Sports Econ chapter 3

Article 3

" NBA TV Contracs made Walker's arena plan possible"

Article 2

"Analyzing the win-maximizing vs. profit-maximizing strategy of the National Football League"

Article 3

"ESPN Pays Four Times The Going Rate To Air NFL Games"

Article 2

"Scherzer's Contract Could Play Havoc With Nationals If They Lose To Orioles In Court"

Article 6

"The Economic Structure of the NFL"

Article 1 test questions****

"The New Moneyball"

11. Why was it not a major problem having no NFL team in the second largest US TV market (L.A.)?

1. LA teams rarely sold out games especially in the cavernous LA Coliseum and the blackout rule makes LA's TV market irrelevant 2. The NFL prefers to keep at least one major market open for the venue extortion triangles of other clubs.

2. Summarize the four reasons teams are not seeing financial gains despite winning on the field.

1. Most teams lack emotional connection with fans. Understanding the passion of fans will help bring them to games, you must know your fans and build a connection showing them they matter. Listening and caring for fans will satisfy them and when they feel emotionally connected to a team they will want to go to more and more games. 2. In person experience doesn't match fans' consumption habits. Meaning teams need to bring the game to the fans- through social media and online techniques, social media viewing is growing more and more and teams need to realize that. They also can use social media to connect with fans on a personal level. 3. Teams fail to engage fans continuously. Fans follow their teams during off-season and teams need to come up with a way to engage with their fans throughout the year as well. Keeping fan loyalty up is very important. 4. Fans don't feel heard and understood. Not all fans feel like their teams actually listen and care about them. If teams had better fan intelligence they could do things to satisfy the teams and create a stronger bond.

3. How will a profit-maximizing owner and a win-maximizing owners structure their teams differently?

A profit-maximizing owner structures their team around profit, not on wins. They try to maximize the difference between total revenue and total cost. In order to maximize profits a owner pays the players based on talent level. A win-maximizing owner is most concerned with maximizing wins not profits. They try to maximize their winning percentage. Basically they can be profitable without being a profit maximize. These teams focus on the level of talent and who will generate more wins they will sacrifice profit over wins. Owners driven by the desire to maximize wins are much more likely to pay a player his marginal revenue profit rather than owners interested in max profits.

2. Explain the major threat to the NFLs 'league-think' approach.

A treat has emerged from unshared venue revenue. While luxury seating was being build a proportion of the team specific venue revenue has doubled from 10% to 20% of total revenue. The syndicate now is split into the teams with new venues and those without. The teams that have new venues are making much more profit than the older stadiums without luxury suites

Article 5

At the gate and beyond: Outlook for sports market in North America through 2018

Why is it important for leagues to limit the entry of teams within a given geographical area?

Because if there were too many teams in one area there would be too much competition and teams couldn't pick a team to cheer for and be loyal to. League rules eliminate too much competition in one area.

Why has luxury seating become a prominent issue in the stadium negotiations.

Because it has become such a huge source of revenue for stadiums. It makes the most revenue other than tickets. The more luxury boxes the more valuable the stadium.

Why would a network pay for broadcast rights even if it lost money in doing so?

Because they will eventually profit off of it; TV is the largest revenue source and all sports have a huge revenue streams from local and league wide broadcasts.

1. Explain why ESPN pays so much more than other networks.

By the time ESPN was working out terms for its 2005 contract with the NFL, it had already lost the bidding for Sunday, leaving it desperate for Monday night games. This helps ESPN though because they don't have to share the fans' attention on Sundays, they own Monday. Monday is the highest-rated show on cable television and the highest-rated show for young men on Mondays. ESPN's current deal allows it to possibly air playoff games too.

2. What are some pitfalls in selling luxury suites to corporations?

Chasing corporate dollars isn't always successful; they tend to downfall during tough financial times.

8. Explain the differences between 'club fees' and 'reserve-seat tickets'.

Club seat money is split into club fees and reserve seat tickets. The ticket portion of the club seat is shared with the league as gate revenue while the club fee premium is treated as unshared venue revenue.

"...clubs are mutually interdependent..." and "NFL has become the most economically powerful sports league in the world largely because it has been the most egalitarian."

Clubs are mutually interdependent meaning they depend on each other, they are only as strong as their weakest opponent. And the NFL has become the most..... because it has been the most egalitarian acting as one meaning they are an equal league with their revenue sharing and "league think" mentality.

5. Explain this statement: "...other forces are helping drive and shape the growth of the segment [merchandise]."

Different segments are starting to drive merchandise such as women fans and new products, professional sports athletes specific to catering women's merchandise and other product categories such as electronics, children's apparel, fitness, health foods and household pets. Also innovative sales campaign and fan loyalty program incentives as well as improved distribution.

10. How does the NFL's venue extortion game work?

During it the public share of venue cost varies inversely with market size. (ex the relocation circus with the venue expansions.) They started with six teams and relocated them to all different places which made it easy for clubs to target new venue teams.

2. Why is premium seating a key segment in sports and how is this segment being threatened?

Its differentiated seat locations, exclusive access, and other packaged amenities yield a premium price and higher rate of return compared to general seating. Premium seating has also helped the facility building boom. It is being threatened as additional amenities are programmed into general seat ticket packages to create value and drive demand for non-premium locations. This could result in less people wanting premium seats. Ex seats offered a hot dog and a pop, bathroom, parking

Why are leagues important in sports? What role do they play in the growth of sports?

Leagues are important because they promote the common interest of its members, they help set rules and rules helped the sport spread and keep growing. With leagues there are rules that control aspects that keep the game going. instant replay and red flag

1. Explain this statement: "If the Nationals lose in court to the Orioles and MASN, Lerner may have to decide between a World Series ring or a writing a big check to MLB's taxman."

Lerner wants a World War Series win and has highly leveraged his team so much he had to borrow $25 billion from MLB. So if they lose in court to the Orioles and MASN the expense will not be affordable along with all the other money he owes. He will have to write a huge check or go another year trying to win the world series but either way he is already in deep debt.

Licensing

Licensing is generally shared equally and is a huge source of revenue for leagues. MLB and NFL have made over 2 billion and the NBA almost reaching 2 billion and NHL almost a million. Digital revenues are increasing in importance and arrangement from online media to video games based off of the leagues creates HUGE profit. Naming rights and signage ads

Article 4

Luxury Suites Rule in Professional Sports Revenue

Luxury boxes and venue

Luxury boxes and special seating/ venue helps teams tremendously. Teams profit the most from luxury seating because they do not have to share this income. Luxury boxes are sold to companies for a lot of money and are another source of money from food and beverages. Owning a luxury box is a huge source of profit for teams.

1. Define both marginal revenue and marginal cost.

Marginal revenue is the amount of revenue one particular unit will produce (ex the marginal revenue product of a talent is the amount of revenue the particular talent will generate for the organization.) Marginal cost is the change in costs for taking the one more unit (ex the change the talent will cost). Marginal revenue product: how much additional revenue will this player bring

Gate Revenue

Meaning the number of tickets they sell and the money they get from each customer buying a ticket and attending a game. Attending a game includes all the profit they make from parking, concessions, and merchandise sales. Different sports leagues also share certain percentages of gate revenue, helping increase profit all over.

"Broadcasts are a double-edge sword". Explain that statement

Meaning they are a major source of revenue but they can discourage stadium attendance.

4. What of the four categories is growing at the highest rate and why?

Media rights with a compound annual rate of 9.1%. Consumers and advertisers are migrating to internet connected devices and 'second screen' activity. Social media is becoming more and more relevant and teams are starting to realize they need to connect with their fans using media.

Identify and explain (in detail) the five sources of revenues for professional sport leagues

Revenue sharing Gate rev Broadcasting Licensing Luxury boxes/venue

5. How has luxury seats become a 'chink in NFL solidarity armor'? What two revenue problems does unshared luxury-box revenue cause?

Salary cap effects the players and unshared revenue Teams in an older arena are on the outside looking in and with shared revenue you aren't getting help (luxury suites)

3. Explain this statement: "Sports unions are also divisive in that the internal politics of current players are often incongruent with interests of unrepresented future players and former players."

Sports are horizontally segmented by senior veteran players and rookies and their requirements for free-agent eligibility have become hard and fast. This creates a twisted bilateral monopoly where veterans are overpaid because of upper-tied monopoly power, while rookies are exploited because of owners' lower tier monopsony power.

1. What role did DVR's, Hulu and Netflix play in the growth of sports programming?

Sports is the one program people still like to watch live, they don't want to go on Netflix, Hulu or DVR and watch a game after they already know the score. Ad spending on sports jumped 33% over the same period to almost 11$ billion annually. Sports programming has become very valuable.

Broadcasting Revenue

TV has permanently changed team finance with the number of people watching games. Broadcasting is sports leagues primary source of revenue and all four leagues have huge revenue locally and league wide from broadcasting. For the NFL shared equally each team made $187 million and all national contracts are evenly shared. Some sport leagues even own their own network (ex:Yankees) and have made a huge profit.

9. Explain the G-3 Loan problem, what it was designed to do and the problems it creates.

The G-3 loan problem was designed to discourage teams in large TV markets from relocating to smaller markets. This is the large market trying to protect TV rights and shift venue cost to players and to the smaller revenue clubs. But it technically is a wealth transfer of the smaller teams to the larger market teams playing in new venues.

1. Explain how the broadcast contract helped the Bucks land a new stadium deal with the state (pending assembly approval).

The broadcasting contract helped generate a ton of revenue through taxes. The growth projections are based on tax withholding payments. Future new media contracts will lead to salary increases for players which leads to Wisconsin collecting more withholding tax. Tax growth would return to the state and help the Bucks land a new stadium deal. Increase in fees for Disney and Turner will double and taxing will increase

4. How does the hard salary cap and the 10% range impact both the profit-maximizers and the win-maximizers?

The cap impacts the profit maximizers and the win maximizers by allowing them to approach the player payroll with different strategies. The profit maximizers can keep payroll closer to the floor. While the win maximize can keep the payroll closer to the cap. Makes owners budget more closely

4. Explain this statement: "The NFL's current economic problem is not between owners and players or even between veterans and disenfranchised rookies."

The current problem relates way more to the profit max venues being built.

3. How has the premium seating spectrum evolved to meet new consumer demand?

The customers used to only target private suites and club seats but now consumers want greater exclusivity and amenities than afforded by a traditional club seat along with less ticket price than a private suite so they have invented mega suites and loge boxes to reach new market segments.

12. Summarize the problems created by the venue revolution.

The general shift towards reliance on the unshared venue revenue increased. The venue privatization potential went into the owners pockets because of the heavy public subsides that were leveraged through relocation and extortion threats after the 1995 expansion. And the most of the private venues were financed by schemes of personal seat licenses and luxury seat packages. Fan exclusion tactics have rose as well. Venue expansion has made owners greedy.

1. Why is it important for the team owners to make facility investments that enhance the in-venue experience? What types of technology are the teams investing in?

The new build cycle of the past 20 years modernized sports venues in North America improving all aspects of stadiums (better in-seat experience, better concession, retail, and bathrooms). Fans want to come to games they have a good in-venue experience. The teams are investing in social media to enhance fan connectivity such as video board upgrades and installing wifi. They are also facilitating smartphone app deployment for digital tickets, game content and contests, concession/retail transactions and fan communication, etc.

2. What was the growth in sports programming also good for the players?

The players are being offered way more money. As the teams maximize the local TV games shelled out extraordinary sums this winter including two of the five largest contracts in sports history just to lock up talent. Teams offered players way more after watching them on local TV so no one else can get them.

2. How do you determine the profit-maximizing output level? What happens if a team pays a player more than their marginal revenue?

The profit-maximizing output level is the point where marginal revenue equals marginal cost. If a team pays a player more than their marginal revenue the team will be sacrificing profits. Owners try to pay their players the least amount possible. They would sacrifice profit for wins.

Explain how the behavior of one team in a league may result in a problem economists call the tragedy of the commons.

The tragedy of the commons is when one team neglects the well-being of society in the pursuit of personal gain. So if one team abandons the other teams well-being it may result in a problem. Ex condo place has cleaning crew come in, because not everyone does their part so they have to spend money on it...teams abuse shared revenue.

1. Why would a corporation by a luxury suite?

To entertain and build relationships with clients and prospects for families to spend time together. Also all the benefits the suites come with are worth it (luxury seats, multiple flat TVs, private entrance to stadium on game days, high end food and liquors, access to team events and players)

1. Explain and EXPAND upon this statement: " The effects of lower attendance will bleed into other aspects of the business"

Without people at events it eliminates income from all the other aspects of attending a game such as concessions, merchandise sales, parking, etc. People spend much more money at games then to just attend them so with lower attendance it affects the other aspects too. Compliments being affected

Some critics call revenue sharing a 'tax on quality'. What do they mean by that?

You earn huge revenue and win with an additional talent but then you still have to share (tax). If you are a profit maximizing you will sit back and collect on the win maximizers profit.

Revenue Sharing

certain amounts for each league share their revenue. ex NFL shares the most gate revenue. Home team keeps 60% and 40% is shared league wide. This eliminates large and small market. MLB shares 31% of gate revenue.

Article 1

why many high-performing sports teams are losing money at the gate.