Sports Econ Final

The NHL may be a monopoly, but it is a natural monopoly, because the league as a whole operates more efficiently than if each team was left to itself to compete with others. As the text states, teams and leagues are natural monopolies when firms' teams face large start-up costs and low marginal costs (Leeds, The Economics of Sports). Because of this reason it will be very hard for teams to just play against NHL-level competition because they would need to spend several years developing their staff and players and invest a large sum into recruiting players from the already-established teams. Another reason the NHL is a natural monopoly is because they protect and value the fans, teams cannot just up and leave from a city for financial success there has to be an approval from the majority of the owners as well as the commissioner

(b) Even if it is a monopoly, it is a natural monopoly.

The economist compared an NFL Stadiums' economic activity to that of a singular Wal-Mart store. He claimed that an NFL stadium will generate the same activity as a Wal-Mart store. Both an NFL stadium and a Wal-Mart will generate the same amount of full-time jobs.

1. What did the economist equate stadium spending to in terms of economic activity?

To make my case for building a stadium in a city I would highlight the positives that come with a stadium. Some of those being the increased spending in surrounding areas of the stadium due to higher attraction around. Higher tourism attraction you may bring in fans of different teams on road trips who decide to come and see their teams play. It also can help with a city's overall morale by having something to look forward to in a sports team.

1. You are hired as an economic consultant by a lobby for sports franchises. How do you make your case to build a stadium in the city?

The BMI for QBs entering the draft is on average 27.8 and if the value surpasses 29.1 the BMI will lower a quarterback's draft performance.

10. What is the optimal BMI index for QBs entering the draft?

A finding that could prove his claim is that a significant amount of black running backs with similar statistics to non-black running backs have not been hired. Another finding that could aid his point comes with a scenario where there are several teams with zero black running backs. If those teams are significantly less profitable and less successful with their non-black running backs, then there is evidence of discrimination. It would need to be a significant finding for the black running back to prove his point, because the sample size of NFL teams is so small and there are so many other factors that go into determining a player salary.

11.2 An NFL running back comes to you, claiming that black running backs are the victims of racial discrimination by teams. Devise an econometric model that would tests his claim. What finding would prove (or disprove) his claim?

If a market is not competitive for example if it is under monopsony power, then discrimination is much harder to eliminate. If the owners are show discrimination, there is nothing the players can do to prevent discrimination since they are technically the one buyer. since the players that want to play are limited to selling their talents to the approximately 30 owners in each league. Another way market forces would fail to eliminate discrimination is if there is consumer discrimination towards a certain group of people. Owners will make the most money if they hire the people that fans want to see, even if the quality of play is lower than if a certain group in a specific market. Another factor that would lead market forces to fail to eliminate discrimination is if a significant number of other employees show discrimination. For example, the NFL not allowing Colin Kaepernick to play, after his workout and the way he did many owners opposed to sign him, which shows discrimination.

11.3 Under what circumstances would market forces fail to eliminate discrimination?

The MLB got their anti-trust exemption when Judge Landis who was an avid baseball fan stalled the case against the MLB. It dragged out enough that it made it's way to the supreme court. Where the supreme court ruled that the MLB was a game of exhibition and not for commerce, where the Sherman Anti-trust laws only apply to interstate commerce.

2. Briefly explain how MLB got their Anti-trust exemption

The modern NFL draft came about when in 1935, the Brooklyn Dodgers and the Philadelphia Eagles both desired the services of a star fullback named Stanislaus but before the draft was created the two teams ensured a bidding war for the fullback and the war ended giving the Dodgers the rights to Stanislaus. Bell, the owner of the Eagles was upset and argued that the NFL teams should no longer compete for the services of college talent but a better system would be a reverse-order draft, where the worst teams the previous season can be able to select the best college talent to ensure the league's competitive balance, the draft was later instituted in 1936.

2. Briefly explain how the modern NFL draft came about.

The negatives of having a sports stadium is that it can harm small local businesses in the area while big companies may thrive when a sports stadium comes to a city the smaller local businesses and restaurants lose service when the team has a game because the sports games are substitutes. It also is irresponsible because sports stadiums come out of taxpayers' dollars while the city does not own the stadium, nor do they own the team so it is a bad investment for the city who eventually will lose money in the long run.

2. You are hired as an economic consultant by a lobby that views public spending on sports related projects as irresponsible. How do you make your case to the city?

Executive branch enforces the laws (not relevant here) Legislative branch makes the laws Congress (Senate and House of Representatives) Judicial branch interprets the laws Court cases potentially go up to the Supreme Court They try to figure out how to implement the laws that congress passes

3 branches of Government

A vertically integrated franchise owned by a corporation can make their franchise look less profitable than a single entity owned franchise simply because in a vertically integrated franchise there could be multiple businesses involved unlike in a single entity owned franchise where they are the only business receiving company revenue.

3. Explain how a vertically integrated franchise that is owned by a corporation can make their franchise look less profitable than a single entity owned franchise.

The percentage of the value players with less than three years of experience in the NFL have a real low value because they do not have enough experience in the NFL. Often the top picks have a higher value because they are looked as the face of the organization, but other picks have a below-average value.

3. What percentage of their value do players with less than three years of experience in the NFL make?

In the 1960s, the battle lines in professional football reflected network battle lines. Fans of the National Football League tuned in to CBS, while devotees of the American Football League watched ABC and NBC (Leeds, The Economics of Sports ). The NFL seen this as a problem and initiated their monopoly power and created a solution and implemented that the nationally broadcast rights by the leagues are shared equally and this is an example of vertical integration since this helped the NFL gain efficiency as well as increase profits.

4.5 Why was the limited exemption from antitrust laws so crucial to the development of the NFL?

A player draft position only explains 4% of the quarterback's performance compared to 96% that is a variation of that players productivity.

6. How much does draft position explain quarterback's performance?

The Sounders should try to get their own soccer-specific stadium because while the dimensions of soccer and football are similar, the demand for soccer is much less than the demand for football. 42,000 fans, so they should plan to create a stadium that meets those number of fans maybe with more seats to ensure the event at least looks sold out. Another reason may be that the Seahawks most of the time during games cause a lot of damage to the field so the Sounders will be forced to play on a not so good field.

6.8 The Seattle Sounders are the most financially successful team in MLS. They attracted over 42,000 fans per game in both 2015 and 2016 to the stadium they share with the Seattle Seahawks of the NFL. Should the Sounders try to build a soccer-specific stadium? Why or why not?

False. The new stadium was not entirely privately funded since the city donated the land to build the stadium, which would represent an opportunity cost for the city. The 50-acre land donated by the city could have been used by the city for a city recreation center or park or sold to a private investor.

7.4 True or False; explain your answer. "The new stadium was entirely privately funded because all the city contributed was a 50-acre site on which to build it."

Top athletes are paid less than top celebrities because of the two different markets. Normally players/athletes will receive their earnings from salaries and contracts similar to certain celebrities depending on their work maybe in acting or rapping, however with the celebrities there is no cap to the money they earn. With athletes the highest contract was at 300M but with for example actors they make how much the production company gives them as well as the revenue from ticket sales and other things. Same for artist they may earn their contract money, but they also receive money from tours and other things that comes with that career.

9.10 Use the supply and demand model to explain why top athletes are paid less than top celebrities.

Sherman Antitrust Act (1890) and Clayton Act Sherman Act has two main clauses "Every contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is declared to be illegal" Cartels are illegal "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States or with foreign nations, shall be deemed guilty of a felony." Outlaws using monopoly power regardless of any formal or informal agreement (does not care how it was formed, it is illegal "Per Se")

Antitrust law

Is local broadcast with a vertical integration

Baseball

Is always changing (As is currently in the news with ESPN having so many problems). The key to understanding the "small market" problems is understanding broadcast rights. The key understanding broadcast rights is to think about the difference between local and national broadcast rights

Broadcast Revenue

Most leagues we think of They are "closed" in the sense that every team in MLB remains in MLB Gives Large power to the teams

Closed Leagues

When your first hour of studying for an exam yields a large increase in your grade, but your third hour of studying yields a smaller "but still positive change" in your grade what do we call this

Diminishing returns

•Some studies find the following regarding discrimination: •Eastern European hockey players (NHL) •Japanese players in baseball •French speaking hockey players •Most studies examining recent time periods show no or maybe little discrimination (some maybe for bench or role players).

EVIDENCE OF DISCRIMINATION IN SPORTS

The study of maximizing unlimited wants with limited resources Difference between Microeconomics and Macroeconomics Assumes people are rational and respond to incentives Positive vs Normative analysis

Economics

Sent down to the minors by the Yankees. He sued claiming the reserve clause was antitrust violation Congress was holding a special session to address Monopoly power (called the "Cellar Committee" When it was set to go to the Supreme Court the Cellar Committee tabled the discussion on monopoly power in sports to let the Supreme Court settle it. The Supreme Court interpreted this action that Congress wanted to keep things as they were.

George Toolson 1950's

•Post 1900 there was an expansion in population and a shift toward the west. This made expansion viable •Many things prevented expansion (depression and the world wars) •After WWII the leagues were ready. •In the NFL the Rams moved from Cleveland to LA (1946) •In MLB the Giants and Dodgers also went to the West Coast

HOW TEAMS EXPLOIT MONOPOLY POWER

•How do we measure "Q" or quantity produced in sports? •Economists and sabermetric began thinking of this concept •They decided to analyze how many wins each player produced. Thus the player is producing "Wins" not "Quantity" •Text run through some examples •Wins in NBA, FIP in MLB are very good examples •Tough to separate out the "Signal and the Noise" •What are good individual stats (not dependent on teammates) •Very tough in football, especially in certain positions (RB)

LABOR DEMAND IN SPORTS

is a natural monopoly because it has a high start-up and it's a monopoly because its to high to compete with

NHL

Be sure to understand the following: o R2 o Adjusted R2 Expected signs of the coefficients o Interpreting the coefficients o T-stats o Blue

Regression Analysis

1. Use the article by Justin Wolfers titled "Point Shaving: Corruption in NCAA Basketball" to answer the following questions (Wolfers, 2006). f. What does it say to the point shaving argument that there are "too many blowouts" by the heavy favorites?

There is an argument that teams that are strong favorites and continue to blow poor teams out are "poor sports".

The point spread is odds when gambling, but the way these odds work is instead of having straight odds. The point spread adds or takes away points for a team on the bet before the game starts and then it balances the amount you can win to about the same number for both teams. So, for example the New York Giants play the Minnesota Vikings this week and the spread is +/- 6 respectively with the Giants as the underdog so they are the + and the Vikings are the favorite so they are the -6. What this means is if you bet the Giants, they start the game with 6 points from a better's perspective so as long as they lose by 5 or less or win the game you win your bet. If you bet the spread on a favorite that means the team is favored to win by that amount and they have to be win by more that number for you to win the bet.

a. Explain what the point spread is in your own words. (you can use an example to do this)

The effect of point shaving has no effect on the outcome of these games because of the "Asymmetric incentives" that were talked about earlier. Player's only care about winning the games so they would never lose on purpose. What point shaving does effect is the outcome of these bets. A lot of people could potentially lose money betting on the favorite if someone on the team is point shaving.

e. What is the estimated effect of point shaving?

Most things that we purchase- Clothes, Hats It's in between monopoly and perfect competition

o Monopolistic competition

Few sellers • Ex. Airlines, Car manufactures

o Oligopoly

NFL is an example of regional sports network it's a shared sports network that shares revenue

o Regional Sports Networks

The evidence of point shaving lies with the fact that heavy favorites were winning games but were not covering the point spread. Both articles found this to be true. Wolfer used games that featured a point spread of at least 12 points in order to collect his evidence. The incentive to point shave will change during the regular season to the postseason. A single game carries more importance when compared to a regular season game. This decreases the likelihood of point shaving.

b. The article attempts to align the evidence of point shaving with the incentives of point shaving. What is the evidence of point shaving? In which two instances do the incentives change?

Which league is the least competitive based on them within season variance ratio?

NBA

•The threat of lawsuits in striking down the reserve clause is large. •The lawsuits in the NBA and NHL came from rival leagues (ABA and WHA) •WHA won, NBA settled with ABA but both ended up agreeing to a system of compensation we know of now where there is a form of reserve clause early in a player's career but they have a chance of free agency later •The specifics are always changing in each CBA

NBA AND NHL FREE AGENCY

soft like NBA Why is the NBA a soft cap? Mid level exception and rookie exception: allows teams to go over the cap if they sign a free agent to a league average contract, or sign rookie deals. Larry Bird Exception: A team can resign their own player and go over the cap Because these exceptions create such a "soft" cap the league follows up the cap with other measures Max contracts Luxury taxes (extra tax on total salaries that go over a specified amount)

NBA Tax value

The higher the R, the less competitive the league is (WS) 2011 numbers (Table 5.3) EPL = 1.34 NHL = 1.43 NFL = 1.61 MLB = 1.77 NBA = 2.82 ("Can't teach height" from Berri) Problems: is .500 really "ideal"? What about 60% for home games? What about strength of schedule? Etc.

NBA has the Highest Ratio

•Student-athletes shall be amateurs in an intercollegiate sport, and their participation should be motivated primarily by education and the physical, mental, and social benefits to be derived. Student participation in intercollegiate athletics is an avocation, and student-athletes should be protected from exploitation by professional and commercial enterprises." •"A grant-in aid administered by an educational institution is not considered to be pay or the promise of pay for athletics skill provided it does not exceed the financial aid limitations set by the association's membership."

NCAA MANUAL

•In sports we lack competition in the labor market so employer discrimination can persist for longer periods of time. •Owners are individually wealthy so much like the owner that does not mind losing some money at the expense of wins we could have owners lose money at the expense of employing whomever they prefer •The process of punishing the employers (with profit loss) can extend to punishing the fans. •The owner pays for inferior talent thus fielding a bad team

EMPLOYER DISCRIMINATION IN SPORTS

•Employer Discrimination = When an employer may be willing to sacrifice profits to not associate with a type of employee •In a competitive market this type of discrimination is weeded out very quickly (the theory of the firm). •In a competitive market there is the survival of the fittest and if owners are willing to pay more for US born players (for example) they will not be able to bring the product to the market as cheap as they can. •Thus their competitors can provide the product cheaper and the discriminator will be punished •Yet another example of why economists like competition .

EMPLOYER DISCRIMINATION IN THEORY

Different leagues have different revenue sharing plans. The NFL has the most generous one. They keep 60% of the home gate ticket sales and put the remaining 40% in a pool. They pool is then shared equally between each franchise RG = 0.6 * RG,H + 0.4 * (RG,P/32) The lack of attendance for the Chargers and the Rams is a big issue right now. On the surface it looks like the teams made a mistake to move out of StL and SD... but as we can see this is not felt by the home teams as one may think. Team's incentives are to get the best deal, not to get to the best market.

Gate Revenue Sharing

1. Use the article by Justin Wolfers titled "Point Shaving: Corruption in NCAA Basketball" to answer the following questions (Wolfers, 2006). d. Explain in your own words what Figure 2 is, and what it represents.

Figure 2 is a chart that shows the probability distribution of the outcomes of sport games when compared to the point spreads. The top chart in the figure shows the probability of games with favorites of less than 12 points compared to the outcomes. While the bottom chart shows the probability of favorites greater than 12 points compared to the

Two main interpretations Per se Government only has to show that the monopoly power exists Rule of reason Weigh society's costs and benefits. Maybe monopolies are not inherently bad for society

Interpretations

This mostly involves Free Agents in the labor market However econ theory says that in a free market, resources will be allocated efficiently This will be the case regardless of if there is free agency or a reserve system Talent moved to the Yankees long ago under the reserve clause Today they are more likely to acquire top talent via free agency This is due to the fact that they have the best chance to take advantage of the top talent Many economist say this is a fight between players and owners for the cost of labor

Invariance Principle

EPL Teams not in the league are rivals to those in it Keeps competition strong from the team's perspectives Use promotion/regulation process

Open leagues

Of the four industry types, which is characterized as may sellers and many sellers. There are no barriers to entry What economist like • It brings technological advancement • Many buyers many sellers • No barrier to entry

Perfect competition

1. Use the article by Justin Wolfers titled "Point Shaving: Corruption in NCAA Basketball" to answer the following questions (Wolfers, 2006). c. Describe what point shaving is. (again, an example may be useful)

Point shaving is when a player, coach, or official who gets involved in gambling in some way does not play to the best of their ability or does something to keep the point spread in their favor. Normally there is big money involved when the integrity of professional sports is tarnished in this way. In recent history an NBA referee Tim Donaghy plead guilty to two felonies which were related to games that he was officiating. He made calls that shouldn't have been made in an attempt to keep the underdog in the spread as well as keep both teams scoring to hit the over.

Sometimes bigger is better. With increased size sometimes can come increased efficiency. Society likes to capture these efficiencies and pass them to consumers in the form of lower prices Natural Monopolies are when society give monopoly power to a firm but regulates them to keep prices low Electric, Water, most utilities How to deal with Monopolies? Patent/copyright laws, regulate them or attack them with Antitrust Laws

Positives of Monopoly: Natural Monopolies

•Comes with the right of first refusal •The original team can match any contract offered by a different team •This drastically reduces the offers received by the player •Different leagues have different criteria

•Restricted free agents

•Usually what we think of when we say "free agents" •The player can sign with any team that offers them a contract •In MLB the player gets this after 6 years of service time, other leagues are different

•Unrestricted free agents

1. Use the article by Justin Wolfers titled "Point Shaving: Corruption in NCAA Basketball" to answer the following questions (Wolfers, 2006). b. Explain what Wolfers describes as "Asymmetric Incentives".

"Asymmetric Incentives" is the understanding that players incentives to playing only align with winning the game. While the gambler's incentive is to win the point spread.

The NHL is not a monopoly because unlike the NFL there are other leagues similar to NHL. You have college hockey, AHL which is a minor league hockey team. Just like with baseball and soccer, hockey is more of a natural monopoly. The NFL is a great example of a monopoly in sports because there is only one NFL league so they have the ability to restrict output and raise prices without worrying about potential threats unlike the NHL. But, in terms of revenue, even though there are other hockey teams in the market NHL still is at the top tier in revenue because of their investments, owner sharing's and other support. But it is not a monopoly because there are a few different hockey organizations.

(a) The NHL is not a monopoly.

If the money went to a group of people whose MPC was 0.6, the simple multiplier would 2.5. This was computed by 1/(1-.6)=2.5. When the multiplier is 2.5 and adding an additional 55 million would have 137.5-million-dollar impact on the community. This was computed by doing 2.5 x 55 million = 137.5. So this changes the impact by 82.5 million if the marginal propensity to consume lowers by .15.

4. How would your answer (to number 1) change if the money went to a group of people whose MPC is actually 0.6?

•Firms demand labor •That demand is directly related to the revenue the employee will bring in •Labor Demand comes from something called the Marginal Revenue Product (MRPL) •MRP comes from two things •How many units can a worker produce (Marginal Product of Labor) •What the value of that unit is •Thus MRP = (MPL)(P)

LABOR DEMAND

•People supply labor •The higher the wage (typically) the more people want to work •Thus the LS curve is positively sloped when Wage is on the "y" axis and Labor (usually hours) is on the "x" axis •The labor supply curve is very inelastic •At one point most labor supply cures become backward bending •Think about high priced lawyers that charge hundreds of dollars an hour. Eventually they would prefer to consume leisure. They do this at the expense of labor

LABOR SUPPLY

•We generally see this inelastic supply curve in sports •If given the opportunity athletes will play regardless of pay •If they are given large career earnings they will retire before the market decides their career is over •Thus the backward bending labor supply curve

LABOR SUPPLY IN SPORTS

In theory this revenue is shared between the teams Jerry Jones challenged the NFL with his Pepsi deal MLB is the largest ($2.75B) in 2010 NFL is next ($2.7B) NBA ($1.75B) NHL ($630M) This is where Madden Football revenue comes in (another example of Monopoly power by the leagues)

Licensing Revenue

No other league can compete with MLB, but this is not the case for other leagues Rival leagues can start up and compete USFL, ABA, XFL, etc. Congress passed the Sports Broadcasting Act (1961) granting other leagues the right to collectively bargain nationally televised games (thanks to Pete Rozelle) NCAA is often viewed as a cartel. We will get into more detail in later chapters

Limited exemptions

•MPL is how much output a worker will produce (on the margin) •In our production function we have Y=f(K,L,T) •Hold K and T constant and look at how "L" will affect "Y" •How much does one extra worker produce... this is MPL •Diminishing Returns kicks in and we find each worker becomes increasingly less productive •Other examples of Diminishing Returns (value of one ace SP, first leadoff type hitter, dominant center, etc...) •Thus MPL decreases •If MRP = (MPL)(P) and MPL decreases as "L" increases, then MRP must decrease as well •Therefore MRP is downward sloping on our graph

MARGINAL PRODUCT OF LABOR

Charging a different price to two different people for the same product (need monopoly power) First Degree = perfect price discrimination. Each person pays their willingness to pay (auctions) Second Degree = charging a different price for different quantities. Buying in bulk will result in discounts. Season Ticket Third Degree = charging a different price to different groups. Usually need a quick way to signal the high income group vs low income group Senior and student discounts Airline Prices vs. Season Tickets

Price Discrimination

Often is argued between small market owners and large market owners. NFL has a lot of revenue sharing MLB has been growing Problem is that the owners can pocket the money (Marlins) NBA seems to be arguing about it now

Revenue Sharing

Began in the NFL in 1934 when the Eagles were involved in a bidding war that pushed his salary up to the best player in the game at the time. The Eagles proposed the reverse order draft and this suppressed salaries for incoming players. Some teams find value (benefit relative to salaries paid) in different parts of the draft (NE Pats and high 2nd Round picks) Draft also rewards the worse teams (and thus the worse executives... Browns)

Reverse Order Draft

1. Use the article by Justin Wolfers titled "Point Shaving: Corruption in NCAA Basketball" to answer the following questions (Wolfers, 2006). a. Explain what the point spread is in your own words. (you can use an example to do this)

The point spread is odds when gambling, but the way these odds work is instead of having straight odds. The point spread adds or takes away points for a team on the bet before the game starts and then it balances the amount you can win to about the same number for both teams. So, for example the New York Giants play the Minnesota Vikings this week and the spread is +/- 6 respectively with the Giants as the underdog so they are the + and the Vikings are the favorite, so they are the -6. What this means is if you bet the Giants, they start the game with 6 points from a better's perspective so as long as they lose by 5 or less or win the game you win your bet. If you bet the spread on a favorite that means the team is favored to win by that amount and they have to be win by more that number for you to win the bet.

Why are the royals less market valuable than the chiefs

The reason the royal has a smaller market is because the chiefs are heavy on revenue sharing

•Craft unions vs Industrial unions •Craft unions are older, are formed to prevent rivals from entering the city and competing thus pushing wages up •Industrial unions were created in response to harsh working conditions and are formed by the industry workers and negotiate (through collective bargaining) with the employees for higher wages •Strikes are when the workers (or players) stop working to gain negotiation advantage •Lockouts are when management shuts the workers (or players) out of work to gain negotiating advantages •The timing of strikes and lockouts can sometimes be predicted around the expiration of the CBAs

UNIONS

What is generally true regarding the structure of the us leagues vs EPL

US leagues are closed and the EPL is open

Although gate revenue is shared heavily in the NFL the way the venues are designed makes a big difference in TR When you buy a ticket to the game you purchase the rights for one seat for one game. When you purchase a luxury box suite you lease (or rent) the space. It is not considered "gate revenue", thus is not shared This is why NFL teams want new stadiums so much. The old stadiums have little luxury boxes while the new ones have a lot (Cowboys) Naming rights are a big concession cities have given owners We will get into this in more detail later in the text Not a good investment for the naming party

Venue Revenue

When firms merge they are considered Horizontally or Vertically Integrated Economists point out that increases efficiency (and therefore increases profits) result in vertical integration. Upstream and Downstream firms. On the field is "upstream" while televising the games is "downstream" Corporate owned franchises that are vertically integrated allows the team to look unprofitable. The down stream firm can simply charge more to the upstream firm. An example of vertical integration is a retailer, like Target, which has its own store brands. It owns the manufacturing, controls the distribution, and is the retailer. Because it cuts out the middleman, it can offer a product like the brand name product at a much lower price. Manufacturers can also integrate vertically. Many footwear and apparel companies have a flagship store that sells a wider range of products than you can get from a regular retailer. Many also have outlet stores that sell last season's products at a discount.

Vertical Integration

Though some individuals think that sportsbooks are balancing their books to equalize betting actions, others believe that the sportsbooks are imbalanced and focused on profits. The objective that was made about sportsbooks backed up by data shows Sportsbooks has a great knowledge of bettors' behavior bias and uses that to their advantage to maximize profits. They analyze how much a home favorite or underdog will influence betting trends, then further how much the home favorite or underdog is bet on according to the point spread. The evidence they found to support this argument was a simple regression model of NCAA by using different data collected by Sports Insight which further shows that favorites are preferred compared to underdogs. Therefore, sportsbooks, in fact, does have an imbalance in their betting actions, resulting in the higher the point spread of the game, the more likely the percentage of bettors wages are being placed on favorites.

. What do the authors have to say about the objectives of the sportsbooks? What evidence do they provide to support this argument (don't get too technical)?'

The Sherman Antitrust law was put into place to stop the forming of monopolies in business practices. The MLB is the only industry to be exempt from this law and this has been a controversial topic for quite some time. The reason they are exempt is because the Supreme Court decided that other sports were interstate commerce based while the MLB was not allowing Major League Baseball to continue being a monopoly.

1. Briefly describe the Sherman Antitrust law. How did Major League Baseball get exempt from this law

Borghesi suggests that college basketball point spreads are similar to professional basketball and professional football when it comes to strong favorites winning and covering the point spread. Furthermore, states that the big underdogs tend to cover the spread more frequently opposed to the normal underdogs due to the fact that sportsbooks are "shading" to the favorites. Due to sportsbooks working like this causes bettors to be more included to bet for the favorites compared to the underdogs. Overall sportsbooks do not plan on having the betting prices balanced evenly on each side, their main goal is to price to maximize profits due to bettors be reliable on the sportsbooks and have biases.

1. Describe the counter argument put forth by Borghesi (2008) to the Wolfers article.

The economist does not see the labor market in sports as a competitive one because with sports we are accustomed to a labor market where workers are free to apply to any employer, and employers are free to hire any worker. Unlike the competitiveness of the scenario presented in the opening of the article where the top performing journalist was unable to get that top journalism position because of their location. However, with sports we see it all the time players making solely and free decisions upon the labor market because they have the right to where they please to play or apply too. An example of this is when Kevin Durant joined the Golden State Warriors during the offseason that decision was totally upon himself because sports has a free labor market.

1. Explain why economists do not see the labor market in sports as a competitive one.

Sport unions differ from both craft unions and industrial unions in that they can bargain over the general framework that athletes and teams use to negotiate with each other. Sport unions also advocate for some positions that are completely different than any other union. Unions often push for a "scale" of salary, whereas firms want salaries to be set by the market. Sport especially the MLB borrows from both, opting to use arbitration to create a "scale" by which younger players are measured. Once the players reach a certain number of years played, they can become Restricted Free Agents and then ultimately Unrestricted Free Agents. Technically, UFAs have their salaries set by the market ff the demand for pitchers is high, then pitchers are in line to receive a higher salary, but their performance ultimately determines how much they are paid. Sport unions also differ in that they have competitive wages created through that Free Agency process described. It is very rare that an industry sign worker to "3-year contracts" and that not all the money is guaranteed similar to the NFL

10.4 In what way are sports unions like craft unions? In what way are they like industrial unions? In what way do they differ from both?

"Journeymen" in the MLB earn most of their MRP because they have reached an agreement for a lucrative extension orthey have reached some sort of free agency. The best players--the ones who have played for a few years in MLB--have bargaining power over their teams, so they can opt to sign deals that better represent their worth and a good example of that is with Mike Trout one of the best players in the MLB. The players who have lasted a long time but don't sign extensions are exposed to the competitive market known as free agency, where they are able to utilize their past performance to negotiate contracts and there was an example of this, during this season as Bryce Harper signed with the Phillies. Essentially, the option years ensure the player receives the league minimum. After that 3rd year, they can negotiate in salary arbitration. Neither the option years nor arbitration allow the player to receive anywhere close to their MRP, because the owners do everything in their power to suppress their working wages.

10.5 Use what you have learned in this chapter to explain why "journeymen" in MLB earn 86 percent of their MRP while "apprentices" earn only 19 percent.

Final offer arbitration ensures that both the player and their employer bids almost match around the time the arbitration ends. That way, both the player and the employer are reasonably satisfied by the yearly salary. FOA is not addictive because it limits the rewards of going to arbitration; arbitrators do not want to appear "biased" towards one side or another, so they generally split the difference between the offers of the player and the offers of the team. Both parties want to convince the arbitrator that their proposals are more reasonable than the other. Binding arbitration can be addictive because it incentivizes both parties to submit extreme offers, like in the NHL's restricted free agency. Arbitrators are not as incentivized to "split the difference" between the two parties' offers, so players opt to submit offers that are seen as high whereas the teams submit offers that are low, to save money towards the salary cap. The two parties are generally less likely to compromise compared to other leagues like MLB.

10.6 MLB has adopted final offer arbitration because it fears that regular binding arbitration is addictive. In what way can binding arbitration be addictive? Why isn't FOA addictive?

For those who are unfamiliar, the luxury tax ensures that teams who exceed the luxury tax pay excessive amounts of money back to the league. Considering the Yankees exceeded the luxury tax threshold every year since their inception, they were most likely forced to pay extra to meet the luxury tax. The luxury tax was designed to continue hurting the Yankees for every year that they exceeded this luxury tax but considering that their revenue probably significantly exceeded this payroll, there was no real incentive for the Yankees to drop beneath the threshold. This discouraged them from signing free agents to high salaries because of the high tax rates, which would force them to pay even more than what they did previously when going over the luxury tax.

10.8 How has the luxury tax discouraged the New York Yankees from signing free agents to high salaries?

In table 5.5 of what determines a Quarterback's Draft Position Wonderlic test can increase a quarterback's draft about 1 round or 30 slots if he can score about seven points higher on the test

11. How many point increase in the Wolderlic test results in being drafted one round higher?

Although, both are considered a vertical integration and they keep their local revenue while sharing the network contract revenue equally, baseball is a local broadcasting company which indicates that even though some teams may share broadcasting platform they do not share the same revenue unlike the NFL where it is a Nationally broadcast platform (Leeds, The Economics of Sports ). As a result, the Kansas City Royals get much less media revenue than the New York Yankees, while the Kansas City Chiefs get about the same media revenue as the New York Jets if we are referring to a big market organization.

2. The KC Royals (MLB) is a small market team while the KC Chiefs do not have this problem. How can this be if each team plays in the same market?

Dean Spanos claimed that no new taxes would be imposed on San Diego citizens. The citizens of San Diego would experience no tax increase in order to build a new stadium in San Diego. The Spanos family claimed that tourists, outside businessmen, and convention goers would ultimately pay for the new stadium they planned to build in San Diego. In reality, the Spanos family expected San Diego citizens to pay 1.15 billion dollars in order to build the new stadium. The Padres organization also claimed that Petco Park would be a tax-free stadium. The taxpayers ended paying over 2 billion in order to finance the building of the stadium.

2. What were the claims that the stadium was fully financed by outsiders?

The mere fact that the ramifications to players participating in this illegal activity, and their chances of getting caught by doing so, could be such a detriment to them is a strong argument against point shaving. A player having involvement in point-shaving throughout their college career could ultimately ruin so many future opportunities they may have been able to achieve. This could include risking securing any professional exposure, losing the opportunity to cash in on endorsement deals and not being able to play the game that they have trained for with other NBA players. Simply due to the fact that a player could jeopardize all of these opportunities they would most likely not participate in these activities because of this. Further investigation done to examine point-shaving involved having a sample of those likely to be point-shaving placed into games that were played by players under winning coaches of the last 10 years. A player being involved in the best teams would make it difficult for them to be involved point-shaving. This is because a winning coach would simply replace or remove the player who is playing poorly with another talented player. So in order to point-shave in this example, most or the majority of the team members would have to be involved, which only increases the chances of them being caught. The chart provided in the article showed the coaches that were for or against the point spread by presenting the leftover coaches in the league in the game where the point spread reached the threshold. The chart showed that the 10 best coaches didn't cover the point spread as much as the teams with other coaches, having the underdog winning 54% of the time competing against the best coaches while the other team's underdogs win only 51.3% of the time. Therefore, one may think some of the best teams are involved with point shaving. However, due to the ramifications that could result not only to the players as mentioned above, but also to the coaches who could jeopardize contracts and endorsement deals, this makes it seem to be very unlikely that teams would be involved with this.

3. How do they tie this data into the argument for/against point shaving (again, you do not have to get too technical)?

The multiplier would be 4. This was computed by doing 1/(1-.75) which equals 4. If the stadium required, the government to spend an additional $55 million there would be a $220 million impact in spending throughout the community. This was computed by 4x$55 million = $220million.

3. If the Marginal Propensity to Consume (MPC) in a municipality was 0.75, what is the value of the simple multiplier? If a new stadium requires the government to spend an additional $55 million what would the impact be on the local community given this multiplier?

For some teams the owners main focus is not team success but what is great for business. Throughout sports teams may not have a successful season but are still able to generate profit for reasons such as location, newly renovated stadiums, past year success etc. A great example for each is for location the Los Angeles Chargers have not had a successful run to the Superbowl but since they moved from San Diego to a highly profitable and populated area in LA they are still able to generate profit. The Atlanta Falcons have been able to be most profitable with their 1.5-billion-dollar stadium that is a big example of monopoly power since most of their profit is going to them and no other resources which allows them to restrict output (ESPN, n.d.). For the final example in past year success the New York Yankees win or lose will still be the most profitable because of their previous win success but also their location.

3.7 How can it be that the weakest teams in the National League from a wins-losses perspective, are among of the most profitable

The sports labor market is competitive. Once players become free agents they have the choice to sign with any team that they would like which in turn leaves a bidding war for the player's based on their interest by the league's teams. Players who are valued higher can often gain more than the worth by creating this bidding war between teams who have high interest. An example of this can be JJ Redick this past NBA offseason. The Sixers wanted to keep Redick but he was offered 4 million more per year by the Pelicans.

4. Is the sports labor market competitive? What does this competition (or lack thereof) affect salary?

The picks that have the most value in the NFL draft is the first-round picks most of the time the top 10 picks. With these picks' teams are looking for that college athlete to perform and turn the team to a winning team, someone able to make the team a winning team. The value of the top picks is so high that you often see team propose trades for a veteran star in return a first-round pick for a team to rebuild. An example of a top ten player performing to his standard that was also discussed in the article was Eli Manning who was picked by the San Diego Chargers and immediately traded to the Giants. His performance was matched with his value when he was able to win two Superbowl games. An example of the value of the first-round pick was the trade that happened that sent Khalil Mack to the Bears for a first-round pick to the Raiders so they can rebuild.

4. Which picks have the most value in the NFL draft?

The Premier league team like Arsenal does not have as much monopoly power as the NFL's Chicago Bears because there are other soccer leagues. English Premier league, Serie A, La Liga, Bundesliga, and Major League Soccer (HowTheyPlay, n.d.) just naming the top 5 soccer leagues Arsenal is unable to restrict output and increase prices because there are multiple leagues with different suppliers. Versus with the Chicago Bears since the NFL is already a Monopoly and they are the only NFL team in Chicago they have the opportunity to restrict output and increase prices (Leeds, The Economics of Sports ).

4.3 Why can't a Premier League team like Arsenal exert as much monopoly power as the NFL's Chicago Bears?

In the instance of the stumbling wins, value is determined by the players productivity and not too much of the players college performance. You see very often in the NFL where the top players value is not up to part with productivity often causing them to be a "bust" in the draft which is when a highly touted or highly selected draftee does not meet expectations. An example of that is Trent Richardson who was the Heisman winner in 2011, someone who was highly talked about in the draft and turned out to be a bust because of his underperformance. Instances occur like this all the time in sports, so the idea of value determined is more of productivity not about the popularity of that specific person.

5. How is value in this instance determined?

The fact that the NFL has two teams in LA and now a team also in Las Vegas in the Raiders upcoming seasons will make negotiations different. It is going to make it harder for future negotiations for cities to get NFL teams. Especially because what it seems is teams are going to need some new state of the art facilities to be persuaded into coming to a city and most big cities already have an NFL team. Small cities will have to outbid each other and whoever offers the best stadiums and most funding will probably win.

5. How would the fact that the NFL now have teams in LA change future negotiations for stadiums in other cities?

The four main objections made by Diemer based on Paul & Weinbach piece involves Incentives to Decrease the Risk of Detection, Logistics, Incomplete Treatment of Previous Corruption Investigations, and Methodology. The incentive to decrease the risk of detection, within the Paul & Weinbech article insists that when the cost of point shaving is large so are the benefits. The argument is that the conspirators going after the large payoffs would lead to obvious betting line movements. However, what Paul & Weinbach do not explain is that by the conspirators not being greedy, betting small sums, not moving the point spread and not drawing attention to themselves they are able to avoid detection. The second objection made is logistics. Paul & Weinbach sports journal doesn't use proper sources of information which can affect the procedure by imposing maximum wager constraints. Diemer explains that by setting a maximum to the amount permitted to be bet, in order for a better to move the line and arouse suspicion they would have to have placed bets in the maximum amount allowed in an exorbitant amount of accounts which is unrealistic. The third objection is incomplete treatment to previous corruption investigations, which states that Paul and Weinbach are missing a lot of information that involves point shaving. In Paul and Weinbach writings they refer to inflated lines for big favorites as a logical indication of point-shaving rather than the statistical evidence which shows that the big favorites are involved in too many blowouts indicating they are they better team. The last objection is Methodology. The Paul & Weinbach method used percentages of bets on one side or another in their study to show that point-shaving doesn't exist, whereas Diemer argues that it is the volume of the wager which is required to prove or disprove a point-shaving scheme. The favorite team getting the majority or higher percentage of the bets wouldn't indicate point-shaving, rather it indicates to me that more people believe they are the better team. However, it would make more sense that an indication of point-shaving would be shown by fewer bets placed on the underdog in large amounts of money since who would logically place a large amount of money on the team favored to lose or not make their spread.

5. Summarize Diemer's four main objections to the Paul & Weinbach piece.

There are more negative externalities associated with Barclays Centre, which is located in Brooklyn, because of the time the stadium is built. Since it is a newer stadium, which was built in 2011, has more negative externalities because it is a newer stadium, while negative externalities that are affiliated with the Staples Center has plummeted due to the fact it is an older stadium. The building of Staples Center has affected individuals causing people to clear out of Los Angeles, which then furthermore led them to lower rent and land prices to keep new residents. Moreover, Brooklyn is more densely populated than Los Angeles. Therefore, the increased density in Brooklyn will result in a magnitude of negative externalities within that area.

6.2 Why are the negative externalities associated with the newly opened Barclays Centre in Brooklyn likely to be greater than the negative externalities associated with the Staples Center in Los Angeles?

Football and baseball teams have come from multipurpose to football and baseball stadiums only because of the numbers of attendance and the structure of the stadium. At one time, having a multipurpose stadium for football and baseball was an option. However, as football began to become a lot more popular the size of the multi-purpose stadium was making the size of the stadium too small for football and too large for baseball. Also, the shape of the stadium did not work well for both sports. The seating arrangement for the two sports are nothing alike, football teams play on rectangular fields while baseball teams play on a diamond-shaped field. Therefore, based on the shape of the field the seating arrangements have to be structured properly in order for the fans to have a better view of the game. When the stadium was multipurpose how seating arrangements were set up would cause a problem because fans would have poor views leading to a decrease in ticket sales. Therefore, football and basketball separated and built stadiums that had the proper layout for the sport and would allow the fans to have a better perspective of the game. Basketball and hockey share a similar playing area size and are both held indoors therefore, they can share the same stadium, the only big difference would be financial. Hockey teams aren't as financially gifted compared to basketball.

6.4 While football and baseball teams have gone from multipurpose to football- and baseball-only facilities, basketball and hockey continue to share arenas. Why?

MLB teams still pursue new stadiums because it allows them to add new features and elements to their stadium that can help generate revenue. Having a new stadium allows these teams to create better seating arrangements and profit more. When a team renovates or builds a new stadium it allows them to build better quality seats, at which they can charge more. One of the most influential reasons that MLB pursues new stadiums is luxury suits. When building new stadiums, allows more high-quality luxury suites, which generates a high amount of revenue for the organization.

6.7 If a new baseball stadium has only a very short-term impact on a team's attendance, why do MLB teams still pursue them?

The correlation between draft position and playing time has zero to no factors to the percentage of quarterbacks. Well it may have a little factor but even though that player gets a lot of snaps it all depends on that players per-play productivity which is a huge factor in the performance of quarterbacks. Table 5.4 from the article illustrates that the quarterbacks taken with one of the first ten choices did get more plays, and their relative wins per game were also higher. However, the per play numbers reveal that the players taken with pick 11 or 50 were more productive than those taken at the top of the draft and in fact, quarterbacks taken from picks 51 to 90 were on a per-play basis as the quarterbacks taken with one of the first ten picks. An example of this and how the draft position and playing time is not a big factor is discussed upon a future hall of famer Drew Brees who was a late round pick but outperformed a lot of top ten picks with his productivity and contribution to his team.

7. What happens to the percentage when we correct for the correlation between draft position and playing time?

The decision on putting a tax on taxicab rides would not be a wise decision. The tax on taxi cabs can negatively affect local residents and businesses more than it would affect the out-of-towners. Adding a tax would further shift taxicab rides on the supply curve by the amount that is taxed. Therefore, people can just try to avoid taking taxicabs while they are visiting due to not wanting to pay the price, but this could affect local residents. In addition, if the taxicab owners do not want to charge their customers more or people stop taking taxes the extra tax cost would make taxi drivers suffer. The mayor may be doing this because he is making efforts to have more funding money but is actually damaging the city and businesses if this is done. This could hurt both the taxicab driver and local residents, due to an increase in higher prices individuals would be less likely to pay these higher prices further suggesting this is a bad idea.

7.6 Your city is committed to raising $100 million for a new arena. The mayor suggests putting a tax on taxicab rides since out-of-towners disproportionately use taxicabs. Evaluate the wisdom of this policy decision.

Matthew Stafford in 2009 made $72 million with $41.7 million guaranteed. Knowing all the information that I know now this was not a wise draft selection. In my opinion, Matthew Stafford is an average quarterback, with that money he should be performing and being very productive on the field. He has not taken his team to the Superbowl and I do not see that happening with the evolution of superstar quarterbacks during that time with Tom Brady, Peyton Manning, Aaron Rogers and even Brett Favre. The Lions could have done a similar method to what the Giants did as they paid Eli Manning $35 million and he has already led his team to a Superbowl win victory. Another problem with this pick was they were not aware of what type of player they were receiving; they could have been getting the next Peyton Manning or the next David Carr.

8. How much did Matthew Stafford make in 2009? Knowing the above information, was this a wise draft selection? Why or why not?

Hosting a mega event, like the Super Bowl, is in theory supposed to bring in a large amount of revenue for the city. Oftentimes, cities have to construct a number of accommodations for the event with no help from the National Football League. A number of things are looked at when deciding a host city, like hotel rooms. New Orleans has almost 40,000 hotel rooms while Minneapolis has under 8,000. Minneapolis could in theory charge more per night as the demand would be higher given the scarcity of the rooms compared to New Orleans. The host city must also provide a venue for the "NFL Fan Experience "so another thing that would be very important to compare the climate of the different areas to get an idea of where the experience will take place and if you will be able to hold a certain amount of people so that they can enjoy the experience. Given the climate in these cities during February, the month when the Super Bowl is hosted, Minneapolis would have to have a large indoor venue constructed well in advance of hosting a Super Bowl, while New Orleans and Miami could potentially hold the event outside and in this instance Miami and New Orleans may have an advantage because they are able to hold more people since the experience is outside. Given accommodations that the NFL needs, cities with fewer resources may bear more of a burden compared to larger cities when it comes to hosting a mega-event like the Super Bowl when in reality it should have boosted their economy.

8.1 How does the economic impact of holding the Super Bowl in Minneapolis, Minnesota - the site of Super Bowl LII - compare with holding it in Miami or New Orleans at the same time?

This decision shows that the IOC can gain a monopolistic stance on both the summer and winter games as it can plan the location and determine its lowest price with the lack of competition. As the locations are finalized the marginal rate of utility for every game ticket will go up, therefore putting the IOC in a position where it can drive the demand for an all or nothing scenario. The monopoly of the committee will depend upon the demand of the games in the region where they are planned. So, if the demand goes down naturally then there would be a scenario for the winner's curse otherwise the demand would be stable and driven by the monopolistic nature of the committee. In result of this the IOC would likely lose its monopoly power, because there would be no reason for the cities to bid on the games. Since Athens and Sapporo likely would never have to fight other cities to host the games, they would not drive up the price of the games and generate more cash for the IOC. The cities could also, pay market value for these games and the IOC would also not be able to exploit the all-or-nothing demand curve in this case. Because the cities would likely pay far lower than any of the host cities in recent years, they would not take as much of a loss (known as EFG on the book and the demand curve) when paying for the games. The amount of the consumer surplus would be very high, and the size of the loss the city could take by paying for the games would be significantly smaller than if cities bid money for the right to host the game.

8.6 Suppose the International Olympic Committee announced that it would hold all of its Summer Games in Athens and all of its Winter Games in Sapporo. What is the likely impact on the monopoly power of the IOC, the IOC's ability to exploit an all-or-nothing demand curve, and the winner's curse?

A small city like Indianapolis would benefit more in hosting the NCAA Men's Final Four Basketball Tournament compared to a big city like Los Angeles. The city of Los Angeles is very popular in terms of attracting tourist, therefore, this city doesn't need big festivities to attract tourists compared to Indianapolis. Having the NCAA would not cause a great impact on revenue in Los Angeles. Though a city like Indianapolis who lacks tourists would benefit from having this event hosted in their small city by bringing in new tourists and allowing them to generate more revenue.

8.7 Using the concepts of discussed in this chapter, discuss whether a small city like Indianapolis or a big city like Los Angeles would benefit more from hosting the NCAA Men's Final Four Basketball Tournament.

For college players both college performance and NFL Combine factors into their draft selection however with college performance it helps you receive the talks to becoming that top ten players, but the NFL combine is more important because your performance there will secure your position in the draft. You can be a great player in college but if the performance doesn't impress the scouts at the combine you will lose value in the draft. Potential draft picks come to combine each year and undergo a series of physical tests, the test reveal a quarterback's height, weight, body mass index and how fast he runs. Players are also put in Wonderlic test to give some insights into the mental skills of the player. So even though college performance is a key factor in the draft selection for the most part NFL combine factors are more essential with the different skills test, also the combine can be beneficial for certain players with the height test which can give a player an extra boost in the draft selection.

9. What determines draft selection more, college performance or NFL Combine factors?

•College athletes are pure with a call to "return to the Greek notion of amateur competition" (Gee, then president of U of Colorado) •Olympic Games were one of four competitions (thus once every four years) began in 776 BC •Conflict held a special place in their culture so during times of peace the created this conflict with the Olympics (in honor of Zeus) •Athletes were paid well by the home cities (especially if they won) •Free meals for the rest of their lives, estimated at $600,000 per year to train full time

A CLOSER LOOK AT "AMATEURISM"

•As we went over before, the courts have ruled that MLB has a right to exert monopoly power. They have the full anti-trust exemption •MLBPA had to go a different route to get to free agency •Marvin Miller (many believe should be in the Hall of Fame) tricked the owners •Prior to 1970 any grievance by a player was handled by the commissioner (he ruled in favor of the owners) •In 1970 Miller got the owners to agree to a deal that would have an arbitrator hear these grievances •This panel had one person picked from the owner, one from the player and the third from a mutually agreed upon list. Only to hear boring financial matters •Miller then brought up the reserve clause issue and the panel sided with MLBPA

BASEBALL'S PATH TO FREE AGENCY

•Gary Becker began looking into discrimination in the economics field •He wrote The Economics of Discrimination in 1957 •Now economists spend plenty of time looking into the subject •Most of the theory in this chapter is based on his work •Mainly stems from the owner's objectives of maximizing both profit happiness (in this case being a function of who they employ)

BECKER'S THEORY OF LABOR DISCRIMINATION

•Like any other market there are buyers and sellers for employees •When they interact and LS=LD we have equilibrium •Instead of an equilibrium P and Q we have an equilibrium Wage and Labor levels •From a firm's perspective they will hire someone if the benefit (MRP) the same as the cost (Wage) (MB=MC... marginal analysis) •An employee will be able to shop their services to other employees (in a competitive market) until their W=MRP •Economists do not like things that interfere with this such as health care being associated with employment as it is in the US •Therefore in a competitive market, Wage (W*) converges toward MRP

COMPETITIVE LABOR MARKETS

•If the consumer (the fans in this case) discriminate this type could persist for longer periods of time •As the consumer discriminates the profit maximizing strategy is for the owner to do so as well •Very difficult to isolate in a product market thus this is difficult to find in the research •Results are mixed •Some good research has been done in the baseball cards market

CONSUMER DISCRIMINATION

•Should an athletic department be profitable? •Programs are not intended to be profitable. PhD programs never run a profit but are part of the higher education purpose (especially at R1 institutions) •Oftentimes there is conflict within higher education about where to lose money, in athletics or academics (this is the case at Temple as well) •Becomes even more complicated in a state affiliated institution like ours. •Tax money goes in to subsidize reduced tuition so maybe there is a strong case for academics •Building a strong steady source of revenue could bring more funds for the University so maybe there is a case for athletics

COSTS AND BENEFITS OF COLLEGE ATHLETICS

o Law of Demand o Change in taste o Change in related good Complements and subtitles o Change in income Normal goods vs. Inferior goods o Change in the number of buyers o Law of Demand o Change in taste o Change in related good Complements and subtitles o Change in income Normal goods vs. Inferior goods o Change in the number of buyers

Demand

o Double your input you less than double your output o Each input becomes increasingly less productive o Think of studying for an exam o Think of how productive you are at your job in the first hour vs. the last hour First hour- more productive Last hour- not as productive

Diminishing Returns

As you increase the price the quantity stays the same When changes in price impact the quantity demanded. is when price or other factors have a big effect on the quantity consumers want to buy That makes the ratio more than one. For example, say the quantity demanded rose 10 percent when the price fell 5 percent. The ratio is 0.10/0.05 = 2. The quantity demanded will change much more than the price. As a result, the curve will look lower and flatter than the unit elastic curve, which is a diagonal. The more elastic the demand is, the flatter the curve will be. The graph below shows the horizontal line of a perfectly elastic demand curve. A good example of elastic demand is housing. There are so many different housing choices. People could live in a townhouse, condo, apartment, or even with friends or family. Because there are so many options, it's easy for people to not pay more than they want to. Clothing also has. True, people have to wear clothes, but there are many choices of what kind of clothing and how much to spend. When some stores offer sales, other stores have to lower their clothing prices to maintain demand

Elasticity

means it doesn't matter with the price the quantity stays the same or it doesn't change a lot Stuff that you need stays the same Gasoline has shown inelastic demand. Consumers buy nearly the same account as the price. The quantity demanded won't budge, no matter what the price is. People will still buy gas because they can't immediately change their driving habits. To shorten their commute time, they'd need to change jobs.

Inelastic

•One distortion may be the minimum wage •Example of a price floor •QLS increases, QLD decreases •Surplus in the Labor Market, leads to increased unemployment •This especially hits hard on the teenage and uneducated class •Evidence shows when the minimum wage increases the unemployment increases and teenage dropout rates increase •Many find this sad since the advocates for these laws are often the ones who are trying to help the poor, but most economists agree the poor get hurt by these laws

MARKET DISTORTIONS

Who matters more in the size of the market?

MLB

also has a luxury tax Teams pay more if they are repeat offenders NY Yankees were regularly over the Luxury Tax is the only league that has exemption with anti-trust law so you can't start up a league to compete with them. has the lowest

MLB

•MLB uses Final Offer Arbitration •Each team submits their proposed terms •The arbitrator can pick either of the two terms and is NOT allowed to pick their own terms •This creates an incentive for each side to submit terms closes to the true value •Right before arbitration the two parties usually agree to terms since the arbitration process can get ugly and each side has already come close to each other (think of going to arbitration when your boss is claiming you are not very valuable... this would create unnecessary friction)

MLB ARBITRATION

one buyer In this case the buyer is of talent and the market is the labor market In sports if you are drafted by a team you have only one choice for employment (unless you give up your dreams and pick a different career) We will explore more on this later, but for now you should see that this gives the team power to push wages down •A monopsonist in sports would be the team who are the one buyer of talent •Able to push wages down below that of a competitive wage •In a competitive market Wage = MRP •In the sports world Wage < MRP •Economists are probably the only people that say athletes are paid too little... why? If players were in a truly competitive labormarketthey would shop their talents to everyone.Yet teams have monopsony power over the players allowing them to push wages down

Monopsony

One Seller • Ex. Comcast, PECO, Madden, NFL looks like a monopoly • Can restrict output and increase prices due to the limit market. o We strive for Perfect competition

Monopoly

Which type of industry does the business of sports typically operate in

Monopoly

Has a hard cap has the highest regression

NFL

Which league has the most revenue sharing

NFL Owners make money on club boxes and suites because you don't have to share them.

•The supreme court's 1957 ruling of Radovich vs The National Football League •Ruled that the NFL was interstate commerce (unlike MLB) thus they had only a limited antitrust exception. •Explicitly specified they had no right to reserve players •This was followed by an informal "gentleman's agreement" not to sign free agents •When this broke down then commissioner Pete Rozelle passed the Rozelle Rule •If a team signed another team's player the commissioner will determine compensation including cash, any player on active roster or future draft picks •This killed free agency •McNeal vs. NFL in 1992 stuck down the rozelle rule thus creating some form of free agency •First example of the non-statutory labor exemption leading the players association decertifying

NFL PATH TO FREE AGENCY

is the oldest professional sports league in the US (1876). That is why they are called the "Senior Circuit" Member clubs have exclusive territorial rights The reserve system bound players to their respective teams for however long the team preferred. These rights to the teams were successful and is probably the reason the NL had success.

National League

rights negotiated by the leagues and are shared equally. The NFL has nearly all of their broadcast rights this way. This is an example of vertical integration Upstream and Downstream firms Usually gain efficiency and thus increase profits Instead of the cable components purchasing the team in the past (Braves and Turner, 76ers/Flyers and Comcast) The teams are actually starting their own RSN

Nationally broadcast rights

Quantity is restricted Price is raised Inefficiency in increased (Deadweight loss increases) Bundling (making Eagle customers pay for preseason tickets) Price Discrimination

Negatives of Monopolies

•A sales tax should be levied inversely to the elasticity of demand for the product •Products with highly inelastic demands (cigarettes) often create very little deadweight loss •Therefore to minimize the loss to society we should focus on inelastic products •Hotel and taxi taxes are often very elastic, thus are very inefficient •Sin taxes are politically popular •Curb socially undesirable behavior •Little opposition

RAMSEY RULE

•Most revenue comes from big football programs and men's basketball programs •Revenue is not evenly distributed among different school (very top heavy) •Like the pros, gate revenue is becoming less a source of revenue •TV deals are mostly from the conferences •Bowl Games (often debated) •Started by offering an out of town dominant team to visit with a local conference winner •Today it is an extension of a playoff system •Large potential revenue stream but only for the few better schools

REVENUE FOR SCHOOL ATHLETICS

•NCAA is the regulator of colleges. It began as a rules enforcer to prevent football injuries •They often act as benevolent overseer •Try to implement and enforce academic standards •They often act as an enforcer of a cartel •Seen in allowing schools to collude to not pay athletes, do not allow transfers, etc. •NCAA often tries to act like they have an antitrust exemption •Like sports leagues they act as a monopoly and a monopsony

ROLE OF THE NCAA

•Both parties submit their cases and a third party offers either suggestions or imposes a resolution. •Binding arbitration is when both parties agree to adhere to the arbitrator conditions •Many city employees agree to this type to ensure no strikes occur and disrupt vital services •Both the NHL and MLB use arbitration systems •NHL system is set up so the arbitrator can choose side's (owner or player) proposed salary deal, or pick their own numbers •MLB uses FOA

SALARY ARBITRATION

•NBA had competition for talent in the 1970s (ABA) and this pushed salaries up to 70% of the league's gross revenue •Between 1998-2011 the NBA locked the players out and implemented and tighten the salary cap plus max salary provisions •The affect was a decrease in salaries as a percentage of revenue down to about 50% •This revenue is called Basketball-related income (BRI) and may not include all sources of income (so this is even an understatement)

SALARY CAPS IMPACT ON PAYROLL

•Scully was the first to use this method of determining player values, Krautmann follows •Recall in a competitive market w=MRP, but sports is rarely competitive •Free agents were being paid at MRP, thus if you know what their stats are worth you can determine how others are undervalued •MLB enters the league and is an "apprentice" for the first 3 years, they earn 19% of their value. "journeyman" are eligible for salary arbitration for the next 3 years and earn 86% of their value.

SCULLY AND KRAUTMANN

•Sports as a public good •Same argument for pro sports •Better argument in college athletics? •Students feel it more •Is this the mission of the institution •Increases admission numbers (Temple a few years ago) •Donations

SPILLOVER BENEFITS

•NHL gate revenue is in Canadian dollars (for Canadian franchises), but costs come out has US dollars (salaries) •When the exchange rates change so too does the ability of the franchise to finance payroll

STADIUM LOCATION AND COSTS Exchange rates

What sellers want to sell at any given price quantity supply what sellers want to all at a particular price o Law of Supply o A supply changes when we move the price for that product o Supply changes when we change anything that sellers want to sell other than the price for their product o Shift (increase shift right, decrease shift left) o Change in price o Change in number of suppliers o Change in tech (technological change)

Supply

•The all-or-nothing demand curve •The city either gets it all or nothing (as the name suggests) •Cities will be more willing to take a greater Q at a higher P (think popcorn at the movies) •The Winner's Curse •Typical free agent problem for franchise •Common in auctions •Cities will pay more for a franchise if you can get multiple bids •"All-pay auctions" and •Mega-events •political contributions

TAKING ADVANTAGE OF MARKET POWER

•Great review of discrimination in MLB •Written by Andrew Hanssen in the Southern Economic Journal in 1998 •"This article has attempted to determine the effect of competitive forces (the desire for wins and profits) on discrimination (the exclusion of black players). It finds a large, positive, and statistically significant association between black players in the starting lineup and winning..." (p.24) •Finds once one team began integrating there was a slow adjustment period until other teams in the league followed as a means of competition •NL integrated before the AL which is unusual since the impact on the field is the same for each league •Could be that competition had to begin someplace, and once it began the process proceeded only in that league since there was no interleague play at that time

THE HANSSEN PAPER

•They get an education (this is not insignificant) worth about $40,000 •Economists like to think about what would happen in a competitive market. Recall that wage = MRP •Brown (1993) showed a CFB player that could go in the draft was worth about between $540,000 and $646,000 per year •Other estimates show the value in the millions •CBB players (again by Brown) showed they were worth in the millions

THE RETURNS TO THE ATHLETES

•Leeds text has a great background explaining the notion of amateurism in British ethics. •De Coubertin proposes to revive the Olympic Games in 1892 and based on the British upper class idea (in response to an increasing middle-class) of the "gentlemen's" sporting world •In the US colleges were attempting to limit competition by the lower class (schools other than Ivy Leagues) •Many definitions come about limited anyone working (professionals) from entering leaving only the amateurs (independently wealthy class). •British education's preoccupation with "character" carried over in the US athletics

THE RISE OF THE NOTION OF "AMATEURISM"

•Was a section in the 1972 Educational Amendments to the 1964 Civil Rights Act. •"No person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any educational program or activity receiving federal financial assistance." •Later specified to include three areas of regulatory jurisdiction: •Financial aid •Other benefits and opportunities •Participation in athletics (the one we are focusing on in this class) Title IX is a part of the 1972 Education Amendments which prohibits gender discrimination in education. Title IX ensures that no person is discriminated against in any education program solely based off sex. A person cannot be denied benefits or be excluded from any education program based off that person's sex.

TITLE IX

•It is rare when a school is in proportionality compliance (the percentage of female in college increases thus the ratio needs to increase). •Courts rarely allow accommodation compliance since it is arbitrary •Some schools try to pass out surveys, but they rarely hold up in courts •This leaves "program expansion", but instead of "expanding" the underrepresented sex offerings they often will CUT the overrepresented sex offerings, thus "program expansion" becomes "program contraction" •Many researchers see three types of programs: male revenue generating sports (football and basketball), male non-revenue sports (baseball, track, golf, etc.) and female sports. •Program expansion usually involves some expansion of female sports and mostly contraction of male non-revenue sports •Many are not sure if Title IX is fair to male non-revenue generating sports, but it seems taboo to discuss this •The media only focuses on the relationship between its passage and female athletic participation •Many researchers would suggest this rise in female athletics was bound to occur regardless of the passage and schools are always looking to increase female sports for revenue purposes

TITLE IX COMPLIANCE IN PRACTICE

•One of three ways to stay in compliance with Title IX •Proportionality = the percentage of women who participate in sports should be approximate to the percentage of female undergraduates enrolled at that school (plus or minus 5%) •So few school are at this point that it is rare •Program expansion = it has increased and continues to increase opportunities for the underrepresented sex (they are converging toward proportionality requirement) •Most schools fall into this category •Accommodation of the interests and abilities of the student body = the underrepresented sex has every accommodation they could want (example: no one else wants to play in athletics) •This is very tough to prove. The courts have not been lenient in accepting this requirement

TITLE IX COMPLIANCE IN THEORY

1. Use the article by Justin Wolfers titled "Point Shaving: Corruption in NCAA Basketball" to answer the following questions (Wolfers, 2006). e. What is the estimated effect of point shaving?

The effect of point shaving has no effect on the outcome of these games because of the "Asymmetric incentives" that were talked about earlier. Player's only care about winning the games so they would never lose on purpose. What point shaving does effect is the outcome of these bets. A lot of people could potentially lose money betting on the favorite if someone on the team is point shaving.

Point shaving is when a player, coach, or official who gets involved in gambling in some way does not play to the best of their ability or does something to keep the point spread in their favor. Normally there is big money involved when the integrity of professional sports is tarnished in this way. In recent history an NBA referee Tim Donaghy plead guilty to two felonies which were related to games that he was officiating. He made calls that shouldn't have been made in an attempt to keep the underdog in the spread as well as keep both teams scoring to hit the over.

c. Describe what point shaving is. (again, an example may be useful)

The first part of the three prong test questions the proportionality of opportunities that exist at a school. This part of the test determines whether or not the same opportunities exist for men and women based on the number of male and female students. The prong is the expansion test. This test ensures that universities are expanding their sports programs to accommodate the changing interests of participants. Finally, the last test determines where a program has effectively accommodated the interest and abilities of the underrepresented sex. If a school fails al three tests, it is not in compliance with Title IX.

d. Explain the three pronged test conducted by the OCR to determine if a school is in compliance of Title IX.