The Sports Economist

Labels: Invariance Hypothesis, Simon Rottenberg, sports economics pedagogy

“It's all about matchups,” said Arizona State coach Dennis Erickson, whose history with the spread goes back to the 1970s. “You can get some little guys who are really quick and not heavily recruited and get them on linebackers and score points. It's almost like basketball: getting certain people on certain people.

Some theorize that better “cover” cornerbacks will help slow the spread. That's because such cornerbacks can neutralize two of the offense's five possible receivers, enabling more defenders (five or more) to rush the passer.Another theory is that if the spread becomes too prevalent, all the bigger-name programs with better recruits will use it too, rising to the top again and forcing the have-nots to come up with a different equalizer.Asked if defenses will catch up with it, Texas' Brown said, “I'm sure it will. In my 33 years, it always has. But we're not sure how yet.”

The success of the system poses real dilemmas for some of the traditional powerhouses. Is it a dominant strategy regardless of depth/breadth of talent? Does it make as much sense at Michigan as at West Virginia? Clearly, particular personnel and coaching decisions matter, but, in general, the balance of mean versus variance matters. An Oklahoma has certainly turned into an offensive juggernaut using it, but lost to arguably less talented teams in scoring shootouts against the likes of Texas Tech last year or Boise State two years back. Does using it, or using it exclusively, play into the hands of these teams? Does it under-utilize the talents of an Adrian Peterson -- someone everyone knew was good but not how good because of the OU spread?

Since Nov. 14, when teams were permitted to discuss contract terms with free agents, only 2 of the 171 players who filed for free agency have signed: Jeremy Affeldt, who went to San Francisco, and Ryan Dempster, whose decision to re-sign with the Chicago Cubs hardly came as a surprise.

...A review of baseball’s transaction history since 2001 showed that the only period featuring fewer signings in the first 12 days of open bidding than this year came in the 2002-3 off-season, when Jesse Orosco was the only free agent who had signed. Each of the last five free-agent off-seasons included at least six signings by this stage, led by the 2006 bonanza when Alfonso Soriano, Juan Pierre, Nomar Garciaparra, Gary Matthews Jr., Aramis Ramírez and Frank Thomas signed before Thanksgiving.

There is a similarly attractive group of free agents available this year — C. C. Sabathia, Mark Teixeira, Manny Ramírez and Francisco Rodríguez, for starters — but teams seem to be proceeding cautiously and dispensing fewer offers than in years past.

Some baseball executives have suggested that many teams, unsure of how long it will take for the economy to rebound, are reluctant to offer expensive multiyear deals.

Labels: labor markets, MLB

ESPN cannot ignore the deep recession’s impact on advertising. But its subscriber revenue gives it an extraordinary cushion. ESPN charges cable and satellite operators an average of $3.65 a month per subscriber, the most in television, according to SNL Kagan, a research organization. Multiply that by 98 million subscribers, over 12 months a year, and ESPN’s financial armor adds up to $4.3 billion.

...Despite ESPN’s billions in subscriber fees, Skipper said that each deal must stand on its own. “It isn’t sitting in a pile in a drawer where I can reach in and use it,” he said.

Labels: college football, media

Many Japanese baseball officials are outraged that United States teams are courting Tazawa, a hard-throwing right-handed pitcher, because they insist it is long-established practice for amateurs like him to be strictly off limits to major league clubs. Even some American general managers, including the Yankees’ Brian Cashman, agree.

Major League Baseball officials maintain that the letter of their protocol agreement with their Japanese counterparts, Nippon Professional Baseball, does not forbid either league from courting amateur talent from the other’s nation. When one Japanese representative characterized the rule as a gentlemen’s agreement during a meeting in New York, he was angrily rebutted by a Major League Baseball official, according to two attendees.

The Tazawa dispute extends beyond one pitching phenom and an interpretation of honor. The Japanese major leagues have already seen established stars leave for American clubs, and amateurs following Tazawa’s path away from those leagues could further hurt the leagues’ long-term viability.

But sports talent is an increasingly free-flowing market — notably demonstrated this summer when Brandon Jennings, one of the United States’ top high school basketball players, signed to play professionally in Italy for $1.2 million rather than play at a college in the United States.

Labels: baseball, cartels, collusion, international trade, labor markets

THE MAG: Based on this book, if I'm an owner, I should be the most patient one in sports, right? After all, the Beatles, as you write, played a ridiculous 1,200 gigs—a lifetime—before they became any good.
GLADWELL: It's interesting. Andy Reid has said that with the offense he runs in Philadelphia, it takes a receiver three years to be comfortable in it. A receiver! I don't think we take this into account. We create offenses of such stunning complexity in the NFL, that it's impossible to truly judge anyone in their rookie season. It's ludicrous. How can you, if you're Detroit, draft all these wide receivers and then give up on anything after a couple years, or call 'em busts, when it's far more about executing a system that takes years to master? You have to give them their work.

Or if the Lions offensive players were calc majors…
Yeah, you can't go into a math class and pronounce who the great students are after two weeks. No one can master calculus in two weeks. So we need to be consistent. If you hire a coach that has offensive schemes as complicated as calculus, then you better have the patience you'd have with those students. Let's stop and acknowledge that football is not a sport for dumb jocks. It's a highly complex cognitive activity.

...

That said, you were a distance runner. That's about pure endurance. Your book says success is often about circumstances. Do these ideas fly in the face of one another?
I was a middle and long-distance runner, and Alberto Salazar said something to me recently—he said, "Why is it that the Kenyans dominate long-distance running the way they do?" There's all kinds of theories on genetics, and endurance, and he says, "Look, they have a million teenage boys running 10-12 miles a day. How many boys here run 12 miles a day?" Maybe 5,000, if that. They have a million, and if you have all those kids doing that kind of mileage, you're not only going to develop all the talent that's there, you're not gonna' miss any great runners. You're exploiting 100% of the running potential.

And we see that elsewhere, like Canadian hockey players…
And you can say the same thing for Dominican infielders. There are certain cultures where we like to think they have some innate advantage, but growing up there, baseball is a really, really big deal, and everyone puts an enormous amount of effort into it, and as a result, they produce a hugely disproportionate number of athletes in that model. There's no mystery here: it's about numbers and it's about work.

Labels: discrimination, training

Despite their non-profit status*, university athletic departments price their tickets using strategies like the pros do. For one thing, they practice price discrimination. Students get cheaper tickets than the general public and alumni and they don't have to donate to the athletic departments. At some schools, students get poorer seats, so price discrimination isn't the only factor explaining the price differential. But at the University of Missouri, students get prime football seating in the east stands, right across from the alumni. So Mizzou's pricing strategy is largely price discriminatory.

But according to this article, the university is not using price discrimination in pricing tickets to the Big XII championship game, meaning student tickets will be priced at the same rate as the general public. An explanation for this is that because of the uniqueness of the event, students and the general public have the same demand, on average, for the game.

*Being non-profit does not mean that you don't have profits as an objective. All it does is restrict what you can do with earned profits, meaning that they can't be dispersed to shareholders. As I was told at a meeting when I jokingly brought up the fact that my university is a non-profit, I was told by an older gentleman at my table "Oh, we get plenty of profits. We just make sure we spend it all."

Cross-posted at Market Power

Labels: non-profit behavior, price discrimination, ticket pricing

Ending the three-week trial in United States District Court, the jury on Monday found that the union’s licensing subsidiary, Players Inc., had used the identities of thousands of retired players without compensating them. A key example was the union’s agreement with EA Sports, which generates at least $25 million a year for the use of player identities in the popular Madden video game series.

The majority of sports licensing revenue derives from the use of active players. The Madden game features more than 100 past teams, like the 1966 Green Bay Packers, and players on those teams argued that although their names and pictures had not been included, many of their individual characteristics — talent level, experience, height and so on — were. The players argued that the group licensing agreement they had signed with Players Inc. required that revenue from such deals be shared with them.

Herb Adderley, who played cornerback on the 1966 Packers, was the name plaintiff for the class that filed suit.

“They betrayed us,” Adderley said of the union in a telephone interview. “We put our trust and faith in them, and they betrayed us.”

Labels: academia, NFL, NFL; tradeoffs

Labels: stadiums

Labels: finance, gambling, Las Vegas, NFL

On Monday afternoon, current rights-holder Fox Sports notified the BCS Group that it wouldn't match an offer from ESPN for a rights package that will begin in 2011. Fox Sports is in the middle of a four-year deal for the BCS Championship as well as the Orange Bowl, Sugar Bowl and Fiesta Bowl.

ESPN had offered $500 million for four years, compared to Fox Sports' $400 million. Even Fox's offer is still up compared to the current rights deal, which pays $330 million.

Labels: college sports, demand for sports, media

Labels: demand for sports, Olympics

As fines go, nothing the NFL commissioner’s office has imposed can compare with the ruling a San Francisco jury recently slapped on the NFL Players Association for mishandling the licensing of retired NFL players’ images. (Which is a nice way of saying that late NFLPA Executive Director Gene Upshaw asked EA Sports to “scramble” retired players’ images in its ultra-lucrative Madden Football game) The jury ordered the union to pay retired players $7.1 million in compensatory damages and $21 million in punitive damages.

“The day after [former Packers cornerback Herb] Adderley filed the class-action suit in February 2007, Upshaw said that retired players, in general, were not marketable and did not deserve any licensing money,” the New York Times’ Alan Schwarz reports. “‘We could have the greatest dog food in the world,’ he said, ‘but if the dogs don’t like it, we can’t sell it. Put that at the top of the story.’ The lead lawyer for the players, Ronald S. Katz, referred to Upshaw’s dog food remark five times in his closing argument, and later said he believed the remark played a significant role in the jury’s award.”

As the NFLPA prepares to vote on a successor to the late Mr. Upshaw, Schwarz’s fellow Timesman William C. Rhoden sees an opportunity for the NFLPA to change course. “The major challenge for the next executive director is bridging the divide between past and present players,” Rhoden writes. “This bizarre and artificial division became more pronounced about three years ago after Upshaw declared that he answered to and was responsible for only active players. [But] there is no ‘us,’ there is no ‘them’ — just a universe of football players, old and young, who have given broken bones and blood to the growth of a multibillion-dollar industry that undervalues all of them.”

Labels: finance, stadiums

In fact, the more times Haynesworth can collapse a pocket or disrupt a running play with his size, strength and speed, the better the Titans will be. "We try to funnel stuff back to him, to keep him alive on every single play," Schwartz says. "Albert's not a one-trick pony. He's not the guy who can't rush—the guy an offensive lineman can't move off the line of scrimmage, but he can't move off the line of scrimmage himself. Albert is a big man who can do a lot, and those guys are extremely valuable."

Schwartz says he chuckles every spring when the media's mock draft boards are heavy on wide receivers and light on defensive linemen. "It should be the other way around," he says. "General managers, head coaches, position coaches, coordinators—we all know how important those guys are and how hard they are to find."

There's no question the NHL is now riding high, bolstered by increased co-operation among players and owners, which was cemented in the text of the CBA.

Revenues, profits, attendance and franchise values are all at record highs, says writer Kurt Badenhausen of Forbes business magazine, which issued its annual report on the NHL's economics last week.

The average value of an NHL team rose 10 per cent to $220 million US this year.

According to Forbes, the Toronto Maple Leafs are the league's most valuable franchise, worth $448 million US. The Montreal Canadiens are worth $334 million, while the Vancouver Canucks are at $236 million; the Ottawa Senators are at $207 million; the Calgary Flames are at $203 million and the Edmonton Oilers are valued at $175 million.

"Hockey is on a growth cycle in North America," says Oilers team president Patrick LaForge. "There's reason to be happy or excited about some of our larger markets."

It's worth nothing, however, that the NHL was also riding higher than ever in the 1920s before it faced its greatest contraction, when the league lost 40 per cent of its franchises in the period 1931 to 1942.

It's a widely held belief in the modern world of sports that professional leagues managed to thrive during the 1930s because folks needed an escape from the gloom and drudgery of their lives. While this was true of Major League Baseball, which lost not one franchise during the 1930s, it didn't work that way for the NHL.

In the mid-1920s, the NHL had moved from its small Canadian base of Toronto, Montreal, Ottawa and Hamilton to become an international league with new franchises in Boston, New York, Pittsburgh, Chicago and Detroit. It was a time of escalating franchise values. In 1920, an NHL franchise could be had for $5,000, but by 1926 the NHL decided that $50,000 was the new asking price, writes John Chi-Kit Wong, a University of Washington State sports business professor in The Lord of the Rinks: The Emergence of the NHL, 1875-1936.

In the years following the 1929 crash, four teams went into receivership: the Ottawa Senators, Pittsburgh Pirates, New York Americans and Detroit Red Wings. Only one of those teams, Detroit, found a new owner and survived.

One problem was that there was almost no revenue-sharing among NHL owners of that time. Teams got almost all of their revenue from game-day ticket sales, but just three per cent of the box office went to the visiting team.

...
Ottawa had to sell its top players. Its revenues dropped 36 per cent from 1927 to 1933. On average, NHL revenues dropped 31 per cent from 1929 to 1933, with the average box office take from an NHL game falling from $11,000 to $7,600.

In the end, Ottawa moved to St. Louis, while the failed Pittsburgh Pirates moved to Philadelphia, but the St. Louis Eagles and the Philadelphia Quakers survived only one year each.

The Montreal Maroons and the New York Americans also went under, leaving the NHL with just six teams.

Labels: demand for sports, nhl

Labels: vivid seats

Obama's proposal would increase federal income tax on families earning more than $250,000 annually, money that would help finance a decrease for workers and families earning less than $200,000. It's also possible more income might be subject to the Social Security tax.

Next year's major league minimum is $400,000. Agent Scott Boras, negotiating eight- and possibly nine-figure deals for free agents Manny Ramirez and Mark Teixeira, already has thought about the possibility of asking for larger signing bonuses payable this year in some of his contracts.

"There's some consideration to be had with the impact of the election," he said.

Free agents can't start negotiating money with all teams until Nov. 14. Only a relatively small percentage of contracts are finalized before Jan. 1.

Still, for a big-money free agent earning $10 million in 2009, Obama's plan could increase his federal tax by more than $400,000.

Labels: labor markets, taxes

Tennessee's Phillip Fulmer received a contract extension last summer and is out of his job before all of the leaves have turned. Cost to Tennessee: $6 million.

Clemson's Tommy Bowden got an extension last December after flirting with Arkansas and was out of his job before Halloween. Cost to Clemson: $3.5 million.

Auburn's Tommy Tuberville agreed to an extension last November after his name was mentioned with the Texas A&M and Arkansas openings. Cost to Auburn, if it makes a change: $6 million.

Cases can be made for or against removing these coaches. When losing persists to the point that it divides a fan base - or even worse, making them apathetic - universities are obligated to consider pulling the plug.

What's staggering is how quickly they're pulling the plug after the group hug.

... Athletics directors used to speak publicly to show support in difficult times. But words soon turned into dreaded votes of confidence.

So contract extensions and automatic rollovers became the next tools to show recruits their coach would stick around. It was quickly understood that extensions are never worth the paper they're written on.

Then came buyouts. Coaches initially had the upper hand, getting paid handsomely if they were fired and owing nothing if they left. Athletics directors wised up and made buyouts a two-way street, but at the cost of skyrocketing buyout prices both ways.

The reality is buyouts don't work to keep a coach at a school if he really wants to leave. And they don't work to keep a school from firing a coach if it really wants him to leave.

Labels: coaching salaries, college football

In my home city, Cape Town, for instance, we are putting up an enormous and ruinously expensive 68,000 seat German-designed super venue. The stadium already dwarfs the commonage and low-rise flatland of its well-to-do Green Point neighbourhood, and it's not even half-finished. At a current estimate of 4.5bn rand (£250m), it's already 50% over budget, but it's early days.

Not only is the stadium far too big for a city where even premier league matches struggle to attract 15,000 spectators, but most of those spectators live far away in the dusty townships of the Cape Flats.

...All in all, South Africans will be forking out for five brand new super-stadia as well as elaborate extensions and upgrades to five existing ones.

We're also spending money we don't have on bigger airports, new airports, more roads and a very expensive high-speed train which may or may not be ready in time to whisk visiting fans from Johannesburg's revamped or Tambo Airport to the swanky hotel and shopping district of Sandton.

And because our national electricity provider has unexpectedly run out of capacity, we are importing brand new diesel-fired back-up generators, and extra diesel, just to make sure the floodlights stay on.

First cut the crap. Stop talking about legacy, which never happens. Every Olympian knows that legacy is grass growing over defunct velodromes, cracked concourses and ghost villages. Not a penny of the £9bn is going on sport - that is extra - but on buildings, fees and salaries. The head of UK Sport, John Steele, has already declared that his own demand for money "is investment directed at delivering medal-winning performances". Whatever happened to just playing the game?

[Gordon] Brown was vociferous in attacking City bonuses. What about his Olympics gravy train? At the last count there were 200 officials in the Olympic Development Authority. The lowest-paid member of its management team is on £243,000, and the highest, David Higgins, £624,000.

They are apparently not up to the job and need a consultancy firm, CLM, with a further 300 staff, to help manage the project, at an astonishing fee of £400m over four years. This firm had the effrontery last year to charge (the taxpayer) a further £10m in staff bonuses on a project that has tripled in expense.

A quite separate body is the London Organising Committee of the Olympic Games, whose head is paid £557,000 and whose members get a reported £1,000 just for attending a meeting. How can Brown insult City bankers when allowing this sort of greed to continue?

Simply managing the project is now budgeted to cost £647m, up from £16m in 2005 - more than will be spent on supporting any Olympic athletes.

As totem of this racket, 3,000 limousines are being obtained to ferry Olympics officials to Stratford up a special red-light free "Zil lane" on the Mile End Road. The lane will be banned even to athletes' cars. Yet these same officials demanded that London ratepayers build them a unique train service, the Javelin, from St Pancras, which they are now too grand to use. It is beyond satire.

The 2012 project has ballooned into a giant bureaucracy with a small sporting festival attached, and is beyond ministerial control. Tessa Jowell [the Olympics Minister(!)] can only chant her Olympic motto, that in this business she "spends to save".

The world's greatest white elephant, the "sustainable" £500m athletics stadium, should be stopped now. It will stand empty after the games since nobody wants it. As Building Design magazine said a year ago, "There is nothing sustainable about building an 80,000-seat stadium for less than two months' use" at the highest cost per seat in the world.

Labels: fifa; soccer, mega-events, Olympics