Sports ECON 3306 Test 1

(R2)1. What was the relocation fees for the Raiders, Rams, Chargers?

650$ million from the chargers and rams and 350$ million from the raiders

(R1)3. What percentage does Fox own of the BTN?

51%

Q9: When a new team enters a league, the effect on nearby teams is to: a.Shift their demand curve to the left. b. Shift their demand curve to the right. c. Increase their marginal costs. d. Decrease their marginal costs.

Shift their demand curve to the left.

Q6: (a) What advantages do professional sports leagues have to the previous form of organization? Discuss at least two advantages. (b) Why should the size of a league affect the profits of its members?

(a) They can control their members and the players, they can also protect themselves and set rules for entry and maintain their hold on the sport and teams. (b) More members could do many things while in theory, it could be beneficial in reality it would more than likely be taxing on the league as the lesser producing teams would still take part in revenue sharing while not contributing also known as the piggybacking effect.

(R4)What were the 3 reasons listed in the article about why FOX decided the bid and to bid aggressively for NFC programming.

1 It was pre-emptive to stop Paramount and Warner Brothers from taking close to 139 of Foxs affiliates 2 Increased their credibility 3 It would increase the Sunday prime time schedule with a football lead in

Q5: In class, we have discussed the 6 tasks that leagues do. In fact, many of these are benefits for a team associated with a league vs. having a collection of teams. Review these 6 tasks, thinking about how the team benefits from having a league handle these tasks vs. what the individual team(s) would have to do to accomplish the same tasks without the league?

1. Create a common set of rules 2. Fix schedules 3. Decide on optimal revenue sharing arrangements 4. Stage championship tournaments 5. Create a framework for entry of new players and teams into the league (and to limit) 6. Conduct league marketing campaigns

Dead weight loss

A loss to society created by market inefficiency. Deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources. Price ceilings, such as price controls and rent controls; price floors, such as minimum wage and living wage laws; and taxation are all said to create deadweight losses.

Q8: 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. It can overcrowd the market and cause a disproportion and a possible disturbance to the league as they could form their own, or take away the potential revenue due to overcrowding.

Q1: Why has luxury seating become a prominent issue in the stadium negotiations in recent times?

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. Dallas Cowboys have about 300 luxury seats, NY Yankees is another big one.

Q11: Natural monopolies are distinguished by: a. Zero fixed costs. b. Increasing average total costs (ATC) over the entire range of output. c. Decreasing average total costs (ATC) over the entire range of output. d. The existence of only one firm in the industry.

Decreasing average total costs (ATC) over the entire range of output.

(R1)1. What was needed to be the Big Ten Network off the ground. (hint, what was Silverman travel the midwest for)

Delany went to every school and won their support for his network which took away the power that espn had over them

(R4) How much more was Fox's offer relative to CBS's offer. Why did Fox believe it had to offer more than "$20 millon" above the CBS offer? Also, what conference commands the higher offers? Why do you think this is so? (for this last question, you will need to look up the history of the NFL)

Fox had outbid CBS by $100 million.

(R1)2. What was Delany's view of ESPN? Who had the leverage before 2006, the networks or the conferences?

He hated espn for the way they treated schools and how they broadcasted games, the networks had the leverage as

(R2)2. How much each team getting?

In total, 53$ million per team over the next decade

Q3: Explain how League-wide TV advertising is like a public good while team specific advertising is more like a private good. Explain using the 2 traits of a public good and provide an example (such as using supply and demand curves or another example like we have done in class) demonstrating the friction between what is optimal for the league vs. the incentives of the individual teams.

League wide advertising can benefit the league by increasing revenue from viewing, so advertising Sunday football and the games that are being broadcasted will increase revenue for everyone, It is a public good because it can be shared. While team specific advertising is trying to sell merchandise from that team which will only benefit that team making it a private good.

(R3)2. Which league has the younger audience. Why?

Liga mx has the youngest audience because of the stars and how the fans relate to them and that many of the fans participate in the sport in their youth and continue to enjoy the sport.

Q13. Monopsony means: a. One seller of an output. b. One buyer of an input. c. One ideal capital/labor ratio. d. The same thing as the externality.

One buyer of an input.

Q15: Define producer surplus.

Producer surplus is defined as the difference between the market price that a seller receives for his/her product.

(R5)How did Rozelle try to use the League structure to push for the overall benefit for the NFL (think TV contract changes) whereas Al Davis was working against the NFL for his own personal gain.

Rozelle laid the ground work for revenue sharing and league think and worked to bring teams together to make them all more profitable and start to work towards the 6 tasks. While Davis tried to disrupt the league and not partake in giving any profits over or even be a part of the league, but instead to try to make the league almost completely capitalistic in that all players be free agents.

Q7: The American League succeeded as a rival league where other leagues—like the American Association of the 1880s and 1890s—failed because of why?

The American League took advantage of an expanding market and overtake the National League in size which lead to it being consumed.

Q4: Use the marginal revenue and marginal cost curve from the theory of clubs to explain why the NFL has 32 teams while the Bundesliga-1, the top German soccer league, has only 20 teams. (think about how Germany is smaller in population with smaller cities)You can also apply this to why it might make sense for the Big XII to stay at 10 vs. the SEC/Big Ten is at 14.

The NFL has many more states and populations with major cities that it caters too. Due to this along with higher cost there is also higher profits to be made compared to the Bundesliga-1. Germany's soccer team has a smaller audience than the NFL, hence lower profit.

Q10: What is the loss to fans from the monopoly power that sports franchises exert? Be precise in your reasoning. Draw a diagram to describe this situation.

The loss to fans is all of the purchases that could be made in the consumer surplus area that is shrinking the further the MR curve moves to the left

(R3)1. How is the audience changing for these sporting leagues.

The median age of the viewers is increasing for almost all sports if not they are holding steady in the upper 50s

Q2: Explain why dealing with a single monopolist (Atlanta Braves) may be better than dealing with two monopolists (Atlanta Braves and TBS) in vertically related industries. Graph this situation. Use your knowledge of consumer surplus, producer surplus, and deadweight loss.

When dealing with 2 monopolies, the consumer has to pay a higher MC which decreases their profits. On the other hand in a single monopoly: - The MC stays low - The producer surplus is higher - The MR is higher

Q14. The true cost of monopoly power to society is attributable to: (a) the higher price that consumers must pay. (b) the reduction in output by the monopolist. (c) the excess profits enjoyed by the monopolist. (d) the failure of other firms to enter the industry.

the reduction in output by the monopolist.

Q16: Calculate producer surplus in the following graph at Q*

$5