Monday, August 31, 2009
Mixed Grill
The Dallas Morning News reports that the Cowboys "stand to make as much as $4.2 million from the team's new Texas Lottery scratch-off tickets." In May, the NFL dropped a ban on team sponsorship of lotteries, and about half the teams are poised to capitalize this season.
I've puzzled over the NFL's motive in its recent lawsuit to stop Delaware from offering point spread wagers (so far successful, see Brad's post below). This news on the Texas Lottery strengthens my suspicion that the motive behind the Delaware suit is 100% pecuniary. How can they walk in to court with a straight face?
Looking ahead to the NFL and NBA seasons, here are two pieces on the challenge of selling tickets in the current economic environment. NFL teams with strong traditions like the Bears and Broncos (and one suspects, lengthy waiting lists for season tickets) will play before sellouts at home, as usual. But new wrinkles on promotions are being tried in Jacksonville, and across the NBA. The wackiest one: "In Philadelphia, the 76ers are running a Back 2 School promotion: four tickets to the home opener, two backpacks, two T-shirts and two hats for $75." Ay caramba! I'm sure the seats suck, but that's a lot of schwag!
Finally, on a different note, John Tamny has a piece at Forbes on the collapse in the baseball card market. Remember those card shops that sprang up in shopping malls 15 to 20 years ago? The failure rate was enormous: of "5,000 card shops in the early '90s, according to Sports Collector's Digest, there are only 500 now." Tamny points out that the card market was undone by entry: at the peak, "Fleer, Donruss, Score, Stadium Club and Upper Deck joined more established card company Topps in pursuit of large gains." What were once collectibles became commonplace. No matter what marketing spin the card companies could put on a Derek Jeter or Greg Jefferies card, ultimately the flood of cards undermined the essential element -- scarcity -- on which a market for collectibles is based. The card market might come back in a couple of decades, but I'm not betting on it.
I've puzzled over the NFL's motive in its recent lawsuit to stop Delaware from offering point spread wagers (so far successful, see Brad's post below). This news on the Texas Lottery strengthens my suspicion that the motive behind the Delaware suit is 100% pecuniary. How can they walk in to court with a straight face?
Looking ahead to the NFL and NBA seasons, here are two pieces on the challenge of selling tickets in the current economic environment. NFL teams with strong traditions like the Bears and Broncos (and one suspects, lengthy waiting lists for season tickets) will play before sellouts at home, as usual. But new wrinkles on promotions are being tried in Jacksonville, and across the NBA. The wackiest one: "In Philadelphia, the 76ers are running a Back 2 School promotion: four tickets to the home opener, two backpacks, two T-shirts and two hats for $75." Ay caramba! I'm sure the seats suck, but that's a lot of schwag!
Finally, on a different note, John Tamny has a piece at Forbes on the collapse in the baseball card market. Remember those card shops that sprang up in shopping malls 15 to 20 years ago? The failure rate was enormous: of "5,000 card shops in the early '90s, according to Sports Collector's Digest, there are only 500 now." Tamny points out that the card market was undone by entry: at the peak, "Fleer, Donruss, Score, Stadium Club and Upper Deck joined more established card company Topps in pursuit of large gains." What were once collectibles became commonplace. No matter what marketing spin the card companies could put on a Derek Jeter or Greg Jefferies card, ultimately the flood of cards undermined the essential element -- scarcity -- on which a market for collectibles is based. The card market might come back in a couple of decades, but I'm not betting on it.
Labels: gambling, NFL, sports and the economy
Monday, August 24, 2009
Hold Your Bets
A three judge federal appeals court ruled today that betting on individual football games in Delaware is illegal, according to an Associated Press report. The NFL and the NCAA filed for an injunction stopping Delaware from allowing bets on single games. But rather than rule on the injunction, the appeals court upheld the NFL/NCAA claim that allowing bets on individual games violated federal law.
At one point I thought I understood the legal aspects of sports betting in the US. I thought that the the Professional and Amateur Sports Protection Act (PASPA) of 1992 outlawed sports betting in all states except Nevada, Oregon, Montana, and Delaware. And I thought that those four states were grandfathered into legal sports betting because they had previously allowed some form of legalized sports betting. So much for my knowledge of the law. It's a good thing I'm an economist.
As an economist, I have trouble understanding the resistance to sports betting in the US. Watching sports and betting on sports are complementary activities. Sports betting is legal in the UK and the Premier League seems to function well in that environment. The NCAA's rabid anti-gambling stance arises because they continue to pay student-athletes a fraction of their marginal revenue product. As long as that continues, there will be incentives for NCAA student-athletes to shave points. Never mind that office pools contribute heavily to interest in the NCAA Men's Basketball Tournament, which happens to pay a lot of the bills at NCAA headquarters in Indianapolis. Kids, don't bet on sports. Bettin' on sports is baaaaaad, m-kay?
But the NFL caters to betting on one hand, and deplores it on the other hand. What's up with that? In the major North American sport leagues, the famous gambling scandals involve Tim Donaghy, Pete Rose, and the Chicago Black Sox. One is a certified numbskull, and the other two might not have happened if not for relatively low pay. Beyond that, what are the big gambling scandals in the pros? Paul Hornung and Alex Karras in the early 1960s? See my comment about low salaries.
At one point I thought I understood the legal aspects of sports betting in the US. I thought that the the Professional and Amateur Sports Protection Act (PASPA) of 1992 outlawed sports betting in all states except Nevada, Oregon, Montana, and Delaware. And I thought that those four states were grandfathered into legal sports betting because they had previously allowed some form of legalized sports betting. So much for my knowledge of the law. It's a good thing I'm an economist.
As an economist, I have trouble understanding the resistance to sports betting in the US. Watching sports and betting on sports are complementary activities. Sports betting is legal in the UK and the Premier League seems to function well in that environment. The NCAA's rabid anti-gambling stance arises because they continue to pay student-athletes a fraction of their marginal revenue product. As long as that continues, there will be incentives for NCAA student-athletes to shave points. Never mind that office pools contribute heavily to interest in the NCAA Men's Basketball Tournament, which happens to pay a lot of the bills at NCAA headquarters in Indianapolis. Kids, don't bet on sports. Bettin' on sports is baaaaaad, m-kay?
But the NFL caters to betting on one hand, and deplores it on the other hand. What's up with that? In the major North American sport leagues, the famous gambling scandals involve Tim Donaghy, Pete Rose, and the Chicago Black Sox. One is a certified numbskull, and the other two might not have happened if not for relatively low pay. Beyond that, what are the big gambling scandals in the pros? Paul Hornung and Alex Karras in the early 1960s? See my comment about low salaries.
Thursday, August 20, 2009
Slipping Through the Cracks - How NFL Teams Solve an Information Problem
Reed Albergotti at the Wall Street Journal writes about an information problem in the NFL and how it is imperfectly solved.
*Brown ended up offering Daniel a scholarship, but only after his main QB target, Ryan Perilloux, reneged on an oral commitment.
Nevertheless, at a time when other sports like baseball are paying more attention to how players have played rather than how they look, many analysts say the NFL is going in the other direction—focusing more on a player's raw build and athletic ability as measured by his performance in activities like the 40-yard dash, shuttle drill and bench press.
Jeffrey Nalley, an agent who represents both football and baseball players, says the problem is simple: As the NFL draft becomes a bigger event, NFL general managers who waste an all-important draft pick on a player who doesn't look like a comic book superhero can summon the wrath of millions.
"If you're going to take a guy in the first round, he'd better fit the height, weight and speed that they're looking for," Mr. Nalley says. "Honestly, they're covering their asses."
Reed gives a list of players who fit the "doesn't look like a comic book superhero" who have gone on and been important pieces on NFL teams.
The problem is this: who's going to be the best available player at position x and what do I have to give up to get him? It's a basic optimization-under-uncertainty problem - simple in formulating in theory, not necessarily solving in practice. You don't know who's going to be the best player over the next x seasons, but there are tangible things positively correlated with future productivity, namely height, weight, 40 yard dash times, and the look of the player's body.
Mr. Nalley, quoted in the article, says that teams are just "covering their asses" when they pick the specimens. That may be true at the margin, but my guess is that if you randomly picked 22 "comic book superheroes" and I randomly picked 22 comic book authors, your team would whup my team's ass in repeated games more often than not.
*Brown ended up offering Daniel a scholarship, but only after his main QB target, Ryan Perilloux, reneged on an oral commitment.
Labels: draft, NFL; decision making; statistics
Wednesday, August 19, 2009
The "Favre Effect"
The Favre effect is in full swing, and this short AP article gives some numbers to things I alluded to in my post below. The Vikes have sold 3,000 season ticket packs and about 10,000 single game tickets since the news broke yesterday. I just checked Vikings.com and was quoted a price of $741 as the price for the best available season tickets plus a $75 flat fee. Here's a couple of screen shots for those who might be interested.
If all season tickets were bought at this price, then the 3,000 sold would lead to $2,223,000 in additional season ticket revenue. The 10,000 single-game ticket sales, assuming a low-ball price of $40 per ticket gives an additional $400,000 in ticket revenue for a grand total of $2,623,000. Remember that the Vikes get to keep only 60% of this money, or $1,573,800 with the other 40% going to the visiting teams. Moreover, some of these tickets would have been bought even if Favre weren't going to play for the Vikes.
While this is a nice bump for the Vikes, they've got a long way to go to get the cash to pay his salary.
Labels: Brett Favre, MRP, NFL
Is Brett Favre Worth $25 million over 2 Years?
If you live in a hole or do not follow American sports whatsoever, then you may have missed the big news of the day: Brett Favre, formerly of the Green Bay Packers and formerly retired, unretired for the second time in the past two years. Not only did the former Face of Green Bay unretire, he unretired to join the Packers' hated rival, the Minnesota Vikings. At least last year he had the common decency to play in New York for the Jets when he unretired.
In Wisconsin, someone, somewhere is making a purple-wearing #4 Brett Favre doll and green and yellow push pins - with barbs that have barbs, probably rusty ones.
But I digress. Favre has reportedly signed a one year contract with a club-option for a second year that would pay him $25 million over the two years. Is he worth it?
In economics, the gross worth of a resource in a profit-maximizing world, depends on that resource's marginal contribution to revenue.
- Favre's signing won't impact league-wide media revenues, which are set by contract and account for somewhere around 60% or so of league-wide (and thus per-team) revenues. His signing should have little impact on local radio revenues for the Vikes as well.
- Favre should have a positive influence on ticket revenue earned by the Vikes this year and next. Keep in mind that ticket revenues are shared 60-40 between the home and visiting teams. The home team gets 60%.
- Favre is a star. Even if his marginal contribution to team wins is 0 over the next two years, he'll still have drawing power this year. If you go to vikings.com (at least as of today), you are greeted by a smiling Favre, not by a smiling Sage Rosenfels.
- Most NFL games are sellouts because of the blackout rule. Favre's signing should have little if any impact on attendance at Vikings games, home or away, per-se.
- Ticket prices are set before the season begins, so Favre's signing won't affect them this year.
- According to the Vikings website, as of this morning there were season tickets still available for Viking home games (see the picture above). Favre's signing should drive more of these sales. Teams like season ticket sales because they guarantee that a seat will be filled.
- Favre's signing should help the Vikings avoid any price discounting required to sell remaining tickets to games that would otherwise be blacked out.
- Likewise, when the Vikes travel, Favre's signing should help Vikes' opponents sell more tickets to their game against the Vikes at face value.
- If Favre is successful in leading the Vikes to the playoffs, Viking home ticket prices will be higher next year.
- If Favre is successful in helping lead the Vikings to the playoffs, season and single game ticket sales should be higher next year.
- Merchandising sales will be up for Vikes apparel. Merchandising revenue is shared equally among the teams, so while more Vikes apparel will be sold this year, the Vikes will only get 1/32nd of the revenue. Still, he'll drive more revenue into the Vikes' coffers although the amount will be relatively negligible.
- Luxury revenue is not subject to sharing in the NFL. The Vikings' luxury revenue situation is one of the worst in the NFL, and a big reason why they were dead last in overall revenue, according to the most recent data generated by Forbes. Even so, Favre's signing should help the sales of luxury tickets this year and, especially if the Vikes make the playoffs, next year.
So Favre is likely to generate more revenue for the Vikes. According to Forbes, the Vikings generated $195 million in revenue in 2008 from all sources combined. Did I mention that was dead last in the NFL? Yes, I did.
Anyways, if you take that $195 million figure as a spot-on estimate and if you hold all else equal for the 2009 season, the signing of Favre for $12.5 million per year tells you that the Vikes expect Favre to generate at least 6.4% more in revenue this year than if he did not sign (did I bother to mention the overall economy???). That seems a stretch for a 39 year-old injured QB, albeit a star.
Labels: Brett Favre, marginal revenue product, NFL
Baseball Beaning & Brawls
John Kruk and Eric Young provide a humorous analysis of the "right way to fight in baseball" following the Red Sox Kevin Youkilis charging of Detroit's Rick Porcello a week ago n ESPN MediaZone.
Beaning (which Porcello's pitch may not have been), on the other hand, does not amuse me. Baseball has long had the tradition of permitting even blatant hitting of batters and inevitable retaliation as "part of the game." In recent years, MLB rules have limited retaliation, but only rarely will umpires eject the initiator as happened this season to John Lackey of LAA. Defenders of this policy view self-enforcement mechanisms and incentives as sufficient with statements like "if you do let these things work out in small ways, it blows up into bigger things." Detractors, like myself, see vigilante justice that, while admittedly involving a degree of self-enforcing incentives, permits a lot of plunking of players with a dangerous weapon and blows up into bigger melees now and then.
Inter-league comparisons throw cold water on the "let them work it out" philosophy of baseball. In a high emotion and intensity game such as football, fights rarely occur and brawls practically never at the professional level. If operating by baseball's "code," a defensive lineman who thought an offensive player gained too much advantage in some way or pulled some dirty maneuver would simply raise up before the next snap and and kick the offensive lineman in the groin. Instead, the league punishes much less egregious behavior with personal fouls and would immediately eject and likely suspend any player engaging in such "settle the score" tactics. the Albert Haynesworth "stomping incident" is a case in point -- ejection, suspension, end of story with no need for the Cowboys to plot their "retaliation" against the Titans and no appearance of any thing of this sort of malfeasance across the league.
One reply might be that Haynesworth's actions left no doubt whereas pitches sometimes "get away." No doubt, no one can perfectly discriminate pitches that are intentionally thrown at batters from pitches thrown inside with no intent to hit anyone. Based on game situation (score, pitch count ...), game history, team histories, pitcher characteristics, and pitch characteristics, MLB players and umps (especially catchers and umps) can likely determine with at least 95 percent accuracy whether a pitch is intended to hit someone or be so far inside as to be equivalent to intending to hit the batter. I can tell with probably 85 percent accuracy watching at home.
The cultural differences that have developed in baseball and football extend beyond just the penalties. In baseball, not only were pitchers like Bob Gipson, Don Drysdale, and Nolan Ryan revered for their ability to get batters out, but a whole folklore of admiration developed around their willingness to throw at batters. Reggie White was a great defensive end, but no one would have thought him better for picking up a QB and dumping him on his head or punching some offensive tackle in the face. Hall of Famer or not, such behavior would diminish his stature. Can anyone imagine a punch to the face of a receiver who just caught a TD pass being acceptable behavior that's "just part of the game"?
Robin Ventura's farcical charge of Nolan Ryan resulting in Ryan's headlock on Ventura made me belly laugh along with everyone else. To my point, here, however, there's nothing funny about Ryan (one of my favorite players) hitting Ventura with a 95 mph fastball. Rather than the futile rush of the mound, Ventura might have called out Ryan -- why does a future Hall of Famer with the stuff that Ryan had find it necessary to throw at people? Why is this accepted behavior?
Beaning (which Porcello's pitch may not have been), on the other hand, does not amuse me. Baseball has long had the tradition of permitting even blatant hitting of batters and inevitable retaliation as "part of the game." In recent years, MLB rules have limited retaliation, but only rarely will umpires eject the initiator as happened this season to John Lackey of LAA. Defenders of this policy view self-enforcement mechanisms and incentives as sufficient with statements like "if you do let these things work out in small ways, it blows up into bigger things." Detractors, like myself, see vigilante justice that, while admittedly involving a degree of self-enforcing incentives, permits a lot of plunking of players with a dangerous weapon and blows up into bigger melees now and then.
Inter-league comparisons throw cold water on the "let them work it out" philosophy of baseball. In a high emotion and intensity game such as football, fights rarely occur and brawls practically never at the professional level. If operating by baseball's "code," a defensive lineman who thought an offensive player gained too much advantage in some way or pulled some dirty maneuver would simply raise up before the next snap and and kick the offensive lineman in the groin. Instead, the league punishes much less egregious behavior with personal fouls and would immediately eject and likely suspend any player engaging in such "settle the score" tactics. the Albert Haynesworth "stomping incident" is a case in point -- ejection, suspension, end of story with no need for the Cowboys to plot their "retaliation" against the Titans and no appearance of any thing of this sort of malfeasance across the league.
One reply might be that Haynesworth's actions left no doubt whereas pitches sometimes "get away." No doubt, no one can perfectly discriminate pitches that are intentionally thrown at batters from pitches thrown inside with no intent to hit anyone. Based on game situation (score, pitch count ...), game history, team histories, pitcher characteristics, and pitch characteristics, MLB players and umps (especially catchers and umps) can likely determine with at least 95 percent accuracy whether a pitch is intended to hit someone or be so far inside as to be equivalent to intending to hit the batter. I can tell with probably 85 percent accuracy watching at home.
The cultural differences that have developed in baseball and football extend beyond just the penalties. In baseball, not only were pitchers like Bob Gipson, Don Drysdale, and Nolan Ryan revered for their ability to get batters out, but a whole folklore of admiration developed around their willingness to throw at batters. Reggie White was a great defensive end, but no one would have thought him better for picking up a QB and dumping him on his head or punching some offensive tackle in the face. Hall of Famer or not, such behavior would diminish his stature. Can anyone imagine a punch to the face of a receiver who just caught a TD pass being acceptable behavior that's "just part of the game"?
Robin Ventura's farcical charge of Nolan Ryan resulting in Ryan's headlock on Ventura made me belly laugh along with everyone else. To my point, here, however, there's nothing funny about Ryan (one of my favorite players) hitting Ventura with a 95 mph fastball. Rather than the futile rush of the mound, Ventura might have called out Ryan -- why does a future Hall of Famer with the stuff that Ryan had find it necessary to throw at people? Why is this accepted behavior?
Tuesday, August 18, 2009
Nats Sign Strasburg, Set Record
The sad-sack Washington Nationals came to terms with #1 draft pick Stephen Strasburg one minute before their exclusive negotiation period ran out last night. His contract -- $15.6 million over four years -- exceeded the previous record ($10.5 million given to Mark Prior by the Cubs in 2001) by a wide margin, and was much larger than the $5.6 million deal Tampa Bay reached with 2007 #1 pick David Price and the $6.15 million deal the Devil Rays reached with 2008 #1 pick Tim Beckham. Strasburg's agent, Scott Boras, had floated $50 million as an expected value for the contract long ago. There were all sorts of wacky circumstances surrounding this negotiation, including the hype surrounding Strasburg ("the best pitching prospect in a generation"), Boras' reputation, and the fact that the Nats are beyond terrible and couldn't sign their last #1 pick, Aaron Crow.
Young pitchers are notoriously risky draft picks. Many get hurt and never reach the majors at all (see Taylor, Brien). Others can't dominate major league hitters like they did in high school or college (see McDonald, Ben - I saw that one up-close and personal while living in Baltimore). Prospects are risky assets for teams. Past performance indicates that the reward doesn't justify the risk. Only time will tell how this one will turn out for the Nats. I predict that it will not be a good signing, but I'm a known "pencil necked geek" in DC.
Young pitchers are notoriously risky draft picks. Many get hurt and never reach the majors at all (see Taylor, Brien). Others can't dominate major league hitters like they did in high school or college (see McDonald, Ben - I saw that one up-close and personal while living in Baltimore). Prospects are risky assets for teams. Past performance indicates that the reward doesn't justify the risk. Only time will tell how this one will turn out for the Nats. I predict that it will not be a good signing, but I'm a known "pencil necked geek" in DC.
Friday, August 14, 2009
MLB Postseason Ticket Pricing
I am spending the weekend in the NYC area, so the New York Times is my local paper for the next couple of days. I came across an interesting tidbit in the NY edition of the paper this morning.
With the Yankees playing well, Bombers fans are already anticipating October baseball this fall. The Yankees will soon be releasing their postseason ticket prices, and given their track record on pricing, people are anticipating an expensive postseason. Of course, the price elasticity of demand for postseason games is very low, so teams can raise their prices quite a bit. Yankees' fans clearly understand that:
With the Yankees playing well, Bombers fans are already anticipating October baseball this fall. The Yankees will soon be releasing their postseason ticket prices, and given their track record on pricing, people are anticipating an expensive postseason. Of course, the price elasticity of demand for postseason games is very low, so teams can raise their prices quite a bit. Yankees' fans clearly understand that:
“I don’t think they will raise prices too much because of the backlash they got on the regular- season tickets,” said Michael Bahn, a season-ticket holder since 2003. “The problem is, for the playoffs, they have you over a barrel and you really want to go.”For me, the interesting information in the article is that MLB sets guidelines (a price ceiling) for the first two rounds of postseason ticket prices. I'm no antitrust expert, but, absent the infamous MLB antitrust exemption (the gift that keeps on giving), that sounds like a per se violation of the Sherman Antitrust Act to me.
Labels: antitrust, MLB, ticket pricing
Thursday, August 13, 2009
A question on recreation
Casey Mulligan sends the following question to TSE readers. Registration of boats increased substantially between 1988-1998, consistent with increased wealth and demand for luxury goods. Since then, the number of registered vessels has been flat. Why? If you know the answer, or have a reasonable hypothesis, please leave it in the comments.
Labels: recreation
Monday, August 10, 2009
Football Season Begins!...well, not quite yet
Last week the Argentine Football Association delayed the start of the season because most of the clubs are bankrupt- they owe wages to the players and taxes to the government. The crisis was blamed on the European recession slowing the flow of transfer fees going to Argentine clubs. But similar problems exist in Europe- for all of Real Madrid 's exploits, the economist Angel Barajas has studied the finances of Spanish clubs and considers most of them insolvent; plenty of English clubs might struggle to pay wages and taxes this year too, and Italy was in crisis even before the recession. Expect to hear mounting demands for government bail-outs and tighter regulation. Really, it's just banking by another name.
Saturday, August 08, 2009
Football Season Begins!
No, not the NFL. Two European football leagues, the Bundesliga in Germany and Ligue 1 in France get started this weekend. In the Bundesliga, Wolfsburg came out in fine form to defend their championship by beating Stuttgart 2-0 last night. The English Premier League starts next weekend and Italy's Serie A on August 22. Spain's La Liga, with the refurbished, multi million euro nuevo Galacticos of Real Madrid begins play on August 30th.
Incidentially, my favorite European football team is Real Sporting de Gijon, a team from the north of Spain that is playing in La Liga for the second straight season. Sporting was in the relegation zone at halftime of the last game last season, but managed to win and avoid relegation. Why do I follow a team that just spent a decade playing in the second division in Spain? Simple - sports economist Placido Rodriguez of the University of Oviedo was the president of Sporting several years ago.
Incidentially, my favorite European football team is Real Sporting de Gijon, a team from the north of Spain that is playing in La Liga for the second straight season. Sporting was in the relegation zone at halftime of the last game last season, but managed to win and avoid relegation. Why do I follow a team that just spent a decade playing in the second division in Spain? Simple - sports economist Placido Rodriguez of the University of Oviedo was the president of Sporting several years ago.
Labels: European football, sports economists
Friday, August 07, 2009
NFL Draft Shenanigans
Entry drafts are used by all professional sports leagues in North America to allocate incoming talent to teams. They create monopsony power for teams because they assign the rights to drafted players to specific teams, denying these players the right to negotiate with any other team in the league. In the NBA, the collective bargaining agreement includes a rookie salary scale that removes all bargaining from the process: the player drafted in spot X in the first round gets $Y.
In the NFL, a drafted player and the team that drafted him must agree on a contract before the season starts. In this system, teams pay players based on expected marginal revenue product, not actual marginal revenue product, which generates information problems. The NFL solves this problem through an unofficial "slotting" system where compensation is roughly a decreasing function of draft order; the lower the draft position, the lower the salary. Wiggle room still exists in the NFL system, because teams and players still must negotiate a contract. The system gives little power to the player - holding out is his only effective bargaining chip.
Out in the Bay Area, the inscrutable Al Davis directed the Raiders to draft Maryland wide receiver Darrius Heyward-Bey with the#9 #7 pick in the last draft, allowing the 49ers to draft Texas Tech wide reveiver Michael Crabtree with the #10 pick. Under the informal NFL "slotting" system, Crabtree would be expected to earn less than Heyward-Bey. However, Crabtree has threatened to hold out because he was ranked higher in the gadzillion mock drafts that now take place before the actual NFL draft, and argues that he should be paid more than Heyward-Bey on that basis. He is effectively arguing: "Mel Kiper Jr. says I am better than Heyward-Bey, so the 49ers should pay me more than Heyward-Bey."
Information asymmetries often lead to interesting economic outcomes. Crabtree certainly makes an unconventional argument. But the entry draft places players in a very weak bargaining position, because of the huge opportunity cost of a holdout. I expect that Crabtree will eventually sign a contract worth less than Heyward-Bey's before the start of the season.
In the NFL, a drafted player and the team that drafted him must agree on a contract before the season starts. In this system, teams pay players based on expected marginal revenue product, not actual marginal revenue product, which generates information problems. The NFL solves this problem through an unofficial "slotting" system where compensation is roughly a decreasing function of draft order; the lower the draft position, the lower the salary. Wiggle room still exists in the NFL system, because teams and players still must negotiate a contract. The system gives little power to the player - holding out is his only effective bargaining chip.
Out in the Bay Area, the inscrutable Al Davis directed the Raiders to draft Maryland wide receiver Darrius Heyward-Bey with the
Information asymmetries often lead to interesting economic outcomes. Crabtree certainly makes an unconventional argument. But the entry draft places players in a very weak bargaining position, because of the huge opportunity cost of a holdout. I expect that Crabtree will eventually sign a contract worth less than Heyward-Bey's before the start of the season.
Labels: draft, foolishness, NFL; salaries
Thursday, August 06, 2009
Zimbalist on "The Sports Recession"
Andrew Zimbalist is interviewed in The New Yorker. Most of the discussion is about the impact of the economic crash on professional sports -- ticket sales, revenue sources, labor relations, and fans -- but the conversation is wide-ranging and certainly worth a read. Here's a snip:
What kind of effects are we seeing in Major League Baseball?
Attendance is down about five per cent this year. That news comes on the end of a string of thirteen years where attendance went up and revenue went up at a clip of eleven per cent per year. That was the average annual growth of revenue in baseball since the strike of 1994-95. Now that growth has stopped, and we’re probably seeing a reversal.
At Yankee Stadium and Citi Field they have less capacity than they did at the old stadiums, and they’re still not selling out. A lot of sponsors have dropped out. Certainly the automobile sponsors are disappearing in baseball, as they have in other sports. Of course, the sport that has been hit most acutely by the recession is NASCAR—they depend most heavily on the automobile industry.
Did any of the leagues anticipate an end to the boom, or did they just assume that salaries and sponsorships would keep on rising? Did any league prepare itself well for the collapse?
Sort of. Other than Nouriel Roubini at N.Y.U., not many people saw a collapse coming. People in the financial sector certainly didn’t see a collapse coming. You’d hardly expect David Stern and Bud Selig and Roger Goodell and so on to anticipate something that the country’s leading economists and finance gurus didn’t anticipate.
But they did make some moves when they saw instances where the economic problems were creeping up on us. The N.B.A. laid off ten per cent of its front office, and the N.F.L. did something very similar. The N.B.A. is projecting lower basketball-related income going forward, which should, if it holds up, lower the salary cap. Baseball teams have heavily discounted tickets and have increased the number of comps that they’re giving out to the community.
Labels: sports and the economy
Wednesday, August 05, 2009
AFL RIP
The Arena Football League deathwatch is over. According to a news report out of San Jose, the 22 year old AFL has permanently suspended operations. The league canceled the 2009 season last December but had been trying to resume operations in 2010. The AFL joins a long list of other failed football leagues, including Vince McMahon's XFL, the USFL, the WFL, and the All American Football Conference. Interestingly, Arena Football 2, which is owned by the AFL, will continue to operate, and does not appear to be in financial trouble.
The Continental Indoor Football League is also still in business, so indoor football fans still have many alternatives. It's been around since 2007.
The Continental Indoor Football League is also still in business, so indoor football fans still have many alternatives. It's been around since 2007.
