Wednesday, September 30, 2009
Arena Bailouts
In Pittsburgh:
Add $5 million to the money Pennsylvania is giving toward Pittsburgh's pricey Uptown hockey arena.In Jacksonville:
This time, it isn't site acquisition or construction cost overruns, but a shortfall that occurred when interest on variable rate bonds soared last fall after credit agencies downgraded the bond's insurer, Financial Security Assurance Inc.
That left the city-county Sports & Exhibition Authority, which is building Consol Energy Center, with an extra $5.08 million bill and no money to pay it.
The state, which agreed to give about $40 million in Redevelopment Assistance Capital Budget grants to cover site acquisition and extra construction costs for the $325 million arena, will tap a different account for this bailout. Gov. Ed Rendell's proposed budget would appropriate $5.08 million from the Pennsylvania Gaming Economic Development and Tourism Fund for the bond bailout.
The bailout has generated little public discussion. It was buried in Rendell's proposed 2009-10 budget, with little to indicate the money would pay for arena bond shortfalls.
As speculation over a possible Jacksonville Jaguars exit builds, the city has identified about $5 million a year that can be used to pay for needed maintenance at the Sports Complex — primarily Jacksonville Municipal Stadium.Five million a year may seem like small potatoes, but I keep reading that state and local budgets are in shambles. And the details in these stories suggest that taxpayers may well be on the hook for additional liabilities in the future.
City Council President Richard Clark said Tuesday evening he’s planning on introducing a bill that will redirect bed tax money now going to the Prime Osborn Convention Center to the city’s three major sports and entertainment venues.
With the convention center debt scheduled to be paid off in October, Clark will propose that the money going to the Prime Osborn instead go to the Baseball Grounds of Jacksonville, Veterans Memorial Arena and the stadium, home of the Jacksonville Jaguars.
“The Jaguars are an enormous economic driver in this city, and we owe it to them as much as we owe it to the taxpayers who own the stadium,” Clark said.
Every Jacksonville hotel bill generates six cents on the dollar for three funds: two cents go to the Sports Complex; two cents go to the Tourist Development Council; and the rest goes to the convention center.
Labels: stadium subsidies
Tuesday, September 29, 2009
NBA Locks Out Referees
Labor relations in professional sports are notoriously contentious. Nobody gets along. Players strike, owners lock out players, referees strike, owners lock out referees; it happens all the time. Labor disputes in professional sports almost always revolve around the periodic renewal of collective bargaining agreements (CBAs) - contracts between leagues and unionized employees that specify all the details of the employer-employee relationship - that usually last five years or so.
The latest chapter in this sad saga pits the NBA against referees. Negotiations between the NBA and the National Basketball Referees association (NBRA), the union that represents NBA referees, broke down last week and appear to be stalled. The points of contention are the usual suspects: wages, travel benefits, and retirement benefits. The NBA wants to scale back pension benefits and keep wages flat over the life of the CBA, citing the effects of the recession on revenues. The refs want this CBA to run only two years, instead of the usual five, so that they can re-negotiate in an improved future economic climate, and, of course, want wage increases.
One unusual feature of this labor dispute is that the NBA has released information about their offer to the press, probably in an attempt to force the NBRA to settle. These details are seldom made public, an the NBRA is crying foul (sorry, I couldn't resist). The NBA claimed that entry level referees make $150,000 and experienced referees make upward of $550,000. The union claims that entry level salaries are $91,000 and experienced referees make less than $400,000. The severance package paid to retiring referees, reported to be $575,000 by the NBA, is also under negotiation and a matter of dispute.
The NBA will open the season with non-union referees, drawn from the WNBA, the NBA development league, and other places. The same thing happened in 1995, the last time the NBA and the NBRA couldn't agree on a new CBA. Because reasonable substitutes for NBA referees exist (it doesn't take a highly trained expert to let NBA stars get away with walking and palming the ball), it seems unlikely that the NBRA can hold out for too long. Referees don't have as much bargaining power as players in labor negotiations.
The latest chapter in this sad saga pits the NBA against referees. Negotiations between the NBA and the National Basketball Referees association (NBRA), the union that represents NBA referees, broke down last week and appear to be stalled. The points of contention are the usual suspects: wages, travel benefits, and retirement benefits. The NBA wants to scale back pension benefits and keep wages flat over the life of the CBA, citing the effects of the recession on revenues. The refs want this CBA to run only two years, instead of the usual five, so that they can re-negotiate in an improved future economic climate, and, of course, want wage increases.
One unusual feature of this labor dispute is that the NBA has released information about their offer to the press, probably in an attempt to force the NBRA to settle. These details are seldom made public, an the NBRA is crying foul (sorry, I couldn't resist). The NBA claimed that entry level referees make $150,000 and experienced referees make upward of $550,000. The union claims that entry level salaries are $91,000 and experienced referees make less than $400,000. The severance package paid to retiring referees, reported to be $575,000 by the NBA, is also under negotiation and a matter of dispute.
The NBA will open the season with non-union referees, drawn from the WNBA, the NBA development league, and other places. The same thing happened in 1995, the last time the NBA and the NBRA couldn't agree on a new CBA. Because reasonable substitutes for NBA referees exist (it doesn't take a highly trained expert to let NBA stars get away with walking and palming the ball), it seems unlikely that the NBRA can hold out for too long. Referees don't have as much bargaining power as players in labor negotiations.
Friday, September 25, 2009
Sports Economists Weigh in on American Needle v. NFL
Earlier this week I described the American Needle v. NFL case that will soon be argued before the Supreme Court. The most recent filing in the case is an amicus curiae brief filed by a group of sports economists (including TSE co-bloggers Berri, Coates, Fort, Szymanski and yours truly). The brief rebuts many of the arguments made by the NFL, and points out in detail exactly how a ruling in favor of the NFL will result in a loss of consumer welfare. Roger Noll was the driving force behind the brief. From the introduction:
Our principal conclusion is that economic research provides a clear basis for distinguishing between collaborative activities among members of a league that enhance economic efficiency and benefit consumers from collusive activities that are not essential for the efficient operation of a league and that benefit league members by reducing competition among teams. We believe that a ruling that anyRoger Noll was the driving force behind the brief. Here is a link to the brief.
sports league is a single entity in which teams cannot engage in anticompetitive collaboration in “core venture functions” is inconsistent with the consensus among economists about the efficient scope of league authority and the nature of competition in professional sports.
As citizens and professional economists, we have a substantial interest in fostering the appropriate use of economics in antitrust and in assuring that the economic assumptions that guide decisions in antitrust litigation do not conflict with the consensus from economics research both generally and with respect to professional team sports. The NFL Respondents highlight our interest in this matter by referring to their preferred approach to the single entity concept as “a more nuanced, economics-based approach.”
Tuesday, September 22, 2009
From Gimmick to Mainstream
During the Colts-Dolphins Monday night telecast, the TV crew's conversation turned to Miami's "Wildcat" formation -- the direct snap to a running back playing QB. The production team put up 2008 data (Dolphin data, I think, maybe NFL) showing a 2% yardage advantage of the Wildcat versus more typical formations. The booth personnel wondered whether this was enough to justify its use. Ron Jaworski went a step further, making clear that he doesn't much like the formation and finishing with
While I generally like Jaworksi and the find the current MNF crew generally informative, the negative views suffer from a couple of problems:
1. The small yardage advantage of the Wildcat is evidence of effective management, not, as the booth supposed, scant evidence of a positive effect for the Wildcat formation. Basic economics recognizes that efficient management implies using an alternative input or technology up to the point that it's expected benefit matches the alternatives. If the Wildcat had a 10% yardage advantage, then Miami should use it more. The 2% figure suggests that they are using it in about the right measure.
2. Evaluating the difference in "gimmick" and successful innovation requires tests and time. Most "standard practices" of today started as a what could be described as a "gimmick, gadget, or trick (GGT)" that proved successful over the long term. The GGT designation has more to do with the stage of dispersion and acceptance of the practice. When Tom Landry re-deployed the "shotgun" formation in the 1970s, it might have been described as a gimmick or trick. Within two decades, most every team used it some. The same is true of 3 or 4 wide receivers, one running back, motion, no-huddle, not to mention defensive innovation.
"gimmicks, gadgets, and tricks just don't work in the NFL, at least not over the long run."I've heard similar criticisms by other analysts -- former Ravens Coach Brian Billick the week before offered similar comments during the Vikings-Browns game.
While I generally like Jaworksi and the find the current MNF crew generally informative, the negative views suffer from a couple of problems:
1. The small yardage advantage of the Wildcat is evidence of effective management, not, as the booth supposed, scant evidence of a positive effect for the Wildcat formation. Basic economics recognizes that efficient management implies using an alternative input or technology up to the point that it's expected benefit matches the alternatives. If the Wildcat had a 10% yardage advantage, then Miami should use it more. The 2% figure suggests that they are using it in about the right measure.
2. Evaluating the difference in "gimmick" and successful innovation requires tests and time. Most "standard practices" of today started as a what could be described as a "gimmick, gadget, or trick (GGT)" that proved successful over the long term. The GGT designation has more to do with the stage of dispersion and acceptance of the practice. When Tom Landry re-deployed the "shotgun" formation in the 1970s, it might have been described as a gimmick or trick. Within two decades, most every team used it some. The same is true of 3 or 4 wide receivers, one running back, motion, no-huddle, not to mention defensive innovation.
Labels: NFL; innovation
Monday, September 21, 2009
A Gathering Storm?
A case currently before the US Supreme Court could have a huge impact on professional sports and sports fans in North America. The case, American Needle v. NFL, started out as an innocuous antitrust case. American Needle is an apparel manufacturer that some NFL teams contracted with to produce hats, t-shirts and jerseys. In 2000, the NFL signed an exclusive contract with Reebok to provide apparel to all 32 NFL teams. American Needle sued the NFL, all the NFL teams, and Reebok for restraint of trade, and lost. Appeals ensued.
What was once a relatively minor anti-trust case has somehow made its way to the US Supreme Court. The issue before the Supreme Court is no longer a piddly restraint of trade case about who has the rights to manufacture NFL licensed merchandise. The Supreme Court will instead rule on whether or not the NFL can be considered a "single entity" in all its business functions. If the Court finds that the NFL constitutes a "single entity," the NFL would have a blanket antitrust exemption, in all cases except where the NFL would collude with other sports leagues to fix prices. Such an exemption would have consequences in input markets, affecting players and coaches, and output markets, affecting television broadcasts. It would also increase the power of the NFL and other sports leagues to extract subsidies from taxpayers for facility construction and operation. It could also affect other North American leagues - the NBA and NHL have both filed Amicus Curiae briefs. The Supreme Court will rule on this case in the upcoming 2099-2010 session.
For those interested in learning more about the case, I have set up a resource page with links to relevant filings, like the NBA and NHL briefs, and other information like blog posts. I will keep this page up to date as more information becomes available.
What was once a relatively minor anti-trust case has somehow made its way to the US Supreme Court. The issue before the Supreme Court is no longer a piddly restraint of trade case about who has the rights to manufacture NFL licensed merchandise. The Supreme Court will instead rule on whether or not the NFL can be considered a "single entity" in all its business functions. If the Court finds that the NFL constitutes a "single entity," the NFL would have a blanket antitrust exemption, in all cases except where the NFL would collude with other sports leagues to fix prices. Such an exemption would have consequences in input markets, affecting players and coaches, and output markets, affecting television broadcasts. It would also increase the power of the NFL and other sports leagues to extract subsidies from taxpayers for facility construction and operation. It could also affect other North American leagues - the NBA and NHL have both filed Amicus Curiae briefs. The Supreme Court will rule on this case in the upcoming 2099-2010 session.
For those interested in learning more about the case, I have set up a resource page with links to relevant filings, like the NBA and NHL briefs, and other information like blog posts. I will keep this page up to date as more information becomes available.
Economics of injuries
Interesting piece at FT.com on economic analysis of injuries. Co-blogger Stefan argues that progress may be associated with information sharing, a practice made easier when a national sporting organization is powerful -- e.g. rugby and cricket, rather than soccer. I found the following particularly interesting:
The process begins with information-gathering. For seven years, the R[ugby] FU has been logging every injury in the professional game in an effort to gather enough data to identify trends reliably. The England and Wales Cricket Board and the English Institute of Sport, which looks after Olympians, now have similar rolling audits, although they are at an earlier stage of development.My hunch is that the big EPL clubs know this, but keep their information private.
The numbers are already being crunched – and proving useful in planning which treatments might best serve not just the player, but the team. A recent study of hamstring injuries found that every new hamstring injury costs the team an average of 14 playing days; an average recurrence costs 25 days. Furthermore, almost all the recurrences took place during matches in the first month after return, and after an hour of play. It quickly became clear that players who had sustained hamstring injuries should be replaced after an hour during their first few games back. Moreover, the two clearest risk factors for hamstring injury were age and a previous injury, and players who performed specific strengthening exercises reduced the incidence, severity and recurrence of hamstring injuries.
Labels: statistical innovation
Wednesday, September 16, 2009
A good deal gone bad?
A Minneapolis developer signed an agreement a few years back to build and operate the Sears Centre Arena in Hoffman Estates, Ill., a suburb of Chicago. The city provided "about $55 million in bonds" to finance the project. Here are some of the facts, as reported in the Minneapolis Business Journal:
An interesting project for an undergrad or masters student might be to look into the financing agreements that were put in place in 2005, prior to the opening of the arena, and the politics of how this was sold to the community.
Here's another piece from last month, which suggests the tendency to overstate when selling public projects was at work:
**Update: some did, from the outset (see here, near the end).
Thanks to James Blakey for the link!
Under the development agreement, MadKatStep was required to repay the bonds and interest at a rate of about $3.9 million a year over a period of 26 years. Ryan, which built the arena and holds a majority stake in MadKatStep, guaranteed the first four years and has made all of the necessary payments...That's a pretty big operating loss. The arena's construction costs are sunk, so someone might be able to make a go of it when the economy gets better. The report notes that city is negotiating with AEG and others to take over operations of the arena, but how far they can wiggle off the financial hook remains to be seen.
Hoffman Estates officials said the sides remain far apart. MadKatStep wants the city to take on about $7 million in loan obligations and operating debt, in addition to the roughly $89 million in bond payments remaining over the next 22 years, they said...
Since opening in October 2006, Sears Centre has fallen short of financial projections and failed to turn a profit. It had an operating loss of $512,635 in 2008.
The arena hosted 84 events last year, including eight concerts. A 2005 feasibility study projected the facility would host 140 events a year, about 20 of which would be concerts.
The venue has two small anchor tenants: the Continental Indoor Football League’s Chicago Slaughter and the Lingerie Football League’s Chicago Bliss. It used to be home to minor league hockey, indoor lacrosse and indoor soccer, but those teams have since folded.
An interesting project for an undergrad or masters student might be to look into the financing agreements that were put in place in 2005, prior to the opening of the arena, and the politics of how this was sold to the community.
Here's another piece from last month, which suggests the tendency to overstate when selling public projects was at work:
[A]n official from the firm brought in to operate the arena on an interim basis after MadKatStep leaves says the Ryan Companies inflated the 11,000-seat venue's moneymaking potential when it convinced the village to give it a $55 million construction loan.40% off, eh? If I were a taxpayer in Hoffman Estates, I might be asking questions of my elected officials.** The stories in the press suggest that they're putting the blame on the developer, but it takes two parties to sign an agreement.
"I think they were caught up in the (potential) success of the arena," said Joseph Briglia, vice president for International Facilities Group.
But Smith noted the projections from 2005 were based on two reports, one commissioned by Ryan and the other by the village.
He acknowledged those studies "were wrong."
A feasibility called for the Sears Centre to book 140 dates per year. But it's averaged less than 100 annually.
**Update: some did, from the outset (see here, near the end).
Thanks to James Blakey for the link!
Labels: finance, stadium subsidies, stadiums
Tuesday, September 15, 2009
Putting a price on "announced attendance"
This is dated, but interesting. Back in the 2005-06 season, the San Diego Gulls, a minor league hockey team (ECHL), reported an average attendance of 5,841 for its regular season games. The Gulls made the post-season, and had two home playoff games. The Gulls announced attendance for these two games was 2,003 and 2,690, less than half the regular season average. What gives? Mark Ziegler provides this answer:
Ziegler also lists league policies for announcing attendance. There's a good bit of variation across the sports.
Thanks to student Wil Kirwan for the link!
During the regular season, teams are allowed to announce tickets distributed, often ballooning attendance figures 40 or 50 percent above the turnstile counts. In the playoffs, the league adds a surcharge to each ticket – this year it was $1.50 – to cover postseason expenses as well as a player bonus pool. You are allowed 50 comp tickets. Anything else is up to an individual team, with the proviso that it pays $1.50 per ticket. So if a team announces 5,000 in the playoffs when 2,000 are in the house, does it pay the surcharge on 5,000 tickets? “You bet,” ECHL Commissioner Brian McKenna says. “What is announced in the playoffs is very close to the actual number in the building.”Apparently, "tickets distributed" is a euphemism for dropping off blocks of 50 or 100 tickets to local shops, civic groups, and the like. This pumps up the announced attendance and might make the team look more popular than it really is. When you put a price on it (however unintentionally), announced attendance plummets.
Ziegler also lists league policies for announcing attendance. There's a good bit of variation across the sports.
Thanks to student Wil Kirwan for the link!
Labels: attendance, marketing
Wednesday, September 09, 2009
Sports stimulus?
Here's a report from McHenry County, Illinois, on plans to apply for Federal Stimulus funding to support construction of a minor league ballpark. The county has received authority to issue $27.5m in bonds to fund "private" projects. Equity One Sports Development is applying for $15 million of the bonds, with the owner declaring that, indeed "this is a totally private project." (He would appear to be addressing the issue of whether direct public subsidy is involved, apart from the financing). Here are the essential details of the financing subsidy:
McHenry County received the bonding authority under the $789 billion American Reinvestment and Recovery Act. The bonds are supposed to encourage lending by giving investors a 45 percent refund of the federal taxes payable on them. Because the bonds are federally backed, the county is not liable if the borrower defaults.The project qualifies as "shovel-ready," in the sense that the owner is ready to begin construction in March 2010, because it was part of a proposal for a "Health, Wellness and Athletics" complex at the local community college a few years back. That proposal was rejected, probably because local taxpayers would have been on the hook if revenues were not sufficient to pay off the bonds. If I'm not mistaken, then thanks to the American Reinvestment and Recovery Act, a project which was not deemed worth the risk by the locals who would benefit, may yet be built simply because the default risk has been shifted from local taxpayers to yours truly, a non-local, Federal taxpayer. Sports stimulus, humbug!! As Ray Keating might say, it's more like sports pork.
Labels: sports pork, stadium subsidies, taxes
Friday, September 04, 2009
As the Vertically Integrated World Turns Part II: Versus Network
Two years ago, I posted on the ongoing battle between "Big Cable" and the NFL Network (NFL's Game of Chicken). In that case, the NFL's effort to move from a sports provider to a vertically integrated media outlet of its sports product setup the conflict with the next step in the supply chain -- the media packagers.
Now, two media packagers, DirectTV and Comcast, are deuling over the Comcast-owned Versus network -- home to NHL games, the Tour de France, and a variety of other sports. As of September 1, DirectTV dropped the network. In this case, Comcast is the vertically integrated firm not only serving as packager but also as upstream media source.
The "Puck Daddy" blog (via Yahoo Canada) provides a very thorough discussion of this dispute, drawing out the quite convoluted analytics -- negotiation strategies and posturing, intracompany marketing strategies, comparable or not-so-comparable deals with other packagers like Dish, and so on. One of the ironic features of this dispute vis-a-vis the NFL Network case is the role of the NHL. To date, it has stayed out, but as Puck Daddy notes
Now, two media packagers, DirectTV and Comcast, are deuling over the Comcast-owned Versus network -- home to NHL games, the Tour de France, and a variety of other sports. As of September 1, DirectTV dropped the network. In this case, Comcast is the vertically integrated firm not only serving as packager but also as upstream media source.
The "Puck Daddy" blog (via Yahoo Canada) provides a very thorough discussion of this dispute, drawing out the quite convoluted analytics -- negotiation strategies and posturing, intracompany marketing strategies, comparable or not-so-comparable deals with other packagers like Dish, and so on. One of the ironic features of this dispute vis-a-vis the NFL Network case is the role of the NHL. To date, it has stayed out, but as Puck Daddy notes
the NHL isn't stepping into this minefield until it needs to at the end of September. Even if we all know where their loyalties are; it's not exactly DirecTV who owns the Philadelphia Flyers ...That last tidbit highlights another twist in the tale -- Comcast owns the Flyers. This makes me think that PD may have misconstrued the NHL's role. While their loyalties may rest with the Flyers, so does their leverage.
Thursday, September 03, 2009
Out with the family!
What's up with the Carolina Panthers? Last February, owner Jerry Richardson was on the operating table, getting a heart transplant. Son Mark Richardson ran the team and son Jon managed the stadium. But on Tuesday came news that Dad was more than alive and kicking: he fired both his sons!
This was a bit of a shock -- it was front page news in Charlotte -- especially as Mark had a reputation as an effective and innovative team president. So what's going on? One hypothesis is that a family business structure is an anachronism when the business in question has a market value of a billion dollars. From that perspective, if Mark Richardson is as talented as many perceive him to be, he should have no trouble finding a position as CEO of another one billion dollar business. If he's not, then it is probably a sound business decision to replace him.
I would not be surprised if thinking like that is behind Jerry Richardson's decision to fire his son. I've always found him to be an interesting character, a maverick of sorts. I use one of his surprising decisions as an example in my class on sports economics. Jerry Richardson's career as an NFL player lasted but two years. He played tight end for the Baltimore Colts, during the Johnny Unitas era. Under the "reserve system" in effect at the time, Richardson was paid less than his true value, as were most all players. Having been successful though, he negotiated for a raise, but was turned down by Weeb Eubank. So he quit! In basic economic terms, he had a high opportunity cost of playing football during the low wage, reserve system of his time. If Jerry Richardson was going to be under-paid, he had better things to do. Like become a mega-millionaire.
This was a bit of a shock -- it was front page news in Charlotte -- especially as Mark had a reputation as an effective and innovative team president. So what's going on? One hypothesis is that a family business structure is an anachronism when the business in question has a market value of a billion dollars. From that perspective, if Mark Richardson is as talented as many perceive him to be, he should have no trouble finding a position as CEO of another one billion dollar business. If he's not, then it is probably a sound business decision to replace him.
I would not be surprised if thinking like that is behind Jerry Richardson's decision to fire his son. I've always found him to be an interesting character, a maverick of sorts. I use one of his surprising decisions as an example in my class on sports economics. Jerry Richardson's career as an NFL player lasted but two years. He played tight end for the Baltimore Colts, during the Johnny Unitas era. Under the "reserve system" in effect at the time, Richardson was paid less than his true value, as were most all players. Having been successful though, he negotiated for a raise, but was turned down by Weeb Eubank. So he quit! In basic economic terms, he had a high opportunity cost of playing football during the low wage, reserve system of his time. If Jerry Richardson was going to be under-paid, he had better things to do. Like become a mega-millionaire.
Wednesday, September 02, 2009
Coaches Vote Republican
Steve Kornacki did the research, reported today in the WSJ. Not on votes, exactly, but on contributions to Federal Election Campaigns in the 2008 cycle. Kornacki states that 20 coaches are listed as having donated to Republican campaigns, versus 3 to the Democrats -- a landslide for the GOP! Perhaps this is the counterpoint to the observation that college campuses are filled with liberal faculty. ;)
The explanations? Tom Osborne jokes that liberals would claim that coaches are Republicans because, as former players, "they got hit in the head too much." Lou Holtz -- who recently considered a run for office as a Republican -- goes for the rugged individualism line, ironically blended with a bit ofteam collective spirit....
The explanations? Tom Osborne jokes that liberals would claim that coaches are Republicans because, as former players, "they got hit in the head too much." Lou Holtz -- who recently considered a run for office as a Republican -- goes for the rugged individualism line, ironically blended with a bit of
"You aren't entitled to anything. You don't inherit anything. You get what you earn—your position on the team," Mr. Holtz said. "You're treated like everybody else. You're held accountable for your actions. You understand that your decisions affect other people on that team... There's winners, there's losers, and there's competitiveness."As usual, I'm not exactly sure what Lou said, but he does have the gift of the gab. My own stab at humor comes from former Arizona coach Dick Tomey, one of the three contributors to Democrats. It turns out that while at Arizona, Tomey decided that his staff would make an effort to .... get his players registered to vote. Say what? Tomey could perhaps have used a lesson in the economics of rational ignorance. With less attention on the part of his staff and players to politics (with a marginal impact of zero), and more time devoted to the passing game, Arizona might have won another game or two, and Tomey might have kept his job!
