The Sports Economist

Labels: cycling, MLB, steroids, Tour de France

The Olympics was touted as the flame that would cast fresh light on the city and lure planeload after planeload of curious foreigners Down Under. Sydney's recognition soared and the tourists flocked, but the effect was a one-off.

In the three years after the Games foreign tourism to New South Wales rose less than for Australia as a whole, the Centre of Policy Studies at Monash University in Melbourne said. There was no debt legacy, but neither was there a multibillion-dollar windfall forecast by its political cheerleaders. The state's auditor-general says that the financial result was a net cost to the public finances of at least A$1.5billion (about £720million).

Cut another way, the Monash researchers say that the redirection of public money into relatively unproductive infrastructure such as equestrian centres and man-made rapids has since cut A$2.1billion from public consumption.

...A lack of political will and funding meant that, apart from the stadiums, the only significant civil infrastructure built for the event was a single dead-end railway line to the site of the Games in Homebush Bay, in the city's west. That 1,580-acre (640-hectare) site at the end of the line also represents a lost opportunity, Holliday said.

Now being developed for residential and commercial use, Sydney Olympic Park was long criticised as a white elephant; a long-term master plan did not appear until 2005. “The master plan is under way, but we're now 2008 and the Olympics was 2000 and we started planning for the Olympics six years before that,” Holliday said. “So we're talking a 15-year time period and the construction of that town centre is under way now. I think it will be successful, but there was a lost opportunity longer term.”

Labels: economic impact, Olympics

IN SPORTS, FREE agency has allowed players, especially star players, to earn dramatically higher salaries. This has been good for players, but it also means that team owners have to be smarter in their hiring practices. But are they? An economist examined performance and salary data for all hitters in Major League Baseball who signed free-agent contracts between 1985 and 2004. He found that many teams systematically over-estimated the predictive value of a player's performance in the most recent season, relative to earlier seasons, in setting salary levels. This kind of error was especially acute for older players, and it was generally committed by teams who underperformed relative to their payroll (e.g., Tampa Bay vis-a-vis overperformers like Oakland).

Healy, A., "Do Firms Have Short Memories? Evidence from Major League Baseball," Journal of Sports Economics (August 2008).

Labels: labor markets, MLB

"We need a state-of-the-art arena because whether we have a major-league team in Baltimore playing basketball or shooting hockey pucks, this is a major-league city and it deserves a major-league arena," said M.J. "Jay" Brodie, president of the Baltimore Development Corp.

Sen. Bobby A. Zirkin, a Baltimore County Democrat and avowed basketball fan, speculated that if a new arena lures a professional basketball team to Baltimore, the economic benefit would extend far beyond the city line.

"Baltimore deserves to have three major franchises," Zirkin said. "Baltimore should be a player in this, and it hasn't been. I just think it's incredibly important for economic reasons."

Even after more than 50 emotionally wrought people begged and pleaded with the City Council to appeal a judge's recent ruling that will allow UC Berkeley to start building its sports training center, the council refused to move forward with such a motion.

"We deadlocked," Mayor Tom Bates said after the closed-session meeting. "We did not have (the needed) five votes to file an appeal."

The city of Berkeley, the Panoramic Hill Association and the California Oaks Foundation sued UC Berkeley in December 2006 to stop it from building its $140 million sports training center, where 44 trees are planted. People have been living in the trees since then, and four tree-sitters remain.

Judge Barbara Miller ruled in Cal's favor this week, lifting a stop-work order that has been in place for 18 months. That means on Tuesday the order will be lifted unless the appeals court grants a continuation of the injunction. When the injunction is lifted, Cal can legally remove the trees and start construction.

What will happen Tuesday if an appeals court does not grant a continuation to the injunction is not known. Cal could go in and extract the four remaining tree-sitters and take chain saws to the trees. Until then, they will allow one bag of food and water to go up daily. UC police cut off food supplies from ground supporters last month and started sending up a 2,400-calorie diet of energy bars. Late Wednesday, UC Police agreed to allow ground supporters to send up one bag of food daily as long as tree-sitters abide by certain conditions, including sending down their waste daily.

Labels: college football

1) Firstly, although the number of seats has few theoretical constraints—there are soccer stadiums in Latin America and college football stadiums in the United States whose capacities exceed 100,000—the number of desirable seats is limited. Baseball, more so than football or soccer, is a game that loses a lot when viewed at a significant distance, and particularly when the pitcher-batter confrontation cannot be watched adequately. Dodger Stadium is probably fairly close to the theoretical maximum of "good" baseball seats at 56,000, and more modern facilities will eat into that number by using space on luxury boxes and the like.

2) The availability of cheaply-priced seats might cannibalize one’s market for premium seats, as fans may purchase the cheapest seats available and attempt to 'upgrade' them later. Although such strategies can be combated by hiring ushers or creating firewalls between different parts of the stadium, this may make the ballpark experience less pleasant for fans going to and from their legitimately-purchased seats.

3) Teams are increasingly able to reap the benefits of price discrimination by introducing tiered pricing schemes, and by participating in the resale market through partners like StubHub. Therefore, they can recoup some of the loss stemming from excess demand by charging higher effective ticket prices, without having to bear the negative public relations impact of higher face values.

4) There are some marginal costs associated with each additional fan that attends the game, such as security and janitorial services. The price of such services is trivial in comparison to premium seats that are booked at $50 or $100 each, but become more tangible as compared to the cheap seats.

5) In addition, higher seating capacities can create additional congestion both in and around the ballpark, making the experience less pleasurable for all those that attend. Indeed, some existing stadiums are not especially well equipped to handle a capacity crowd. Wrigley Field’s bathrooms can require an inning-long trip once everyone has had their fill of Old Style, and it can take 15-20 minutes to exit the ballpark from the upper deck.

6) Larger seating capacities may require a larger ballpark footprint, and therefore higher rents or land-purchase prices.

7) The easiest place to add seats is usually in the outfield, but this may impair aesthetics by blocking views of city skylines or natural landmarks.

8) Stadiums with empty seats look less attractive on television—the importance of which should not be understated.

9) In addition, stadiums with empty seats may create a less intimate experience for people at the ballpark, thereby potentially reducing demand. Baseball tickets may be what is known as a "mob good", in which there are mutually-reinforcing, positive externalities conveyed by crowd behavior. To limit the number of seats is arguably to select out the most intense and passionate fans, who are (within certain boundaries) good fans to have sitting around you.

10) Limiting the supply of tickets may create a greater endowment effect (basically, a sense of ownership) for those fans who do hold seats, thereby increasing the amount of repeat business and encouraging fans to purchase season tickets.

After having articulated all of this, you might conclude that I think teams like the Mets are making the right economic decision by substantially reducing their seating capacities, but I do not. I think it may be the right near-term decision, but I do not know that it is the right long-run decision. By limiting their number of seats, a large fraction of which will be occupied by season ticket holders, corporate clients, or fans that are wealthy enough to pay above-face prices to scalpers and brokers, teams risk shutting out a large fraction of their fan bases from the ballpark experience.

Labels: baseball, stadiums, ticket demand, ticket pricing

The Cubs' sale price is likely to exceed Dan Snyder's 1999 purchase of the Washington Redskins of the National Football League for $800 million, the most paid for an American sports team. John Henry's $700 million purchase in 2002 of the Boston Red Sox, Fenway Park and the majority of a regional-sports network is the most spent for a baseball team.

England's Manchester United soccer club was sold to Malcolm Glazer in 2005 for $1.45 billion and is the most ever paid for a sports team.

Cuban Among Bidders

Billionaire Mark Cuban, owner of the Dallas Mavericks who made his fortune by selling his Broadcast.com to Yahoo! Inc., will continue in the bidding process, though the identities of the four other groups weren't known, the Sun-Times reported. John Canning, chairman of Madison Dearborn Partners LLC, considered a favorite because of his friendship with baseball Commissioner Bud Selig, was not among the groups advancing to the next round because his offer fell short of the $1 billion mark, according to the newspaper.

...The Cubs may not be worth as much money if the team doesn't come with the ballpark, said Andrew Zimbalist, an economics professor at Smith College in Northampton, Massachusetts. The club owner may not be able to make improvements to Wrigley that will boost revenue, or the owner might have to share that money with the landlord.

Labels: franchise values, stadium subsidies

A notorious Italian organized crime gang tried to buy soccer club Lazio through third parties using funds gained from violence and intimidation, authorities said on Tuesday.

The plan by the Casalesi clan of the Camorra, the Naples version of the mafia, came to light as police in Rome served arrest warrants to 10 people including former Lazio player and president Giorgio Chinaglia.

In 2006, Lazio president Claudio Lotito was given police protection after receiving threats from "ultra" fans who were allegedly trying to intimidate him into selling to a consortium led by Chinaglia.

Chinaglia was charged with market-rigging linked to his bid and had since been a fugitive in the United States. Allegations that the mafia were behind his bid have only now been revealed.

Labels: corruption, soccer

NBA players are starting to go (or go back) to European pro leagues. Well it's not too surprising really as it's just another example of how the weaker dollar spurs US exports. ...

[T]he most significant development is that Josh Childress is allegedly on the point of signing a pretty nice contract with a Greek team. Childress is a restricted free agent with the Hawks, but can sign with a foreign team without restrictions.

Labels: basketball; soccer

The Braves recently added to a long lineup of discount offers, which range from two-for-the-price-of-one outfield seats to four-game packages that come with $25 gas gift cards.

...The Braves' Eurton said the team's most successful discount offer has been a "stay-cation" package that offers tickets for a game and up to four other Atlanta attractions — the Georgia Aquarium, Stone Mountain Park, World of Coca-Cola and Six Flags. Savings are as much as $52.99, or 37 percent, depending on how many attractions are chosen.

...Eurton said the Braves were "ahead of the curve" with value-added packages in the past — such as their two-for-one Tuesday tickets and all-you-can-eat seats — but developed more such offerings this year. Because of the state of the economy, "I think fans are paying more attention to what we have to offer," he said.

Even before the Giants released their pricing plan, which has 10 options, fans were resigned that they had to buy licenses, which guarantee the right to buy and control their season tickets — or lose their places in the new building.

John Moss, of Roseland, N.J., learned that he would be paying $5,000 each for his four front-row, end-zone seats at the new stadium. “It’s difficult to afford,” he said, “but I’m better off than the guy at the 40-yard line in the 27th row who’s paying $20,000.”

It would cost $80,000 for four seat licenses and $28,000 a year to buy the tickets in the field level behind the Giants’ bench, which will become an elite Coach’s Club in the new stadium.

Labels: ticket demand, ticket pricing

Many years ago I was taught about the invisible hand and free markets and how, by definition, something was worth whatever someone was willing to pay for it. Of course, I've since learned that it's all a crock of bull. Some markets may work that way, but, in fact, most of them don't.

Labels: labor markets, soccer

In defending the city's decision, Councilman Brown points out that on the same day the City Council approved funding for the stadium, it also earmarked $1 billion to upgrade D.C. schools, including $58 million for a new high school for construction trades and architectural design. And under terms of the deal, the city expects to see about $40 million a year in revenue. The smallest portion will come from the team, which is supposed to pay $5.5 million a year in rent. But just this week the Nationals began withholding payments, saying the city had failed to "complete" the stadium.

The vast majority of income is expected to come from the same people who financed the stadium: the taxpayers. An estimated $14 million a year is projected from taxes on tickets, concessions and merchandise. Another $24 million will come from a new stadium tax on D.C. businesses with gross revenues of $3 million or more. Indeed, with the exception of some housing and small businesses that have moved into the neighborhood, the vast majority of the "development" in Southeast is nothing more than taxpayer-funded public works projects.

So in the end, what did the taxpayers get other than a bill for $611 million? The Washington National's Web site advertises jobs for elevator operators, fan ambassadors and security guards. The pay is $7.50-$8.50 an hour.

Labels: stadium subsidies

One of the league's iconic teams, the Steelers have been owned by the Rooney family since 1933. The five sons of the original owner, Art Rooney, control 80%—and they are getting into their 70s. With the team's value estimated at $700 million or more, the 45% federal death tax rate could put each brother on the hook to the IRS for tens of millions of dollars.

That may be more than they can afford. NFL franchises have appreciated quickly in the past decade, and the more a franchise goes up in value, the greater the challenge for estate planning. While a given brother's share of the team may be worth more than $100 million on paper, that doesn't mean he or his heirs have half again that much in cash to fork over to the IRS.

Daniel Rooney, the eldest brother who runs the team, is offering to buy his four brothers out of their shares. He has said he will do "everything possible to ensure my father's legacy" and keep the team in family hands, and in Pittsburgh. Good luck to him. Challenging Mr. Rooney's offer to buy about a third of each of his brothers' stakes now with more down the road is hedge-fund billionaire Stanley Druckenmiller, a man with considerably deeper pockets.

Adding urgency to the Pittsburgh transaction is the prospect of a Democratic President in 2009 who opposes repeal of the death tax and wants to raise the tax rate for capital gains. Barack Obama has promised to raise the rate from 15% to at least 25%, and perhaps the Clinton-era peak of 28%. The artificial timeline adds appeal to a buyer like Mr. Druckenmiller who has the dough to complete a transaction before the end of this year.

China's record spending on the Olympics, estimated to total $42 billion, is a big sum for a developing country to put into a two-week sports show. While much of the money is going into infrastructure projects with long-term value, at least some of the spending is drawing criticism for wastefulness.

The tab for China's massive Olympic projects -- ranging from a $3 billion airport terminal to the $500 million "Bird's Nest" National Stadium -- dwarfs the Athens Olympics budget of $15 billion, which helped drive Greece into debt. London, host for 2012, is already embroiled in controversy over its Olympics tab.

In Beijing, few details are being spared. Along Jing Shun Lu, a formerly dusty road in the capital's suburbs, the government spent $30 million for an Olympics facelift, including trees, flowers and an ornamental wall. The road is a secondary access route to the city's airport, and near the rowing venue. People who used to live along the road have been given a small sum in compensation and forced to move.

China can afford the financial cost of the biggest Olympics in history. The bill amounts to a small fraction of the country's gross domestic product, expected to be nearly $4 trillion this year, and corporate sponsors have underwritten some of the costs. Moreover, most of the spending isn't going toward running the Games, but toward roads, subways and airports.

Labels: franchise values, NFL, Olympics

Two things are well-known among sports economists.

1. Ticket prices do not drive team performance. In other words, when a team says it must raise ticket prices to become/stay competitive, you should detect a whiff of stinky sulfur.
2. When a team performs well in one year, especially when the performance is unexpected, it faces a higher demand curve the following year, all else equal. This results in higher ticket prices and in the following year.

The Missouri and Kansas football programs provide a nice anecdote.

In sports, winning sells, especially the year after.

When a team posts a better-than-expected season, the financial rewards through ticket sales typically follow in the next calendar year.

So it should be at Missouri and Kansas, both on a record season-ticket sales pace with football programs coming off 12-victory seasons and high-profile bowl triumphs.

With that kind of wind in the sails, the schools haven’t needed to launch major ticket-selling campaigns.

...In 2007, KU set an attendance record, averaging 46,784 for seven games at Memorial Stadium. That happened with a record 31,000 season tickets sold.

The Jayhawks expect to top those marks this year, even with an increase from $275 to $300 for a full-priced season ticket. Priority seating goes to donors of the Williams Educational Fund, and that’s where associate athletic director Jim Marchiony said the school is seeing growth.

...Last season, the Tigers averaged 60,232 and sold about 34,000 season tickets. Earlier this month, MU had renewed 90 percent of its season tickets.

“That’s a figure we’re used to seeing in August,” Grinch said.

Missouri also had 3,500 new season-ticket accounts. When it’s added up by the Sept. 6 home opener, the Tigers should easily surpass the season-ticket record of 34,800 set in 2004.

Cross-posted at Market Power

Labels: college football, demand for sports, season ticket sales

Labels: bike racing, Olympics

Labels: Olympics

City attorney Tom Carr said the city and Bennett's attorneys had rushed to complete the settlement on Wednesday, a few hours before District Court Judge Marsha Pechman would have delivered her ruling in the trial between the city and the Sonics....

"It was a condition of the deal for us that we keep the history, the name, the logo and the memorabilia," Carr said. "That was a demand from Day 1. To that extent, the paragraph was put in at our insistence. It got changed a lot in the end."

During negotiations, both parties learned the NBA owns the names and intellectual properties of teams and licenses them to owners. The league prohibits owners from giving away their team's names to anyone other than another owner.

The NBA also didn't want a team playing in Oklahoma City without a past history.

"I'm not happy with any of this," Carr said. "I would prefer that the Sonics stay here, but in terms of a compromise, I think it gets us what we wanted. We had a big fight over leaving the memorabilia. They didn't want to do that."

The city of Seattle will be paid $45 million in exchange for letting the Sonics move to Oklahoma City this year as part of last-minute settlement announced this afternoon.

Sonics owner Clay Bennett may have to pay an additional $30 million in five years if the city is unable to secure another NBA team, under the terms of the settlement announced at simultaneous press conferences in Seattle and Oklahoma City.

Nickels said the settlement preserves the possibility of NBA basketball in Seattle in the future — noting that NBA Commissioner David Stern agreed as part of the deal that a renovated KeyArena could be suitable for basketball.

In a statement, Stern said he was "pleased" with the settlement and said the NBA still regards "Seattle as a first-class NBA city that is capable of serving as home for another NBA team."

Labels: NBA, relocation, The Stadium Game

Labels: media

aloha stadium
Build a new stadium, don't fix up old one

I don't get it. Aloha Stadium has been in steady decline since it first went up in the early '70s.

We've had one refurbishing project to date, as I recall, to "strengthen" the rust that's plagued it since Day 1.

Now we're going to do it again? I really think Russ Saito and the powers-that-be need a wake-up call.

Tear it down and build another! Take a hint from all of the cities on the Mainland that are doing just that.

We'll be the laughingstock of the sports world if we go forward with this.

I enjoy going to Aloha for all of the events that it offers, but I fear the day when it'll all come crashing down.

Using survey data that followed the lives of thousands of Germans from 1984 to 2006, the German Socio-Economic Panel study, Mr. Lechner found that sports-playing adults saw a boost in income of about 1,200 euros per year over 16 years when compared to their less active peers. That translates into a 5-10% rate of return on sports activities, roughly equal to the benefit of an extra year’s worth of education.

It turns out, according to Mr. Lechner’s calculations, that only about one-fifth of that increase comes as a result of better health. “Although health and other subjective variables contribute substantially to the effects of sports activity, there remains a large unobserved and unexplained component,” Mr. Lechner writes.

Some of that unexplained component could be chalked up to social networking benefits. In fact, the sports-playing men in Mr. Lechner’s study reported a significantly higher level of “social functioning” than did the less active men.

Labels: labor markets, stadiums