Sports Econ Exam 2
How much incremental revenue could dynamic pricing generate?
$109,000
What are the five main sources of revenue for a sports franchise?
(1)Ticket sales or gate receipts (RG), (2)Local and national broadcasting rights (RB),(3) Licensing income (RL), Other venue-related revenues, (4)including luxury boxes, (5)concessions, and stadium naming rights (RV), Transfers from other teams in the league (RT)
What three brackets is 'all revenues' divided into and what percent do the players receive from that bracket?
(All revenues =ticket sales, revenue from luxury box suites and premium seating,local and national broadcasting (TV/radio/Internet) royalties, concessions, parking, local advertising, stadium leasing, merchandising) Three brackets 1) League Media (regular season games) -55% 2) NFL Ventures/Post Season -45% 3) Local (basically preseason games) -40%
- Comparison of Blackhawks to White Sox:
- BH sell out, WS don't normally sell out - Pricing at profit max point? - BH = yes à happens to be at capacity - WS = yes à at profit maximizing output below capacity (empty seats ok)
Maximizing profits - long run:
- Decisions that fans may not understand - Releasing talent - Moving a team
Sign new, better player and fan expectations increase so demand rises
- Demand and MR shift right - Ticket prices go up
Total revenue is comprised of:
- Gate revenue - Broadcast revenue - Licensing revenue - Venue revenue - Transfer revenue
Impact of costs
- If a team resigns current player at higher salary, should the team raise ticket prices? - Salaries are a fixed cost (doesn't change marginal cost)
- For sports marginal cost = 0 because it doesn't cost any more for more people to attend a game
- Marginal cost is "L" shaped because of capacity limits
Monopoly: single producer of a unique product
- Must lower the price to sell more products - Why marginal returns breaks away from the demand curve
Broadcast revenue:
- NFL: TV is larges revenue source - $6B per year - All national contracts evenly shared - MLB: Fox, Turner, & ESPN = $12.4B (shared evenly) - Local TV revenue is still very important (34% shared) - NBA: teams get much of their revenues from national broadcast contract - NHL: do not share local TV revenue ** Takes away from ticket sales ** Sports add credibility to a network
Perfect competition: each producer is too small to affect prices
- Price taker: take whatever price the market gives them - To increase price à must increase quantity - When MC=MR profit is maximized
Maximizing profits - short run:
- Signing contracts - Bonuses - Coaching contracts - Facility costs
- Profit maximizing output is where MC=MR
- Sometimes below the capacity of a stadium
Team quality is tied to win%
- To increase win% team must buy better players - 3 limitations: 1) Salary cap: min and max 2) Revenue structure of franchise 3) Profit mentality of owner
Do large markets have a distinct advantage? (Yankees vs. KC)
- Yes, more people living in one area - Yankees should have higher revenues - Larger market = higher payroll - Higher payroll = more playoff appearances
Licensing: apparel sales
-MLB and NFL: $2.75 and 2.7B -NBA: %1.75B -NHL: $630mil -Usually shared evenly -Charge royalty fee
Gate revenue: Revenue from ticket sales
-NFL: shares most gate revenue (home team keeps 60%/40% shared) - MLB: shares 31% of gate revenue - NBA: historically share nothing (roughly 50% now) - NHL: 35% tax collected on all gate receipts
anti trust NFL
-NFLs tv contract is reason for its prosperity -all teams join together to negotiate one contract-violates anti trust laws
Jerry Jones vs. NFL
-Texas Stadium Corporation -Sold endorsements under stadium corp. -Can sell seperate endorsements for stadiums -Naming rights
dynamic ticket pricing:
-as season unfolds, ticket prices change -as players get traded, team records go up or down
strategic pricing: in the real world firms charge different prices for the same item
-at different times -for different consumers -basic monopoly model: monopolist chooses one price and charges it to consumers at all time
binomial distribution
-can be used to solve the problem that number of games must remain constant -as the number of matches rise, win% cluster around mean -develop an ideal standard deviation
Problem: number of observations (games) must be constant
-cannot compare across leagues/seasons -use binomial distribution
monopoly
-charge more/produce less -higher prices hurt consumers and help producers -is economy worse off? yes -need a concept to measure harm to society
price discrimination:
-charging one consumer more than another for the same product (not based on prejudice) -1st degree: knowing what your consumer wants to pay and charging it -2nd degree: offering price breaks to consumers who meet a certain criteria -3rd degree: offering price breaks to certain groups
consumer surplus: some consumers are willing to pay more for a good. Extra happiness consumers get
-each football fan is willing to pay a different price -willing to pay $20 and ticket is $20 = marginal consumer -willing to pay $40 and ticket is $20 = consumer surplus -shrinks in a monopoly -producer gets some of the surplus -lost surplus = dead weight loss
Revenue sharing:
-equalizes revenues across teams -reduce incentive of big teams to pursue talent -some teams may pursue profit over wins
competitive balance: degree of parity within a league
-fans prefer a game with a 60-70% chance of winning -uncertain outcome much more exciting
personal seat license:
-form of 2 part pricing -season tickets originally priced on sections -gives you the right to purchase season tickets
luxury boxes:
-make dallas cowboys very valuable -cowboys stadium has 300 luxury boxes -get to keep some revenue -a corp. can buy a suite (not shared rev) -still need a ticket to get in (shared rev)
Tragedy of commons: huge unshared revenues from stadiums
-new stadiums determine much of team locations -if there is a shared revenue or resource it will be abused -exploiting markets
Invariance principle:
-resources will be directed to those who value them most -FA gives property rights to the player -difference: who gets paid not flow of resources
Anti trust laws:
-sherman act: clause #1: prohibit collective actions, firms must compete and cannot collude, firms cannot form cartels (trusts) to act like monopolies Clause #2: attacks individual actions, monopolization, anticompetitive behavior in general -all leagues appear to violate anti trust laws
bundling:
-some fans want to see specific games very badly
Barriers to entry:
-tv -leagues also block entry by strategic location -leagues can deny competitors the use of facilities
Measuring competitive balance
-within season balance variation: compares teams within a season across a league, standard deviation of win %, population formula, sample formula -between season balance variation: compares winners across time, some leagues have the same champions year after year, regular turnover is perferred
Per this study, what were the top four drivers for dynamic ticket pricing?
1) Days of game 2) time of game 3) Daily home team tweet count 4) opponent previous season playoff status 5) opponent franchise value 6) current month / week
What three approaches have been used to determine the value of output from professional sports teams?
1) First, a fairly large number of economic impact studies have been produced, generally by nonacademic consulting firms at the behest of interested parties such as the teams themselves or civic leaders bent on building new venues. These studies seek to quantify the positive economic effects on the host community of the increased spending related to the team. 2) The second approach to gauging these values has been via inferences drawn from market activities. A good example of a thorough attempt to measure in this manner the consumers surplus associated with attendance at professional sports team contests. 3) Several researchers have suggested that the bulk of economic value associated with professional sports teams may be nonmarket in nature. Attempts to gauge these values have made use of the contingent valuation method, an environmental economic technique of some controversy.
What are four possible defenses for the UFC?
1) First, the UFC will stress that fighters voluntarily sign contracts to fight in the UFC. No fighter is "forced" to pursue a career in the UFC nor accept employment terms offered by the UFC 2) Second, the UFC will portray its rules and business practices as reflecting superior business acumen, keen foresight and honed skills—the very virtues promoted by capitalism. It is not illegal to thrive in the business world. 3) Third, expect the UFC to reference how the Federal Trade Commission investigated it for antitrust violations from 2011 to 2012 but declined to pursue the matter. 4) Lastly, watch for the UFC to contend that a judge forcing changes to its business model would harm the very industry at the heart of Le's lawsuit: elite professional MMA fighting. The UFC will likely submit data and expert testimony that links the extraordinary growth in popularity of MMA in the U.S. to the success of the UFC.
What two different licensors are involved with sports licensing?
1) League licensed team names, logos, and trade dress. 2) Players licence their image and names
How does the article define 'soft lines', hard lines' and multimedia?
1) Soft lines: apparel and accessories 2) Hard lines: trading cards and collectibles 3) Multimedia: video games
Looking at Table 1, list the four major input factor categories (you don't need to list the details provided within each category).
1) seasonal/time factors 2) Opponent factors 3) Stadium factors 4) Social factors
Describe price discrimination in sports (the three degrees). How does price discrimination allow the franchise to absorb more of the consumer surplus?
1. First Degree is when they know what the consumer is willing to pay, so you change the price to that. Paying for an additional benefit. 2. Second Degree is when your customer needs to meet certain conditions in order to get the price. A BOGO ticket sale for example. 3. Third Degree you have to belong to a certain group in order to get the cheaper price such as students or senior citizens.
Impact of market size on competitive balance:
3 primary sources of disagreement: 1) how to measure success 2) how to characterize market size 3) how to measure the impact of policies such as revenue sharing
MLB shares
31% of local revenue
NBA shares
50% of all revenue, each team receives an allocation equal to the leagues average team payroll from the revenue pool
What is a monopsony and how does the UFC have monopsony power?
A monopsony is similar to a monopoly, except that it involves a buyer rather than a seller. The basic idea of a monopsony is that those selling a service, such as elite professional MMA fighting, are stuck selling those services to one main buyer, in this case the UFC. The buyer can set low prices and impose other restrictions on the sellers, who know that other buyers aren't significant enough to offer better prices.
Why would a team offer bundle ticket pricing? University of Minnesota tried this, but students complained and even the Governor became involved. Why?
A team offers bundle ticket pricing to get fans to pay a higher price in order to get the marquee games that they want bundled with low attendance games to make it a package deal. The governor got involved because he did not think students should have to pay more money to the school when they worked so hard to cut down costs to go to the school.
According to the newsletter, retail sports licensing increased 5% in 2014. What was the key area of growth for NFL, NBA, MLB, NHL and MLS?
APPARREL
What was the basis for this antitrust lawsuit?
According to the complaint, prior to the exclusive deal with Reebok, the NFL gave licenses to as many as 28 businesses, which created competitive pricing and a more varied selection of team apparel. The decision to give Reebok an "exclusive blanket license" resulted in a monopoly on team apparel and caused apparel prices to increase, the suit says.
What does it mean to 'back-load' a contract and how does the 30% rule help mitigate back-loading.
Back loading :pushing all of the big money to the end of the contract 30% rule mitigates this by governing veteran contracts that are entered into in a capped year and extend into the final year of the CBA. The rule states that these contracts cannot have an annual increase of more than 30% of the salary, excluding amounts treated as a signing bonus, provided for in the FINAL CAPPED YEAR
Why does baseball have a greater opportunity for dynamic ticket pricing than hockey (or other sports)?
Baseball teams can discount ticket prices due to inclement weather because they play a larger amount of games and have larger stadiums.. It is an outdoor sport so it dynamic pricing works very well for MLB.
Why do many economists believe that free agency has not reduced competitive balance (hint: Invariance Principle)?
Because the HHI has gone down since free agency was introduced.
Briefly explain the Larry Bird Exception (include the three categories)Allows teams to exceed their cap on their own free-agents.
Bird Exception: 3 years with team (free-agent), Early Bird: 2 years with team (free-agent), Non-Bird Exception: Would qualify for Bird Exception, but team used it on another player.
How is the NHL revenue sharing structured (how much is shared and who gets it)?
Broadcast shared evenly, 40% of gate revenue, Merchandise shared evenly
Why would a corporation by a luxury suite?
Build relationships with clients, families spend time together, suiteholders can become the most loyal supporters.
How do sports leagues violate anti-trust laws?
By their very nature, leagues coordinate the actions of their member teams, The coordination can result in collusion, in which teams collude and act like on big monopoly, Leagues organize all teams to set rules, locations, prices, and number of games = Violation of Anti-Trust Laws
Explain the statement: "Network demand for broadcasts is a derived demand"
Can charge much more for commercials because it is live and you can't fast forward.
Explain the three limitations to spending money to improve team quality.
Collective bargaining agreement, Revenue Structure, Owner's profit mentality
What are some pitfalls in selling luxury suites to corporations?
Companies don't want to pay for them during bad economic times. Fan loyalty is based on team performance
Explain this statement: "MLB is about the same size as an envelope"
Despite the fact that Major League Baseball (MLB) is about the same size as the envelope industry in terms of revenues, governments have not opted to shower envelope makers with large subsidies (Fort, 2000). Perhaps there are more public benefits associated with hosting a pro team instead of an envelope factory.
What teams had to pay the tax in 2015 (you will need to Google team salaries).
Dodgers, Yankees, Red Sox, Giants
The NFL's broadcasting rights contract is roughly $6B per year. How much does each team get? What impact does this have on team quality and competitive balance?
Evenly! Each team gets $226 million
What two footnotes are made about this expected incremental revenue?
Expected revenue is based on a day's worth of incremental revenue in resale market at time of the study Research was made at stadium level. Certain sections could be more sensitive to price changes and could be closer or further from optimal price.
What is 'homegating'?
Fans practice the traditional tailgating but from home.
What two claims do owners make when it comes to the public financing sports stadiums?
First, that a more competitive team provides greater public benefit, and second, that a more favorable stadium situation will result in a more competitive team.
What four methods have the Big-4 leagues developed to promote competitive balance?
Free agency, revenue sharing, salary cap, Reverse-Order Draft.
What is gate revenue and how much does each league share (MLB, NFL, NHL and NBA)?
Gate revenue-TICKET SALES!
Explain the advantage a large market team has over a small market team (in terms of revenue and team quality). What do sports leagues do to dilute this advantage?
Generate more revenue, more broadcast revenue, more media coverage, so they have more money to buy better players
What is the Derrick Rose Rule?
His value went up but bound by restrictions and they cant pay him more. Must meet certain criteria to be paid more before six years experience
How is elasticity defined and what is the formula for elasticity?
How sensitive fans are to price changes. Measures estimated quantity change due to estimated price change. E = %change quantity / % change price
There is considerable debate over the impact of market size on competitive balance. What are the three primary sources of disagreement?
How to measure of success, How to characterize market size, how to measure the impact of policies, such as revenue sharing
What's the difference between 'likely to be earned' and 'not likely to be earned' cash incentives and how do each impact the salary cap?
If at the time of the renegotiation an incentive bonus has already been reached, that bonus is considered Likely To Be Earned (LTBE). Also, any new or changed incentive bonuses renegotiated after the start of the regular season are automatically considered LTBE. Finally, if a player is paid any more than the minimum amount for off-season workout programs or classroom instruction, then the payment will be treated as a renegotiation.
Explain this statement: "The dynamic ticket prices make no assumptions about price elasticity".
If the ticket is sold for a certain amount, that does not mean that it is the optimal price. The optimal price could be higher or lower depending on how sensitive the consumer is to that price point.
How does the NFL revenue sharing result in 'tragedy of commons'?
If there is a shared resource, it will get abused.
From the player's perspective, what are the drawbacks to back loading your contract? How do teams give players an incentive to sign a back loaded contract?
In order to convince the player to sign such a cap-friendly contract, the team will fork over a large signing bonus. The signing bonus is guaranteed, so that money is the player's to keep if the team decides to release him later. Also, the team can specifically designate portions of the contract as "guaranteed".
Explain this statement: "The dollars being invested in sports facilities are quite substantial considering the overall contribution the industry makes to the economy."
In testimony before the U.S. Congress, economist Robert Baade said that Chicago's professional sports industry—which includes five teams—accounted for less than one tenth of 1 percent of Chicago's 1995 personal income. Baade further commented that even when compared with the revenue of other industries, professional sports teams contribute small amounts to the economy.
Judge Landis heard arguments from both sides, however in the end, never ruled on the case. How was the situation resolved? What did Baltimore object to the resolution and what was the result?
In the meantime, the inter-league competition continued to take its toll on all three major leagues during the 1915 season. Given their increasingly dire financial circumstances, the three leagues once again engaged in peace negotiations that offseason, ultimately reaching a settlement agreement in December 1915. In exchange for agreeing to end its operations, the Federal League received payments of more than $450,000 from the major leagues, while two Federal League owners (Charles Weeghman and Philip Ball) were allowed to purchase existing major league clubs (the Chicago Cubs and St. Louis Browns, respectively).
When analyzing Figure 1, explain how venue quality and competitive quality are both a complement and a substitute.
In this case (see Figure 1), the new venue tends to result in more tickets being sold in the event that the team performs more poorly than it would have in the old venue.
How easy is it for a team to 'reset' their tax rate?
Interestingly, though, avoiding the luxury tax for just one year resets the team's tax rate.
How has the NFL's limited anti-trust exemption help grow the league? Note: The NFL's limited exemption served as a precedent for NHL and NBA.
It allowed them to absorb teams and allowed them to merge with the rival AFL. NFL's TV contract is the reason for its prosperity. The teams join together to negotiate one contract where they can drive up the price, asked Congress for limited exemption, and no games on Fridays (high school) and Saturdays (college).
In a competitive market, the consumer surplus = producer surplus, however in a monopoly consumer surplus shrinks. Where does this surplus go?
It goes to the producer because they are able to use strategic pricing in order to find out what the consumers are willing to pay and then they charge them more in order to cut down the consumer surplus to almost none.
What are some arguments against public finance of sports franchise facilities?
Money could be used elsewhere like in schools, Benefits wealthy people, Only impacts generally local economy
Estimated growth in income and spending are often overstated. Explain why.
Most of the "big" money in sports goes to the owners and players, who may or may not spend the money in the hometown since many live in other cities. And because athletic careers are usually short-lived, much of the players' income is invested.
Explain the three categories of the Mid-Level Exception.
Non-taxpayer, Taxpayer, Room level
When must a team be in compliance with the salary cap and what are the ramifications if they fail to meet the salary cap?
On the first day of the league year, which is typically late February/ early March. For 2011 (given the lockout), that date was Aug 4.
What are some of the conditions and limitations to trading lottery picks?
Only a team that wins a pick in the lottery can trade it, meaning that selection can be traded just once. It can't be sold for cash, and it may only be dealt during the season. Trading can commence the day after the lottery is held and is allowed until the end of that regular season.
What is the Top 51 rule?
Only the top 51 player salaries for a team count against the salary cap in the offseason. (Outstanding tenders apply.) During the season, all player salaries count toward the salary cap.
How do signing bonuses impact the salary cap?
Over the years, new rules were instituted to keep this practice in check, including placing a limit on the number of years in which a signing bonus can be prorated and capping the base salary increase from uncapped years to capped years.
Explain personal seat license and why teams use them.
PSLs allow fans to pay for the right to buy season tickets. It guarantees the right to a particular seat in the stadium. Teams use them as a way to get fans to buy the particular seat they want in the stadium and pay more for a better seat.
How do NHL performance bonuses impact the salary cap?
Performance bonus! Team may exceed cap by 7.5% to pay bonus Not all players are eligible to receive bonuses Certain criteria must be met
What costs are fixed in the short-run?
Player contracts, Coach contracts, Facilities costs
What impact do free-agents have on the salary cap?
Restricted Free Agents (RFA), a Qualifying Offer is included in the team salary if the player is unsigned and the Team makes a June 1 or June 15 offer, this offer will be included in team salary until the player is signed, the team gives up their rights to the player, or until the Tuesday after the tenth week of the regular season if the player is unsigned.
How is the NBA revenue sharing structured (how much is shared and who gets it)?
Revenue benchmarks..salary cap must spend 70 percent of revenues on salaries
Distinguish between NHL salary cap ceiling and salary cap floor.
Salary cap ceiling-Maximum a team must spend, Salary cap floor-Minimum a team must spend
What are the four assumptions used in this study (regarding ticket price data)?
Secondary Market Price is dynamic the price. The secondary market is a truer representation of demand than primary markets because price can drop when demand is low and shoot up when demand is high. The secondary market price has the ability to react to dynamic factors. Gathered listing count is equal to supply (not demand!) Actual demand (quantity sold) = new ticket listing count + change in listings from prior date. Gathered ticket prices are average prices for all seats in stadium Only individual ticket sales were considered (not season ticket sales)
Profits: we usually assume that firms maximize profits
Sports differ because fans prefer wins to profits
Explain the three main barriers of entry to sports.
TV, strategic location, Leagues can deny competitors the use of facilities
Teams cannot ignore profits entirely. Teams can go bankrupt
Texas Rangers most recent team
In 1914, the Federal League declared itself a 'major' league, thus competing for labor with American League and National League. Explain the financial impact this had on all three leagues.
The American and National Leagues responded aggressively to the competition from their new rival by both stealing players back after they had signed with the Federals, and prevented other defecting players from playing for the new league by tying them up in lengthy court proceedings. The financial impact was due to substantial legal fees, elevated players salaries and on-field competition
How does a luxury tax differ from a salary cap?
The Luxury tax is different from other methods for limiting payroll as it doesn't really prohibit big payrolls, as would be the case of a salary cap.
Why is this tax sometimes referred to as the 'Yankees Tax'?
The Yankees have paid it every single year since its inception in 2003, which has led people to call it the 'Yankees tax
Outline the terms of the settlement.
The and reached a $4.75 million NFL Reebok Inc settlement agreement in California federal court on Thursday, in a proposed class action brought by apparel customers who claimed Reebok's exclusive NFL licensing deal violated antitrust laws. The settlement agreement notes that the NFL and Reebok continue to deny the allegations against them, but that they entered the agreement "to avoid further expense, inconvenience and the distraction of burdensome and protracted litigation."
Why have some current and former fighters filed an anti-trust lawsuit against UFC?
The fighters contend they've been forced to sign oppressive contracts that make them indentured servants to UFC. As the fighters see it, they've been unlawfully denied free agency and name image and likeness rights. This denials has led to seemingly low salaries compared to massive UFC revenues.
When does the CBL take place?
The first lottery will take place in July, after the 2012 Draft signing deadline has passed.
The Federal League filed a lawsuit against the AL and NL, accusing it of monopolizing the baseball industry, in particular, monopolizing the pool of talent. How did the AL and NL monopolize the pool of talent?
The leagues were tying up all but a handful of the nation's 10,000 professional players- had a stronghold on them
What teams was the CBL designed to help?
The lottery, it seems, has been designed to help small-market and lowest-revenue clubs gain more talent not just because they had a poor season.
How is the tax money spent?
The money that is generated through this luxury tax is not distributed among the other teams in the league (which is what happens in the NBA). The first $5 million is kept for potential refunds. If there are no refunds, then that amount is contributed to the Fund. The rest of the money is used as follows: 50% is used to fund player benefits 25% is used to fund baseball development in countries that don't have high school baseball 25% goes to the Industry Growth Fund
How are the lottery odds determined?
The odds of winning a Draft pick in this lottery will be based on each team's winning percentage in the previous season. The half-dozen picks will be made at the conclusion of the first round, but after the compensation picks for free agents.
In regard to the economic impact of a sports team, explain the substitution effect.
The primary criticism in the academic literature is that these studies overlook substitution effects—that is, that money spent on the team supplants other spending that would have otherwise taken place—so that the estimates exaggerate the true economic impacts.
Explain how the tax works (include the tax rates)
The tax rate is completely dependent on the team's tax history. Teams that have been "repeat offenders" are subject to paying a higher tax rate. 1) 17.5% if the team didn't exceed the tax threshold in 2012 2) 30% if the team exceeded the tax threshold in 2012 and paid 20% 3) 40% if the team exceeded the tax threshold both in 2011 and 2012, meaning they paid 30% in 2012 4) 50% if the team exceeded the tax threshold in the last few years and they paid anything over 40%
Some critics call revenue sharing a 'tax on quality'. What do they mean by that?
The teams that want more talent on the field have to share revenue with teams that may be profit-maximizing.
What teams qualify for the CBL?
The teams that will be eligible for the first lottery are the D-backs, Orioles, Indians, Royals, A's, Pirates, Padres, Rays, Reds, Rockies, Marlins, Brewers and Cardinals
How do public funds impact the value of the sports franchise? What example did the paper provide?
The value of the subsidy a team receives when a city foots the bill for a new stadium or arena often shows up as a higher team resale price, which then ends up in the owner's pocket. For example, Eli Jacobs bought the Baltimore Orioles for $70 million in 1989, just after the team had convinced the state of Maryland to build it a new $200 million ballpark from lottery revenues. The enormously popular Oriole Park at Camden Yards opened in 1992. The following year, Jacobs sold the Orioles for $173 million. The sale netted Jacobs an almost 150 percent return, with no money out-of-pocket for the new ballpark
Explain binomial distribution and its application in competitive balance.
There are only two possible outcomes and as time goes on and games are played, distribution centers around the mean.
What are 'voidable years'?
These are typically incentive-laden additions to contracts that will allow the player to file for Free Agency sooner if certain goals are obtained.
Economic impact studies are included in the cities proposals to use taxpayer money for new stadium projects. What is the issue with using these studies?
These studies are often commissioned by franchise owners and conducted by an accounting firm or local chamber of commerce
Explain the statement: "TV broadcasts are a two-edged sword"
They are a major source of revenue, They can discourage stadium attendance
Why would a network pay for broadcast rights even if it lost money in doing so
They would make money as a result.
How does diminishing marginal returns promote competitive balance?
This effect limits the desire of teams to stockpile - and pay - star players
What is the Champions Clause?
Triggers an extension of a fighter's contract if he becomes a champion. This means that a fighter can't negotiate a new contract at an optimal time: when he's at the top.
Distinguish between variable ticket pricing and dynamic ticket pricing.
Variable ticket pricing you knows prices before the season starts. Dynamic ticket pricing prices change as the season unfolds.
What is the 'Barry Sanders rule'?
What is to prevent a player from signing a huge contract, commanding a large (guaranteed) signing bonus, then never playing a single down in the NFL? Barry Sanders Rule
NFL shares all sources of revenue
broadcast shared evenly, 40% of gate, merchandise shared evenely
Derived demand:
driven by sponsors demand for commercial time
Explain the 'non-statutory labor exemption'
employment restrictions created through collective bargaining are exempt from the area of antitrust law most threatening to leagues. The basic logic of the labor exemption is that it encourages owners to negotiate rules with labor rather than to unilaterally impose those rules
What is the Ancillary Rights Clause?
grants the UFC exclusive name, image and likeness rights for merchandise, video games and broadcasts. UFC fighters contend the ancillary rights clause has greatly diminished their sponsorship opportunities and deprived them of lucrative contracts signed by the UFC.
variable ticket pricing:
known before the season begins
What is the Exclusivity Clause?
lows the UFC to match offers received by fighters from other mixed martial arts leagues even after the fighter's UFC contract has expired. This seemingly impairs rival MMA leagues, such as Bellator MMA and World Series of Fighting, in recruiting UFC talent and prevents UFC fighters from leveraging leagues against one another in negotiations
HHI
measure the concentration of chamionships, equivalent of monopoly power, smaller number = more balanced
Digital revenues
online media, video games, social media
Via exclusive geographic territory:
only 1 NFL team in each market decreases if another team moves in
venue revenue: other than ticket sales
parking, concessions, luxury boxes and other special seating, naming rights, signage
Free agency
players offer services to highest bidder
Diminishing marginal returns
prevents team from stacking elite talent (promotes competitive balance)
Profit maximizing teams don't want total balance
they want big market teams to win more
perfect price discrimination:
we assume firm knows each individual demand
demand curve shifts to the right...
which increases price and leads a stadium to sell out at capacity
