players because of additional roster spots)
Identify and explain the major sources of revenue for Division I athletic departments.
Ticket sales Facility revenue College/university support (primary source for most colleges where the athletic department is not revenue-producing, not the case at UM) Alumni/external support (boosters) Advertising, sponsorships, and licensing Conference revenue and football bowl distribution (this money goes to the conference first, then is distributed to schools) NCAA basketball tournaments National TV contract (football and basketball) Conference TV station BCS Bowl Series (if applicable) Competition guarantees (significant for some schools, insignificant for others (not significant for UM))
What is Title IX and how does it apply to college athletics? How are universities supposed to show they are in compliance with Title IX?
Title IX is a an amendment to the 1964 Civil Rights Act (which prohibits discrimination where government dollars are involved) The amendment bars sexual discrimination in education, and thus collegiate athletics "No person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any educational program or activity receiving federal financial assistance" Schools are compliant if they satisfy one of the following: Proportionality: "Provide a composition of athletic opportunities to men and women that is proportional to the gender composition of the student body" Extremely few schools meet this Continued expansion: "demonstrate consistent program expansion for women" Accommodation of interests: "show accommodation of student interests or abilities" Schools can argue female students don't want to play sports and they are just funding what students want by having less women's teams No school has ever been found out of compliance (despite many lawsuits), but that doesn't mean they are all compliant, more just an indicator that compliance is not strictly enforced Holding one school accountable would mean holding them all accountable Schools have to report data on their athletics programs to the department of education every year, and the NCAA provides additional incentives for compliance There are a variety of ways to massage the numbers to seem compliant: Rowing heavily recruiting freshmen to increase roster size of women's team Double counting cross country and track and field athletes DOE/NCAA has allowed male practice players (on women's teams) to count as female participation
Describe the changes in US national and professional women's soccer relating to how players are compensated and how players negotiate their terms of employment with both US Soccer and the NWSL.
USWNT: US Soccer Federation pools revenues from the mens and womens national teams and splits it between the teams, regardless of how FIFA allocates the revenue NWSL: Minimum salaries increased to $35,000 with bonuses Players get severance pay, housing, and health insurance support after being waived from their teams Free agency eligibility moved earlier, with restricted free agency eligibility starting at 3 years Game frequency agreed upon Broader mental health and pregnancy benefits, along with minimum standards for medical staffing Intersection: United States Soccer Federation no longer pays the NWSL salaries of USWNT players Players who play for both teams sign separate CBAs with each program/league
Do fans desire competitive balance? What are arguments for or against this from the perspective of driving consumer demand/attention/spending?
Uncertainty of Outcome Hypothesis: consumers get more utility from (and have higher demand for) games where there is a high degree of competitive balance, making the outcome of the game uncertain Fans derive utility from the uncertainty Loss aversion: consumers get more utility from going to games which they know their team will either certainly win or lose Magnitude of utility lost from losing a game is greater than magnitude of utility gained from winning a game, unless you are almost certain your team will lose and there is a huge upset So fans do not want competitive balance, want to know their team will win Attendance data from baseball sportsmetrics paper supports loss aversion theory
What are the revenue sources for sports teams and leagues, and explain how, ultimately, fans pay for all such revenue sources.
Venue revenue Ticket sales Parking Concessions Box seat sales Advertising Ancillary Team/league licensing "Official _____ of the NHL" Merchandise Jersey/kit advertising TV/radio rights Local broadcast rights (paid to team) NHL and MLB teams tend to make more from local broadcasting than national broadcasting because the teams have strong fanbases, there aren't as many fans of the league in general who will watch any team play National broadcast rights (paid to league, distributed among teams) NFL and NBA have league fans who will watch whatever game is on, so they make a lot more money through national broadcasting Streaming rights Other sources Regional sports network ownership Property ownership Ancillary business/real estate ownership League ownership (profits from league owned enterprises) Fans are paying for ads by changing their behavior and purchasing the products So companies keep buying the advertisements
Suppose you play professional tennis. In a given weekend, there are three different tournaments, each targeted at different quality levels, with differences in overall prize pools to match. What considerations will you make to decide which tournament to attend?
What do I think my chances are of winning the tournament? What is the marginal prize money around the place where I think I may finish? What are the marginal points (to give you access to better tournaments)? How much would I have to spend on travel and accommodations to attend the tournament? Would I likely make a profit based on the prize structure?
Typically, the value of a company is based on the value of its workers, its physical capital, its intellectual property and the managerial skills and culture which put all the other inputs together to produce a rev- enue/profit stream. Apply this to a sports team. What, from an economic perspective, contributes to the value of a sports team?
What sport they play (football most valuable, basketball after, then baseball, then hockey) The size of their market and the power they have over that market Their stadium (history, how nice it is for fans) Brand of the team Winning: increases fandom for the team, increasing demand for broadcasts, tickets, etc. Strong fanbases/brands enable teams to sustain themselves when they have a bad season Rarity of sale Teams usually sell for more than they are valued because they come up for sale so rarely and people will spend more than they are worth to become an owner Teams cannot be kicked out of leagues (in the US, that is) Teams also cannot easily join leagues, so the limited number of teams gives each of those teams value Non-sport investments (real estate, ownership of LSN)
What appears to be the conditions for pay parity between men and women's athletes? You can use specific examples, but what seems to be the general characteristics of events or situations where male and female athletes are paid equally?
When events are held at the same time/venue More difficult to justify pay discrimination because ticket sales admit fans to both events This is mostly applicable to tennis Where leadership makes equal pay a priority This happens in tennis and in US soccer due to pressure from female players
Explain the Uncertainty of Outcome Hypothesis and how it relates to the demand for sports as entertainment.
When the outcome of competitions are more uncertain, we predict that demand for those competitions will be higher If you knew who was going to win before the game started, you would be less willing to pay for tickets Ideal home team winning percentage for ticket revenues is between 60-70% People like the environment/excitement of a game when the outcome is uncertain
What are the considerations you would want to know more about in deciding your vote on funding the construction of a new stadium if you were on the City Council based on the materials from this course? Note that the team is threatening to leave if the deal does not go through.
Where is the money going to come from? What is the expected economic impact of the new stadium on the city (although this isn't something that can be taken as trustworthy) Will there be additional infrastructure costs? What would the effect of the the team leaving be on the city? How highly do citizens value having a sports team in the city? Will the stadium use local vendors in its construction and operation, or will most of the money spent building/in the stadium flow out of the local economy? What else could public funding be spent on? What is the opportunity cost of that money? What are the financing costs? What would be going on in this area in the absence of the stadium construction?
Members of the NCAA Football Bowl Series and those who participate in the NCAA tournament give up all direct money paid out by bowls and the NCAA and instead share that money with all the other teams in their conference. Why do schools do this instead of just keeping the money themselves?
Without this system in place, teams that make the bowl series and or march madness would get a huge amount of revenue, while teams that don't make the tournaments would lose out Results in extreme variability in revenue each season, which makes it hard to set an athletic department budget When money goes to the conference and is shared between the member teams, the schools gain revenue certainty and minimize their risk on a yearly basis University presidents are a big fan of this system
