ISS 328 Final Exam

Competitive balance in soccer leagues

small, due to competitive tiers

American Job Creation Act, 2004

100% purchase price depreciable; 15 years

NFL share of revenue from ticket sales

20%

Ticket sales provide about what share of MSU athletics revenue?

20%

Average attendance per game in mens Div 1 college basketball?

5,200

How much greater is Walmart's revenue then the NFL's?

50 times

% of revenue players get from MLB, NFL, NHL, NBA

50%

typical league revenue to players

50%

Tax Reform Act of 1976

50% purchase price = depreciable roster Depreciate over 5 years Additional player roster depreciation could be justified or litigated

what is the average attendance per game for men's div 1 college basketball?

9,000

Tax Reform Act 1986 Tax exempt if..

</= 10% bond funds used by private business OR </= 10% interest payments funded by payments from private business

Marginal Revenue

=Change in revenue/Change in Tickets

Most valuable Detroit Sports Franchise?

Lions

Most valuable Detroit pro sports franchise?

Lions ($1.65 billion)

Which is the correct order of market values for the Detroit professional teams?

Lions ($1.65 billion)Tigers ($1.2 billion) Pistons ($900 million) Wings ($625 million)

Value for Detroit Teams: Lions Tigers: Wings: Pistons:

Lions ($900 million) Tigers ($680 million) Wings ($470 million) Pistons ($450 million)

Order of Detroit teams market value.

Lions, Tigers, Pistons, Wings

Which pro sports league in the US has had teams move (switch cities)?

MLB doesn't change much. NFL, NBA, NHL move a lot

Third degree price discrimination

Type of consumer, consumer price sensitivity. Ex: student/staff discounts

Which is the highest rated TV show since 1964 (% households)?

"MASH" finale, 1983

Who was Judge Ladis?

"trustbuster" & huge baseball fan. became MLB's first commissioner.

What is the highest price offered on StubHub for NCAA East bb regionals tickets (2014)?

$115-$439

What is the lowest price offered on StubHub for MSU-UM bb tickets (9/13/17)?

$125-$1000

Lowest price offered for UofM vs. State bball game this year?

$175

What is the lowest price offered on StubHub for MSU-UM fb tickets (9/13/17)?

$201-$2,000

That highest tax rate bracket applies to taxable income over ?

$350,000-----4

What was the highest price offered on StubHub for superbowl tickets on 11/2/13?

$50,000

What are the highest seat license fee's charged for MSU football? (not premium seats)

$600

What is the lowest price offered on StubHub for Lions-Vikings fb tickets (9/13/17)?

$68-$911

sherman antitrust act 1890 clauses

- prohibits collective actions firms should compete no collude, cannot form cartels (trust) to act like monoply - attacks individual actions anti competitive behavior, does not matter how monopoly formed

How does the government pay for the sports facilities?

- rent - taxes (broad-based, tourist based) - share of event revenue (parking, advertising, suites) - surcharges (tickets, parking)

sports leagues/teams differ from other businesses

- teams set separate prices and have separate facilities - do not share talent - depend on each other; joint product - compete in only some way - one per market

Union history 1950s: Now:

-1950s 36% of labor force was in a union ---now 12%

NCAA television plan

-1952 negotiated broadcasting rights for all colleges for football -National coverage -No more than 12 Saturday games in total over season

MLB revenue sharing ___% net income shared Local media rev is/is not shared

-31% net income pooled and shared equally -Local media revenue IS NOT shared -Competitive Balance Tax

NFL revenue sharing ___% gate receipts shared equally Lux boxes are/are not shared Broadcasting:

-40% gate receipts paid to league pool, shared equally. -Luxury boxes and suites are NOT shared -Network broadcast shared equally. NO LOCAL EXISTS! -Top 15 revenue teams pay towards a pool that's distributed among lowest income teams which is disappearing (CBA) no longer necessary.

Moderate Reformers

-Bowl Games continue - 75% of revenue to schools/conference, NCAA committee to approve -Spring practice -Athletic scholarships (1956) -NCAA committee of infractions ------The group that won

NCAA 1953

-Established a committee on infractions and a range of penalties less severe than termination of membership -Death penalty applied to Kentucky prohibited it from playing other NCAA schools (boycott)

Other factors increasing player salaries

-Fans (demand) willingness to pay increases higher revenue from tv and radio less competition

How Business Taxes Work

-Most are a tax on net income or profits Revenue - costs -Some tax gross revenue (sales)

Factors of NBA imbalance

-Only 5 players play at a time -Successful qualities cannot be duplicated -One team/player will often dominate -Different revenue sharing scheme

How much greater is Walmart's revenue then the NFL's? A. Double (two times) B. Ten times C. Twenty times D. Fifty times E. One hundred times

...

what business has the largest economic impact on Michigan?

-U of M $1,296 million -MSU $820 million -Lions, Tigers, Pistons, Red Wings $586 million

What are the highest "seat license" fees charged for MSU football (not "premium" seats)? A - $100 B - $300 C - $600 D - $1,000 E - $2,000

...

NBA revenue sharing

-all teams pay an equal % of total revenue -national broadcast shared equally

Local Broadcast Rights

-do not exist in NFL -not shared in MLB & NHL

salary cap impacts

-have probably kept overall salaries lower in those leagues with caps -have led to more equal payrolls among the individual teams in those leagues with caps

reasons for limitations on sports gambling

-integrity of the sport -consumer interest -crime (safety of athletes)

Results of Title IX on college sports

-led to cuts in non-revenue man's programs slowed the growth of non-revenue woman's sports programs

NHL revenue sharing Local broadcasting: National Broadcasting:

-local broadcast is NOT shared -national broadcast shared equally, but SMALL (small TV contracts) -Revenue sharing growth committee funds teams with low income

each team has market (monopoly) power

-often only team in that region in that sport - special brand loyalty/identification; product differentiated -substitutes not perfect

Industrial unions

-organized in 19th century by industry not skill revolution led to rise of large firms -sought to offset the power of large employers

baseball antitrust exemption

-teams may, for instance, cooperate in setting ticket prices -limit number of teams, set locations, control ownership -not regulated like utilities -no time limit on power as with patents -constrained by labor laws

Ticket prices and salaries

-ticket prices are not the result of players salaries -players salaries are the result of demand and other revenue sources

impact of rival leagues results

-wages higher -more players hired

team goals

-win -maximize profit -maximize revenue

GDP Value Added from performing arts, spectator sports, ect

0.5%

What is the value of the second game to season ticket holders?

0: once they attend the first very-expensive game, their tickets play a large role in secondary market.

What is the three tier broadcasting rights structure?

1) National (major networks) 2) national cable (ESPN and others) 3) Regional cable or local

how much is the espn monday night football agreement

1.9 billion

What does a 10 Broadcast share mean?

10% of TVs that are on are watching

What does a 10 Broadcast rating mean?

10% of households are watching

American Job Creation Act of 2004

100% purchase price deprciable; over 15 years

Average MSU Basketball attendence

15,000

Average NBA attendance

17,000

Average NHL attendance

17,000

what is the trend in the funding of sports stadiums:

1900- 1939 29% public 1940- 1959 70% public 1960- 1969 79% public 1970-1979 90% public 1980- 1989 60% public 1990- 2003 62% public

NCAA financial gains 1952 - 1962 - 1972 - Fat cat schools wanted _____ shares

1952 - 1.1 million 1962 - 5.1 million 1972 - 12 million Fat cat schools wanted larger shares

in what decade did the public fund most of the money for sports facilities

1970 - 1979

MLB free agency

1975 Dave McNally and Andy Messersmith played out the season without a contract and then sought arbitration and arbitrator Peter Seitz decided they were free agents

3 Divisions

1: 340 schools 2: 290 schools; no attendance limits 3: 436 schools; no athletic scholarships Total schools: 1066

Jackie Robinson

1st African American to play in MLB hired by Branch Rickey for the Brooklyn dodgers in 1946

% of revenue drivers get from NASCAR

25%

ticket sales provide about what share of msu athletic revenue

25%

Ticket sales proved about ___% share of MSU athletics revenue.

25% (26.5%)

Ticket sales provide about what share of MSU athletics revenue? A. 10% B. 25% C. 40% D. 65% E. 75%

25%.... 20.9 Mill

NBA share of revenue from ticket sales

28%

league expansion voting

3/4 approval for move unanimous if into anther's territory

Davis Anti Trust Case

3/4 vote for move, unanimous if into another's territory

what is the avg share of revenue from ticket sales for all professional sports

30%

Average MLB attendance

30,000

MLB revenue sharing

31% net local (all) revenue to a central fund; shared equally (local revenue is net of stadium expenses) network broadcast revenues shared equally local media revenues not shared

MLB revenue sharing

31% of net revenue goes to central fund and shared equally Network broadcast revenues shared equally Local media revenues NOT SHARED

MLB share of revenue from ticket sales

34%

NHL share of revenue from ticket sales

34%

The highest personal income tax rate is

35%

The highest federal personal income tax rate bracket currently is?

35%---- tech 39.6

In NFL, what % of ticket sales are shared?

40%

In the NFL, what percentage of ticket sales are shared?

40%

NFL revenue sharing

40% gate receipts shared equally (except luxury boxes & suites) network broadcast revenues shared equally top 15 revenues teams pay a separate fund; distributed to lower revenue teams

NFL Revenue sharing of gate receipts

40% paid to a league pool and share equally among teams exception: luxury boxes and suites

Average attendance per game in college football?

45,000

NCAA Football average attendance

45,000

what is the approximate average attendance per game for college football?

45,000

Average NCAA Basketball attendence

5,000

What is the winning percentage of a team when the fan is most interested?

60-70%

Total Revenue by Sport FBS

64% - Football 20% - Basketball M 3% - Hockey M 2% - Lacross M 1% - Baseball 1% - Basketball W

Average NFL attendance

70,000

Average MSU Football attendence

72,000

how big is danis butt on a scale of one to 10

75

Black sox scandal 1919

8 players $20,000 fixed the world series

Championship variation: NBA

8 teams since 1989

For boxes and suites at Colleges how much can be taken as a special tax deduction by special law?

80% The price of the ticket to the event may not be deducted

Statistical studies relating economic growth (income, jobs) in a region to the presence of a pro sports team finds A. no significant relationship. B. a sports team causes income to grow 5% more than areas without one. C. a sports team causes income to grow 20% more than areas without one. D. a sports team causes income to decline.

A. no significant relationship.

What is average attendance per game for men's Div I college basketball?

About 4,500

What is approximate average attendance per game for college football (FBS)?

About 45,000 MSU is 19th largest avg home attendance with 74,667

Pay discrimination

African Americans paided less in 1970s and 1980s in MLB, NBA, and NHL

Scalpers

All costs are fixed because they've already bought the tickets, and the marginal value of the tickets is zero SO selling ticket at any price=making profit.

Which of the professional leagues has faced rival leagues in the past 50 years?

All except the MLB

Revenue sharing: NBA

All teams pay equal % of revenue, then split equally national broadcast revenue shared equally

What was an effect of the "Sanity Code"?

Almost led to the destruction of the NCAA.

Veeck Tax shelter Covention

Argued that team can depreciate players

First degree price discrimination

Auction - each person charged the highest price they're willing to pay

At MSU, what is the cost of the Spartan (Huntington) Club seats in Spartan Stadium? A -- $2,000-4,000 + ticket B -- $3,000-6,500 + ticket C -- $5,000-10,000 + ticket D -- >$10,000 + ticket

B--3,000- 6500 = tix

What is average attendance per game for men's Div I college basketball? A. 4,000 B. 5,200 C. 7,600 D. 9,000 E. 12,000

B. 5,200

Are secondary markets beneficial or harmful to the team, league, consumers, etc?

Beneficial: all end up in better situation, ticket ends up where most desired.

The Veeck Loophole

Bough the braves and claimed that players as depreciable assets Straight-line depreciation over 10 year

_________:Percentage of all households (rating) Percentage of households watching TV (share)

Broadcast Ratings

Which generated the largest profit (net income) for MSU in 2010-2011?

C - Department of Economics, College of Social Science

Which statement reflects the construction of recent stadiums/arenas? A - Most have been financed by the team without public support. B - Most have shared financing, with the public subsidy < 25%. C -- Most have shared financing, with the public subsidy at least 50%. D - Most have been financed publicly, with no team money.

C -- Most have shared financing, with the public subsidy at least 50%.

Over the past 4 years, attendance at pro sports events and major college sports events in the US has A. generally been increasing. B. been about constant. C. generally been decreasing.

C. Decreasing

Depreciation

Capital goods provide benefits over a number of time periods Physical productivity declines over time; asset "wears out"

Annual Rev College Football (FBS) - Meijer - Dollar General - macy's - amazon.com - Seven Eleven - McDonald's -

College FBS: $5.5 billion Meijer: $17 bil Dollar General - $18 billion macys - $28 billion amazon.com - $78 billion Seven Eleven - $84 billion McDonald's - $89 billion

The extra value that consumers receive beyond the value they are willing to pay is called what?

Consumer Surplus

Highest Earning Pro Athlete (Forbes, June 2016-June 2017)?

Cristiano Ronaldo $93 million

When teams sign high profile free agents, they often raise ticket prices because A. costs are increased by the new contract B. the supply of new free agents is reduced C. team profits are reduced D. demand to see games increases

D

What is approximate average attendance per game for college football (FBS)? A. 70,000 B. 60,000 C. 45,000 D. 35,000 E. 25,000

D. 45,000

_____ is the most valuable NFL team in the US

Dallas Cowboys (2.3 bil)

Most valuable pro team in the US?

Dallas Cowboys (NFL) - $4.2 billion New York Yankees (MLB) - $3.7 billion

Most Valuable Sports Team in the World?

Dallas Cowboys - $4.2 billion New York Yankees - 3.7 billion Manchester United - $3.69 billion

What is the highest value of a seat license in the NFL? For what team?

Dallas Cowboys, $50,000

When teams sign high profile free agents, they often raise ticket prices because

Demand to see the game increases

Initial goal of the NCAA?

Develop a consistent set of rules for football.

Consumer surplus

Difference between what you're willing to pay and what you actually paid

what does stubhub do? ___% of sale rpice

Does not technically buy/sell tickets, just charges transaction fee equal to ~20% of sale price

At MSU, what is the cost of the club seats in Munn Arena? A -- $100 + ticket B -- $500 + ticket C -- $1,000 + ticket D -- $1,500 + ticket E -- $2,000 + ticket

E-- 2,000

Who was Bill Veeck? A. Owner of the Chicago White Sox B. Owner of the Cleveland Indians, who first integrated the American League C. Originator of the idea for video replay scoreboards and "speed guns" in baseball D. A sports promoter who developed a number of advertising ploys to attract fans E. All of the above

E--- ALL

What is first-degree price discrimination

Each person is charged the highest amount they are willing to pay; auction.

If a game is not sold out, then the marginal cost to a team of accommodating one more fan is...

Essentially 0

Taxable Income = Income - _______ - Deductions

Exemptions

What is third-degree price discrimination

Exploit the differences in consumer price sensitivity; based on the type of consumer

Inefficient initial allocation

Face value below market price. Uncertainty, changes in circumstances. ex: lottery, lines, NCAA basketball tournament

Causes for inefficient allocation of tickets?

Face value of tickets below market clearing price, initial allocation of tickets does not get ticket to consumer who values it most (lottery, lines), uncertainty (teams getting to championship), changes in circumstances

Collegiate Football Association Formed: ___ div 1 schools Focused on gaining football ____ and _____

Formed in 1976 61 division 1 schools (except those from BIG and PAC 10) Focused on gaining football tv appearances and revenue CFA sings agreement with NBC 1981

In past 4 years, average attendance per game of major league/ college sports has been what?

Generally decreasing (bad economy, tv/other media outlets, more substitutions)

Battle of two groups in NCAA

Group 1 - Extreme Reformers Pure Amateur Group 2 - Moderate Reformers

gambling illegal in what states

Hawaii and Utah

Which US pro league has the highest average ticket price? A - MLB B - NBA C - NFL D - NHL Lowest?

Highest:NFL Lowest: MLB

Division 1 - subdivision

I - A - 120 schools (football bowl subdivision) 15000 paid attendance and 4 m scholarships II - AA - 122 schools (football championship subdivision) I - Without football (98)

Define "ideal standard deviation"

If all the teams were equal, the variation in winning %. But teams still would not all come out with a 500 record.

What is the law in Michigan about ticket resale?

Illegal to resell above face value, unless initial seller approves. (Contracts made with online sites)

The Veeck Loophole:

In 1964 group bought Braves for $6.2M --Claimed team was worth $500k --Players worth remaining $6.1M Declared players as depreciable assets --Straight-line depreciation over 10 years --Deduct $610k per year over ten years At tax rate 50% - cut taxes by ~$300k/yr Over 10 yrs had taxpayers pay half of purchase price of the team

Whats the HHI index?

Inequality ratio among teams and championships. The higher the ratio, the higher the inequality.

Who was Pete Rozelle and what did he do?

Lobbied Congress to adopt the Sports Broadcasting Act in 1961 Introduced revenue sharing to the NFL Arranged the NFL's first national TV contract (CBS in 1962)

The 12th most influential person in college football (Sports Business Journal list) is

Lou Anna Simon, president, MSU

In MLB, what source of revenue is not shared?

Luxury boxes and suites

which is the highest rated tv show since 1964

MASH finale 1983

Which of the four major professional leagues in the US has the greatest overall attendance annually? A. MLB B. NBA C. NFL D. NHL

MLB

Which pro league has had the fastest growing average price since 2000?

MLB

Which pro sports league has the fastest growing ticket prices since 2000?

MLB

which major professional league in the US has the greatest overall attendance annually?

MLB

Revenue from Ticket Sales A - MLB B - NBA C - NFL D - NHL Average of all = 27.1%

MLB (33.7%) NBA (27.7%) NFL (20.0%) NHL (34.4%) Average of all = 27.1%

Pro sports league with highest average attendance annually?

MLB (highest # of games)

Which of the four major professional leagues in the US has the greatest overall attendance annually?

MLB - 73.2 million in 2016

limits to free agency MLB: NFL NBA:

MLB 6 years NFL 4 years NBA 5 years NHL 4 years

Which pro league has had the fastest growing average price since 2000?

MLB 66%

Do pro sports generate economic benefits> costs?

Main conclusion: benefit<costs University's make more than sports teams

__________= additional costs to produce one additional unit of output

Marginal Cost (MC)

Marginal Rev:

Marginal Revenue (MR) = additional revenue from the sale of one additional ticket or an additional set of tickets Marginal Revenue (MR) = change in revenue/change in tickets

Larger revenue: NFL or meijer?

Meijer, by almost 40x.

Is the MLB becoming more or less balanced in terms of HHI?

More balanced- moving towards NFL ratio.

National broadcast revenue

NFL>NBA=MLB>>NHL

What pro sports league gets the largest share of revenue from ticket sales?

NHL

Which pro league gets the largest share of revenue from ticket sales? A - MLB B - NBA C - NFL D - NHL

NHL

Which pro league gets the largest share of revenue from ticket sales?

NHL (36.5%)

Does NHL share the most or least of major league teams?

NHL shares LEAST!!

If a Business rents a skybox for more than one game it can

Only deduct the price of non-luxury box seat tickets

What are the deductions in tax income?

Mortgage interest State-local taxes Charitable contributions Medical expenses, casualty loses, personal business expenses (only if over a limit)

Which pro team is the most balanced? Least balanced?

Most: NFL Least: NBA

Business entertainment expenses generally deductible, subject to rules:

Must be "ordinary and necessary" Must be "directly related" to business activity 50% limit

Considering play during the season, which pro sports league has the least competitive balance historically (most variation in winning percentages)?

NBA

Considering play during the season, which pro sports league has the least competitive balance?

NBA

League with least balanced winning %

NBA

Considering championships, which pro sports league has the most competitive balance recently (i.e., relatively greatest number of teams winning)?

NFL

Considering championships, which pro sports league has the most competitive balance recently?

NFL

In terms of championships, what pro sports league has had the most competitive balance?

NFL

League with most balanced winning %

NFL

League with most equitable income

NFL

What pro sports league gets the smallest share of revenue from ticket sales?

NFL

Which US pro sports league has highest average ticket price?

NFL

Which of the four major professional leagues in the US has the greatest average attendance per event? A. MLB B. NBA C. NFL D. NHL

NFL

Which pro league gets the smallest share of revenue from ticket sales? A - MLB B - NBA C - NFL D - NHL

NFL

Which pro sports league in the US has the smallest relative variation in revenue among teams?

NFL

Which pro sports league in the US shares the most revenue?

NFL

which major professional league in the US has the greatest average attendance per event?

NFL

Which pro league gets the smallest share of revenue from ticket sales?

NFL (16.5%)

Pro sports league with highest average attendance per game?

NFL (fewest # of games, largest crowds)

Which of the four major professional leagues in the US has the greatest average attendance per event?

NFL - 68,913 people per game in 2016, almost double MLB

Which pro sports league in the US has the smallest relative variation in revenue among teams?

NFL -40% gate receipts paid to a League pool; shared equally

Where does the NCAA stands in Total Revenue?

NFL = 9.2 Billion MLB = 6.8 billion NCAA - DIV 1 = 5.5 Billion NBA NHL

order the leagues that make the most national broadcast revenue

NFL > nba=mlb > NHL

Does the NFL has more or less revenue sharing than other leagues?

NFL has THE MOST revenue sharing of all leagues.

NFL outpricing its fans?

NFL prices are getting to the point that the fan base is a more well-off, dedicated demographic of people. Pricing of tickets plus food, parking, drinks, and apparel is up to $600

Revenue sharing comparison: NFL vs. MLB

NFL shares a ton more than MLB; so MLB has bigger variances in total revenues

Which US pro league has the highest average ticket price?

NFL- $92.98

Total Rev: by sport NFL: MLB: NBA: NHL: College sports:

NFL: $9.2 Bill MLB: $6.8 NBA:$ 3.7 NHL: $3.4 College sports: $5.5

Business purchases of luxury boxes & suites are ____ deductible as _________ _______ _________

NOT business entertainment expenses

Highest rated TV show since 1964?

Nash Finale, 1983

Revenue sharing: NHL

Network broadcast revenues shared equally local broadcast NOT shared

do pro sports teams or sports events generate economic benefits greater than costs?

No benefits < costs

Problem with NFL revenue sharing?

No incentive to do well competitively. Moving to smaller cities is common

Is MLB like General Motors in the old days (when it had six brands)?

Not exactly -Teams set separate prices (tickets, concessions) and have separate facilities -Do not share talent

Does it make sense to think of teams as divisions of a single firm

Not exactly Teams set separate prices (tickets, concessions) and have separate facilities Do not share talent Depend on each other; joint product Compete in only some ways

Does the "franchise" model apply? Is the NFL organized like McDonalds?

Not really -Owners control the league -Owners are both franchisers & franchisees

Does the "franchise" model apply? Is the NFL organized like McDonalds?

Not really Owners control the league Owners are both franchisers & franchisees

MLB Championships

Not very balanced in 60-70's. More spread out in 1990's and 2000's

What are some tax exemptions (basic amounts not taxed)??

Personal Children Special circumstances Some types of income -Social security -Interest on state-local bonds

Depreciation

Physical productivity declines over time; wears out

Profit Maximization Rule

Produce or sell more as long as marginal revenue > marginal cost Sell until MR = MC

Fan impact of competitive balance?

Prefer a game with 60-70% chance of home team winning

What's a primary market for ticket sales? Secondary?

Primary: Ticketmaster (licensed ticket broker) and directly through school. Secondary: Stubhub, scalping

Profit Maximization Profit=______- ______

Profit = Revenue - Costs

Sherman anti trust act

Prohibits collective actions. Firms should compete - not collude. Cannot form "trusts" to act like monopoly. Attacks anticompetitive behavior. DOES NOT APPLY TO MLB

What service does TeamTix provide?

Provides fans opportunity to 'reserve' a ticket for a future championship/ball game.

The Extreme Reformers

Pure amateur No bowl games No athletic scholarship No spring practice University body to enforce rules

Second degree price discrimination

Quantity discount, based on declining marginal value. Ex: season tickets or group sales. Captures some consumer surplus

What is second-degree price discrimination

Quantity discounts; based on the idea of declining marginal value

Standard deviation measure.. 'R'

Ratio "standardizes" measure More games => larger standard deviation Can now compare across leagues & years R > 1 R=1: Absolutely balanced As R rises: imbalance worsens

Ticket Sales

Regular prices typically set below market clearing price

Parameters?

Reserve claus, player drafts (beneficial), comp for free agents, revenue sharing (beneficial), luxury taxes

Applying the NCAA's Cartel Power

Results: Number of tv games increases (output up) Price paid by media providers down Attendance at football games did not decline CFA ceased operations

Business Taxable Income =

Revenue- Expenses

Supreme courts baseball decision

Ruled baseball was not a commerce, some say ruling was due to the 1919 "Black Sox" Scandal other sport leagues were later denied equivalent exemption

How do teams within a league collude?

Rules, schedules, league entry/exit, labor negotiation, location, broadcast rights, revenue sharing, salary cap

Veeck Tax Shelter Convention:

Saw unique loophole in tax laws Argued that team can depreciate players Players like machines or buildings?? Players like cattle??

Asymmetric Information

Scalpers know both the stadium and the market for tickets better than potential buyers

Secondary ticket market

Sell at market value (could be above or below face value). Online ticket resellers & game day resellers (scalpers)

Profit Maximization Rule

Sell until MR = MC

How should impact of sports teams be measured in local economies?

Spending & Jobs Construction Cost (spending)

Is Nascar a strong or weak monopoly?

Strong: one family owns all of nascar, drivers are employees/contractors of the company.

What was the highest price offered on StubHub for Super Bowl tickets (9/13/17)?

Super Bowl, 2018 ($4,785-$19,000)

How do leagues block rivals?

TV - key barrier to entry & strategic location

Indiv Income taxes Tax = ________ x __________

Tax= (Taxable Income) x (Marginal Tax Rate)

MLB anti trust law exemption

Teams may cooperate in setting ticket prices, limit number of teams, set team locations, control ownership exemption comes from Lawsuit from the Federal League

Primary ticket market

Teams offer directly, or through a broker, at face value. broker collects transaction fee

Which school had the Biggest Revenue?

Texas - 163.3 million MSU - 89.7 million

If an individual buys a ticket to a sporting event from another individual through "StubHub", which of the following is true?

The buyer, seller, home team, and StubHub are all better off

What is vertical integration?

The ownership of teams by media outlets.

In order for the exchange of ticket to be beneficial, what must be true?

The value of the ticket of the buyer has to be more than the value of the ticket to the seller. (usually beneficial, since scalpers value tickets at 0)

Why can baseball teams can claim to be natural monopolies?

Their fixed costs are high and their marginal costs are low.

Baseball teams might charge higher prices for Saturday games than Tuesday games because

They expect demand to be greater on Saturday than Tuesday

Are prices of tickets generally too low/high for making a profit?

Too low to make a profit.

Standard Deviation Measure

Top half: actual standard deviation in league Bottom half: Ideal standard deviation

Personal Seat Licenses do what?

Transfer wealth from consumers to teams.

Quality of ticket resale

Transferability (VERY important), inefficient allocation of initial tickets, season tickets with too many games

Value Added=

VALUE ADDED = INCOME - CAPITAL PURCHASES

most valuable detroit pro sports franchise

detroit lions

Seven sinners

Villanova, boston college, virginia, maryland, VMI, VPI, the Citadel Paid (athletic scholarship) players

Which of the following generates the greatest revenue each year?

Walmart 363 billion (US) 482 (World)

NCAA was/was not formed originally to regulate status of players

Was NOT

Define variable ticket pricing

When teams charge more for tickets to some home games than to others.

In game theory, a dominant strategy is one which..

a players strategy is independent of the choice made by the opponent.

marginal cost

additional cost to produce one additional unit of output mc=0 (costs do not effect pricing decisions)

marginal revenue

additional revenue from the sale of one additional ticket or an additional set of tickets

MLB and Marvin Miller

agreed to impartial binding arbitration of salary disputes 1973

antitrust summary NFL, NBA, NHL

all antitrust laws apply except for tv

internal transfers of money to athletics from other parts of the university

allocated Rev

According to Title IX participation on woman's teams

and man's teams should be proportional to the enrollment of men and women withing +/- 2 percentage points

other professional sports leagues in the US and antitrust laws

are partially exempt with respect to broadcast contracts and mergers

non-economic/quality of life benefits

attract residents & investment fan happiness community identity & reputation

MLB is exempt from US antitrust laws because

baseball is not interstate commerce, according to the Supreme Court.

MLB is exempt from us antitrust laws because

baseball is not interstate commerce, according to the courts

Charitable contributions to non-profit entities are deductible for

both individuals and businesses

Conferences negotiate with media providers for most events

broadcast revenue

NFL's largest source of revenue

broadcast rights

Comerica park where the Detroit Tigers play is owned

by the city of detroit and wayne county

Within season balance

can use standard deviation of winning % problem: only works if # of observations is consistent.. can't compare across leagues or seasons

Payments for luxury boxes, suites, premium seats & seat licenses to colleges are considered

charitable contributions to the university

Non-economic/quality of life costs

congestion noise

nfl power

court denied exemption in 1957 no legal monopoly power no legal monopsony power

The NCAA was originally formed to: a. remove "professionals" from collegiate sports b. limit the number of athletic scholarships c. set academic standards for athletes d. set rules of play for college football to curb violence e. maximize athletic revenue of colleges

d. set rules of play for college football to curb violence

When teams sign high profile free agents, ticket prices increase because...

demand to see games increases

when teams sign high profile free agents, they often raise ticket prices because

demand to see games increases

Craft unions

descended from medieval guilds organized along skill lines

nfl and rivals/moves

dissuade teams from moving afl major rival wfl, usfl, xfl

believable threat location

don't move your team, we'll build you a new stadium

If a game is not sold out, then the marginal cost to a team of accommodating one additional fan is

essentially zero

extraordinary salary growth

every decade from the 1970s to the 2000s salaries more than doubled in all four leagues 7% growth per year

evidence that teams or leagues set prices too low

excess demand scalping, reselling

costs of expansion

expansion draft "believable threat location" might be lost

Cost of expansion

expansion draft, "believable threat location" might be lost

benefits of expansion

expansion fee new revenue from new markets precluding competition

Benefits of expansion

expansion fee, new revenue from new markets, precluding competition

mbl and rivals/move

few challenger leagues stable last moves were expos in 2005 and senators in 1972 moved expos because of extreme financial hardship

First professional sport to integrate

football LA Rams and Cleveland Browns in 1946 led to them dominating the nfl

Racial integration @ MSU

football 1912

position of pro sports leagues

gambling not encouraged gambling on games by players, officials, team administrators prohibited

Over the past 4 years, attendance at pro sports events and major college sports events in the US has

generally been decreasing

reasons for public subsidies

generate local/regional jobs & income increase land values provide additional tax revenue to governments quality of life, local image

complements

go together football and drinking

new leagues attract fans by

going to cities without teams change rules attract good players

reasons for limitations on internet gambling

hard to regulate/tax competition with other forms of gambling concern about gambling generally (addiction, crime)

dallas cowboys are such a valuable franchise because they

have so many luxury boxes

NFL players and salaries

have the lowest average salary among the 4 major professional sports leagues

Cost structure of most franchises

high fixed cost, low marginal cost

cost structure of most franchises

high fixed costs low marginal costs

rules of play

if cannot agree make play difficult rules sometimes adopted to popularize the game

salary caps

implemented to countermeasure free agency NBA, NFL, and NHL but not implemented by MLB

curt flood case

in 1970 Curt Flood files a suit against MLB challenging the reserve clause and asked for free agency in 1972 the supreme court rejected his appeal

role of non-price factors on demand

income prices of other goods stadium competitive success

impact of rival leagues

increased demand for players shifts demand curve for players to right monopsonistic power reduced

the increase in baseball ticket prices is primarily to

increases in baseball revenue

why were the salaries for professional athletes so low prior to the 1980s

institutional constraints rival leagues salary caps increased revenue sources

demand curve

inverse relationship between price and quantity demand (all else constant) dc tend to be negatively sloped

implications of profit maximization

it may not always pay to fill the stadium price can be too high as well as too low

Common NFL moves

large cities to small

how do leagues use their cooperative/collusive power

league entry/exit (# teams, ownership) location of teams; exclusive territory

the correct order of market values for the detroit professional teams

lions, tigers, pistons, wings

Monopsony employer tries to

lower pay

marginal revenue product

marginal product * marginal revenue

Goal of the unions

maximize the total revenue paid to members of the union where MR=0

If you are an NCAA college athlete regarding gambling

may gamble legally but not on any sporting events (college or professional)

Generated Revenue

money that is directly the result of the athletic endeavor

construction of recent stadium/arenas

most have shared financing, with the public subsidy at least 50%

Veeck innovation(1960s) and Selig case (1970)

most of purchase price attributed to player roster; all of that depreciated (90%)

Woman's sports proportionality

must be within +/- 2 percentage points of men

Which pro sports league in the US has the smallest relative variation in revenue among teams

nfl

which pro league gets the smallest share of revenue from ticket sales

nfl

which pro league gets the largest share of revenue from ticket sales

nhl

antitrust summary MLB

no antitrust law applies except labor laws

NHL revenue sharing

no sharing of gate (ticket) revenue network broadcast revenues shared equally local broadcast revenue not shared league subsidies to teams with < median revenues or with < 2.5 million TV households in the local market area

NBA revenue sharing

no sharing of gate (ticket) revenue network broadcast revenues shared equally local broadcast revenue not shared luxury tax funds revenue sharing pool (tax if salary > % of revenue bri than that is shared)

statistical studies relating economic growth (income, jobs) in a region to the presence of a pro sports team finds

no significant relationship

ncaa position on gambling

no sports gambling of any kind for NCAA athletes, coaches, officials, administrations

sports tickets are

normal goods

The "reserve clause" was

not overthrown directly as a result of the Curt Flood case

monopsony power

one buyer reserve system bound to teams

In monopsony, there is..

one buyer, many sellers.

league competitors

other sports other forms of entertainment potential rival league

reserve clause

owners interpreted this clause to mean that they had a perpetual option on the player. -all they had to do was invoke the reserve clause and extend the contract at its stated price another year. a team could thus restrict a player from selling his services to another team

Championship Variation: NHL

past 13 years - 10 teams

broadcast ratings

percentage of all households (rating) percentage of households watching tv (share)

free agency

players who have reached the end of their contract and who are free to sell their services to the highest bidder wage higher than MRP

demand for tickets

population income price availability of other goods

nascar

privately owned revenue to teams 25%

Federal wire act

prohibited gambling over the "wires" (telephone)

3 ways to comply with Title IX

proportionality show history of expansion interests of students accommodated must met one of these

profit

revenue - cost

substitutes

serve the same purpose

point spreads

set by casions assisted by private analysis firms objective is to equalize amount bet on each option

NFL Network Broadcast revenues

shared equally no local networks

Depreciation of capital assets is a true economic cost and (should or shouldnt) be tax deductible

should

Professional and amateur sports protection act 1992

sports gambling only in forms that preexisted Las Vegas and lottery in Oregon all other forms illegal

rules of behavior

suspend teams for gambling & serving alcohol no beer at Sunday games in philly til 1970s ladies day to improve the behavior of men

revenue is

team or league income -ticket sales -broadcasting -concessions -licensing and advertising -gifts

sports broadcasting act 1961

teams in professional sports leagues may collude in negotiating or setting up media contracts league-wide media contracts and specify how the revenue is divided

Sports Broadcast Act 1961

teams in professional sports leagues may cooperate in negotiating or setting up media contracts Permits the NFL or MLB to have league-wide media contracts and specify how the revenue is divided Without this exemption, teams would have to negotiate own media contracts. determined by congress

monopoly poower

territorial rights other teams cannot move in

Desired union wage as one more worker is hired

the wage paid to each worker will decline, not only for the new workers but previously hired workers as well marginal revenue is below the demand line

baseball teams can claim to be natural monopolies because

their fixed costs are high and their marginal costs are low

green bay packers and public ownership

they are a corporation which sells stock and has stockholders the residents of green bay own the packers

what is most likely a true local economic benefit from a sports team or event?

ticket purchases by residents of a nearby state

Transferability of event tickets

tickets not allocated to specific people - easily exchanged

Causes of secondary markets

transferability, inefficiency from initial allocation, season tickets with many games

leagues block rivals

tv contracts strategic location

market value

value reflects what the team could be sold for depends on revenue, expenses, prospects for the future

lockout

when management of the firm does not permit the labor input to operate

strike

when workers act together to remove their labor from the production process