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