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Thursday, October 27, 2011

Stub Hub and MLB 

This week's issue of the Sports Business Journal has an interesting article about ticket sales for MLB and the relationship of the league to Stub Hub. Written by Bill King & Eric Fisher, A Second Look at Secondary Ticketing, suggests that some of MLB is not pleased with the way the secondary market has developed. The crux of the matter is that individual team's are losing revenues on ticket sales because of the wide-spread availability of good tickets on the secondary market.

Consider a season ticket holder that does not intend to attend a specific game. They sell their ticket on Stub Hub, getting more for it than they paid but less than the buyer would have paid to the club had he or she gone to, say, the club's online ticket sales. None of this is surprising, as that is the way secondary markets for sporting tickets often work.

Of course, when one thinks of secondary markets, scalping is often what comes to mind. King and Fisher write:

Once thought of as a place where fans could pay a premium for great seats at hard-to-crack events, the secondary market has revealed itself to be something far more worrisome to many teams: a flea market where buyers have their pick from thousands of seats to many games, often at prices that compete with, or even beat, the prices offered by the teams.


This wide availability of tickets of all types to many games means, possibly, that fewer season tickets will be sold, cutting into the revenues of the clubs.

The SBJ collected data on Stub Hub sales and discovered what they called two Stub Hubs.

there was the StubHub of the Giants, Red Sox, Chicago Cubs, Minnesota Twins and Pittsburgh Pirates,where more than 90 percent of tickets sold for more than their face price. Tickets for the rematch of the Giants’ National League Championship Series against the Philadelphia Phillies brought an average profit of 90 percent. Tickets for the Yankees’ visit to Fenway Park went for more than three times over face.


This is the traditional sort of scalping story.

And then there was the StubHub of the other two-thirds of the teams — the Los Angeles Angels, Houston Astros, Baltimore Orioles, Arizona Diamondbacks, Florida Marlins, New York Mets, Texas Rangers, Tampa Bay Rays, Colorado Rockies and Kansas City Royals — each of which saw upward of 69 percent of their tickets sell for less than the face price. More than 80 percent of tickets were under face for six of those 10 games.


This is the worrisome case for many MLB clubs.

A further interesting institutional circumstance is that Stub Hub pays MLB a portion of the fees it charges on the ticket transactions, and some of that money is rebated to teams. Nonetheless, the situation is considered significant enough that a top issue for MLB executives is a new Stub Hub deal.

permalink posted by Dennis Coates @ 12:46 PM

Tuesday, April 13, 2010

Stadium debt 

Stadium debt, in some cases, hangs around a lot longer than the teams that once played in them. From the Houston Chronicle comes this story that the vacant Astrodome "carries as much as $32 million in debt — nearly as much as the original cost of construction." $32 million may seem like rounding error in an era of $500 million ballparks. Nevertheless, there's a whiff here of the old political trick of shifting benefits towards the present and costs to the future. And not just in Houston:
Olympic Stadium in Montreal was not paid off until two years after the Expos left for Washington, D.C. Three Rivers Stadium in Pittsburgh still was carrying $45 million in debt at the time of its demolition in 2001.

Seattle's Kingdome was razed in 2000, and King County is scheduled to finish paying off its debt in five years.
22 years of payments

Public money will be required to cover Astrodome debt payments for 22 more years, according to county financial projections.
The story goes on to note that the current debt stems from renovations made to address relocation threats made by the Oilers and Astros in the 1980s.
The Astrodome's debt stems from the $60 million cost in the late 1980s of adding 10,000 seats, removing the scoreboard and installing 72 luxury boxes. County commissioners approved the project in an effort to persuade Oilers' owner Bud Adams to keep the team in Houston. The team left town after the 1996 season.

When asked if the expansion looked like a bad investment in retrospect, Precinct 4 Commissioner Jerry Eversole replied, “Hell, yeah!” But Eversole, who was not yet on the Court when the spending was approved, also said it has to be looked at in the context of the times, when two teams were threatening to leave town.

“We couldn't not try to keep the Oilers and we couldn't not try to keep the Astros,” Eversole said.

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permalink posted by Skip Sauer @ 7:19 AM

Tuesday, April 06, 2010

Assorted Links on the NCAA 

The University of Kansas, like the University of California, is employing equity seat rights to allocate seats to its athletic events. The equity seat rights are a supposed type of mortgage. But unlike a mortgage, buyers don't actually obtain ownership of their seats in perpetuity. HT Wiz of Odds.

Here is a post I wrote at Market Power from last October that has a little more information on Cal's equity seat rights package.

Jack Gillum at USA Today: "Schools Raising Fees to Keep Up with Cost of College Sports." Outside of the ivory tower, we call these things taxes. Via The Wiz of Odds, which has a bunch of other interesting links related to the pay of athletic directors that I touched on in this post.

David Henderson on the NCAA as a labor market cartel: "NCAA Fesses Up -- in Prime Time: The subsidized fix is in."

Ilya Somin writes "Against the NCAA Cartel" in which he discusses the Henderson post linked to above and calls for football and men's basketball players to get paid for their work.

I'm no fan of the minimum wage, but if some unpaid internships violate minimum wage legislation (via Greg Mankiw), how can not paying D1 football and men's basketball players not violate it as well?

The fact that athletic departments are treated as non-profits for tax purposes probably answers that question. But being non-tax for tax purposes does not preclude one, economically speaking, from seeking maximum profits. And when you think about it, athletic departments behave a lot like their professional brethren when it comes to setting ticket, concession, and souvenir prices and when it comes to hiring coaches.

Lastly, the Online Universities blog lists their "top 10 coaching scandals in college sports history." I don't see how the Baylor basketball scandal from 2002-2003 isn't ranked number 1. Thanks to Kaitlyn Cole for the link.

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permalink posted by Phil Miller @ 1:35 PM

Tuesday, March 30, 2010

Why Government Spending Stimulus Often Fails to Stimulate 

Niels Veldhuis and Charles Lammam, responding to political criticism on a study they wrote on Canadian government stimulus attempts, have written an useful piece on why many economists think government spending tends to have a multiplier that is less than one (via fellow TSE blogger John Palmer).
In another 2009 study published in the prestigious American Economic Review, Stanford University professor John Taylor reviewed the evidence over the past decade on fiscal stimulus and concluded “there is little reliable empirical evidence that government spending is a way to end a recession or accelerate a recovery.”

A 2008 study, “What are the Effects of Fiscal Policy Shocks?” by University of London professor Andrew Mountford and University of Chicago professor Harald Uhlig, assessed and compared the economic impact of various cases of deficit-financed spending, deficit-financed tax cuts and tax-financed spending from 1955 to 2000. They found that spending related measures are the weakest ways to stimulate the economy and that both deficit-financed and tax-financed spending have the effect of discouraging private investment.

The International Monetary Fund (IMF), which Prime Minister Harper has cited as an authority, recently surveyed fiscal stimulus initiatives in advanced and emerging economies and concluded that the average effect of discretionary fiscal policy “does not provide strong evidence of countercyclical effects.” Simply put, the IMF concluded that fiscal stimulus is generally not an effective way to combat recessions.
Aside from the obvious macroeconomic angle, what's the sports angle here? The article helps explain why sports economists consistently find that stadium construction subsidies fail to generate much, if any, "economic impact" in local markets in terms of metro-area wide employment and income. First, stadium construction tends to crowd out other forms of construction since construction resources can't be working on two separate projects at exactly the same time, indirect evidence for which I found in my 2002 Journal of Urban Affairs article on construction industry employment and wages. Second, spending at sports events that comes from locals crowds out spending on other activities such as dining out and attending movies. Third, sports subsidies are financed with debt instruments and/or taxes. The debt crowds out other types of investment spending while taxes discourage economic activity.

If there's a consensus among sports economists, it's that sports subsidies are poor uses of taxpayer money*.

*Update: Rod Fort correctly notes in the comments that there are externalities associated with sports, both positive and negative, that are being addressed by sports economists and should be included in any cost-benefit analysis. I should have been more explicit in that last sentence and said that sports subsidies are poor uses of taxpayer money to increase employment and income.

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permalink posted by Phil Miller @ 2:07 PM

Best of the Rest: NCAA Performance Outside "Big Six" Conferences 

Four years after George Mason Wins the Lottery, Butler has reached the thin air normally reserved for teams from the "major conferences." Their success prompted me to do a comparison among the "little guys."

Of course, such comparisons bring up the question of what is "major?" The term "mid-major" is generally applied now to just about any conference outside the Big Six (ACC, Big 10, Big 12, Big East, SEC, Pac 10) even though some of these might be best described as "Near Major" (USA, A10?, Mountain West?), Mid Tier, and Low Tier. For time and space, I'm proceeding with the "outside the Big Six" definition, even though this throws in Cornell with Memphis.

The other issue is how to measure success. Given no exact metric, I'm using three yardsticks related to NCAA tournament success: total wins over 2000-2010, number of years with wins, and highest level of advancement. The results appear in the table below (based on a quick tabulation, so errors likely):
'

Rank by Wins

Rank by Years with Wins

Rank by Highest Level

Gonzaga (11)

Gonzaga (7)

Memphis (Final)

Memphis (11)

Xavier (6)

Butler (Semifinal + ?)

Xavier (10)

Memphis (5)

George Mason (SemiFinal)

Butler (8 + ?)

Butler (4)

Memphis (F8 - 3)

S. Illinois (5)

Nevada (3)

Xavier (F8 - 2)

Tulsa (5)

S. Illinois (3)

Davidson (F8)

George Mason(4)

Tulsa (3)

Temple (F8)

Kent (4)

Utah (3)

Gonzaga (S16 - 4)

Nevada (4)

Kent (2)

Memphis (S16 - 4)

St. Joseph (4)

Pacific (2)

Butler (S16 - 3)

Temple (4)

Sienna (2)

S. Illinois (S16 - 2)

Utah (4)

St. Joseph (2)

Davidson (3)

Temple (2)

UAB (3)

UAB (2)

UNLV (3)

UNLV (2)

WKU (3)

VCU (2)

Bradley (2)

WKU (2)

Cornell (2)

N. Iowa (2)

Pacific (2)

St. Mary's (2)

UW-Mil. (2)

Wichita St. (2)



Along with who is included and how to measure success, the time frame also matters. If two more years are included, Gonzaga's win total increases to 14 and they have a Final 8 appearance. Utah's relative performance also increases from a couple more years.

The decade long performances of programs such as Gonzaga, Memphis, Xavier, and Butler are very impressive. To find programs averaging more than a win per year, one has to look at places like Kansas, North Carolina, and Duke. Their performances stand above past national champs such as Louisville or Louisville and way out front of champs-turned-strugglers like Arkansas. The talking heads who like to refer to how Gonzaga hasn't beaten X or advanced past the Sweet 16 in more than a decade just don't get it.

While my interests here lie mainly with individual team performance, some interesting conference comparisons jumped out also. For example, five different teams from Butler's relatively obscure Horizon league have won NCAA tourney games, four from Gonzaga's WAC, and a whopping seven from the Missouri Valley have won. More competition at the conference level, such as the MVC, both helps and hurts individual teams -- helps by playing better competition, raising seeds and hurts by making it tougher to make the tournament.

One thing that jumps out at me from these numbers is how well these "mid-majors" perform relative to the Big Six teams when playing them at neutral sites. Regular season records are very much skewed by the ability of Big Six teams to stack their home schedule. It would be interesting to look at regular season matchups at neutral court sites or on the home sites of the "little guys" -- maybe a different post down the road.

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permalink posted by Brian Goff @ 10:45 AM

Sunday, March 28, 2010

Sweet Lew's Sweet Compensation Package 

Major college athletic programs are run in ways that are very similar their professional brethren. They compete in markets for top talent (except that in college, the players can't be paid). They practice price discrimination. For example, colleges routinely give ticket discounts to students, an example of what we economists call third-degree price discrimination. They use two-part tariffs to allocate tickets. In the pros, they use personal seat licenses. In college, they use donations. Both the pros and the colleges employ revenue sharing. The primary difference between the colleges and the pros is that the revenue programs in college, generally football and men's basketball, generate revenue for cross-subsidization of non-revenue programs.

But Phil, you'll say, colleges are non-profit while the professional team owners do what they do for profit. Fair enough, but I'd counter that being a non-profit in terms of tax status only restricts what you do with excess income. It does not restrict your underlying motive. Moreover, colleges try to generate as much revenue as possible. Further, since most of their costs are fixed costs, as in the pros, maximizing revenue is the same as maximizing profits (or minimizing losses).

So when I see, for example, coaching salaries in the academy that look similar to those in the pros, I usually don't raise an eyebrow.

But this raised both of my eyebrows.

Lew Perkins, the University of Kansas athletic director, was the state’s highest-paid employee in 2007 at $646,281.

But that’s a paltry sum compared with what Perkins received in 2009 — $4.4 million.

Perkins’ pay is the equivalent of $85,000 a week — about 10 KU students’ average yearly tuition payments. What’s more, $4.4 million appears to place Perkins far beyond that of any athletic director in the nation.

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permalink posted by Phil Miller @ 12:03 AM

Friday, March 26, 2010

The IMF Surveys the Impact of Mega-Events 

The latest issue of the IMF's journal, Finance and Development, has a number of essays on the impact of hosting events like the Olympics and the World Cup. Andrew Zimbalist's paper "Is it Worth It?" is a brief but balanced and fact-filled summary. Here is a sample:
[I]n Sydney, Australia, it now costs $30 million a year to operate the 90,000-seat Olympic stadium. Many of the venues used in the 2004 Athens Games are either vacant or seldom used and occupy valuable land in a crowded urban center. The Beijing Games left a legacy of several expensive buildings, including the elaborate Water Cube swimming facility, which is severely underused. In contrast, successful events, like the Los Angeles Summer Olympics, use existing facilities as much as possible, making good use of scarce urban land. The stadium used for the opening and closing ceremonies in the 1996 Atlanta Games was reconfigured into a baseball stadium immediately after the games. Olympic planners need to design facilities that will be useful for a long time and that are constructively integrated into the host city or region.
The essay by Andrew Rose and Mark Spiegel is of particular interest, as it discusses a novel finding in their 2009 paper "The Olympic Effect." Rose and Spiegel present evidence that countries that bid to host the Olympics enjoy a permanent increase in international trade. Here is the abstract to the 2009 paper:
Economists are skeptical about the economic benefits of hosting “mega-events” such as the Olympic Games or the World Cup, since such activities have considerable cost and seem to yield few tangible benefits. These doubts are rarely shared by policy-makers and the population, who are typically quite enthusiastic about such spectacles. In this paper, we reconcile these positions by examining the economic impact of hosting mega-events like the Olympics; we focus on trade. Using a variety of trade models, we show that hosting a mega-event like the Olympics has a positive impact on national exports. This effect is statistically robust, permanent, and large; trade is around 30% higher for countries that have hosted the Olympics. Interestingly however, we also find that unsuccessful bids to host the Olympics have a similar positive impact on exports. We conclude that the Olympic effect on trade is attributable to the signal a country sends when bidding to host the games, rather than the act of actually holding a mega-event. We develop a political economy model that formalizes this idea, and derives the conditions under which a signal like this is used by countries wishing to liberalize.
It is not clear how this rather large impact on trade can be reconciled with the lack of impact on GDP. Perhaps there is both a signaling effect and a winners curse effect that operates here. At any rate, the full Rose and Spiegel paper (pdf here) is certainly worth calling attention to.

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permalink posted by Skip Sauer @ 12:12 PM

Thursday, March 25, 2010

The NFL's Priorities 

In terms of profits and TV exposure, the NFL appears to be the most successful sports league in North America.  But I am starting to wonder about those people.  The collective bargaining agreement between the league and the players' union expires at the end of next season and there is no agreement in sight.  The parties are not even negotiating right now. The 2010 season has no salary cap, and the effects of this are still unknown. 

In the midst of all this uncertainty, the team owners held their annual league meeting this week in Orlando.  What was the major item on the agenda?  Making sure that the deck chairs on the Titanic were perfectly arranged.  Changing the overtime rules in the postseason to reduce the impact of the coin flip that determines who gets the ball. Never mind the looming possibility of a work stoppage in 2011, and the complete lack of agreement about the salary cap. That stuff is trivial. There have been 27 postseason overtime games since 1958, roughly one every other year, and the fact that a team could lose one of those games without ever getting possession of the ball has been keeping Roger Goodell up nights. Even worse, neither the players not the coaches are happy with the decision that the owners made about postseason overtime games.  In another strange turn of events, the Minnesota Vikings, who lost a playoff game last season in overtime and didn't get an offensive possession, were one of the four teams that voted against the rule change.  Good work, guys!

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permalink posted by Brad Humphreys @ 5:38 PM

Wednesday, March 24, 2010

Feds Looking at Kansas Jayhawk Basketball Ticket Sales 

The Feds have begun an investigation into the sale of tickets to Kansas Jayhawk men's basketball tournament games, and maybe season ticket sales, according to a story in this morning's Kansas City Star. At this point, an athletic department fundraiser, who was formerly the director of ticket sales, has been put on administrative leave. In addition, ticket brokers from around the nation have been subpoenaed.

Colleges and universities employ a type of price discrimination, the two-part tariff, when selling their tickets. With the two-part tariff, a person typically pays a flat fee that essentially gives him the right to buy some product. Then he has to buy the product. In the world of college sports, the flat fee comes in the way of donations to the athletic department or to an athletic scholarship fund. Schools realize that people were willing to pay more for tickets than they actually had to pay, and the two-part tariff is one way to capture some of that difference.

But with any type of price discrimination, there is an incentive to arbitrage as long as someone has access to tickets at a reduced price.

We know very little about the KU situation right now. We know a man has been put on leave, that KU has launched an internal investigation, and that ticket brokers have been contacted. But because there is a question of illegal ticket sales, understandably, nobody is talking.

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permalink posted by Phil Miller @ 8:53 AM

Tuesday, March 23, 2010

Notes from the NCAA Hoops Head Coach Meat Market 

The NCAA men's basketball season is winding down, so the annual shuffle in head coaches is heating up.  A few odds and ends from the early market action:
  1. St. Johns's coach fired for NOT cheating. Welcome to the sausage making factory, hoops fans.  Former St. John's coach Norm Roberts was unable to sign big name recruits from the Big Apple. Why?  He played by the rules.  Some of the quotes in this article are shocking.  "You got to hustle here, bend some rules or do something...” Russel Smith, a coach with the New York Gauchos, a prominent NYC AAU team.  “At St. John’s, they’re not getting certain types of players because they’re doing things the right way.”Kenny Wilcox, head coach at a junior college in Brooklyn.
  2. St. John's thought they could hire Billy Donovan away from Florida. Donovan currently makes $3.5 million as the head coach of Florida, where he has won two national championships.  So St. John's offers him $3 million a year to rebuild a stagnant program that was last a dominant power in the 1980s.  Doesn't the St. John's administration understand that you generally have to offer a coach a raise to move? Or am I underestimating the compensating differential generated by living in NYC?
  3. Tom Penders wins CUSA Tourney, makes NCAAs, gets fired.I'm not sure what the expectations are like at Houston these days, but Phi Slama Jama was a long time ago, in a galaxy far, far away.
  4. DePaul thinks they can hire Jamie Dixon away from Pitt.I am not sure what is going on at small private universities in big cities these days, but they have big aspirations, I'll give them that. DePaul, last relevant in college basketball in the 1980s, is willing to pony up "at least one million dollars" in salary for its next head coach (why do I hear Dr. Evil from Austin Powers in my head when I read that?).  Unfortunately, Dixon, National Coach of the year last year, currently makes " in excess of $1.5 million" at Pitt, where he is under contract until 2016. Paging Dr. Tony Krautmann!  Please provide the DePaul AD with a brief summary of how labor markets work, stat!

permalink posted by Brad Humphreys @ 10:49 AM

MIT Sloan Sports Analytics Conference 

Watching NBA highlights last night on NBATV, I stumbled across this video story on the 2010 MIT Sloan Sports Analytics Conference. Daryl Morey, GM of the Houston Rockets, helped establish the conference (now in its 4th year) that includes a variety of owners (Mark Cuban, Robert Kraft), GMs, coaches, and statistical assistants. Panels cut across a variety of on-the-field analysis (basketball analytics, baseball analytics, limits of analytics) as well as off-the-field issues (attendance, expansion, and others).

Data-oriented sports analytics now appears to be in mid-stream when viewed along Zvi Griliches S-Curve for the spread of innovations. When Moneyball appeared in 2003, it chronicled some of the earliest innovators. In looking over the conference panels and the NBA's website articles on the nature and uses of "analytics" in their area, the fingerprints of the Moneyball-"metric" approaches are explicit. Of course, a generation or more earlier, the contributions in Sabermetrics as well as in sports economics-statistics like that of Rotemberg, Scully, Quirk-Fort, and others began plowing this soil, even if those works don't receive much explicit attention. After all, Bill Walsh may receive most "mentions" for modern passing schemes while Coryell and, even earlier, Sid Gillman did much of the early development.

With that said, there are a lot of sports-focused "metrics" out there with little or no connection to economics or economists. That's healthy. Statisticians with different training bring their own comparative advantages to the table. In looking over Chance or the American Statistician, it's clear that statisticians (math stats types) tend to focus much more heavily on distributional issues than economists. Others, like the StatCube outfit mentioned in the NBA article, specialize in the collection and management of data.

Do economists have a niche even beyond academics and in the "engineering" type data analytics discussed at the conference? I think so. The background of economists gives us some advantages at disentangling (identifying) specific relationships, thinking in terms of omitted variables, and other model-building skills. (See 2009 TSE piece on ECONFL.) Like other data-oriented disciplines, econ also contributes by raising awareness among undegrads (like Bill Belichick and Jim Schwartz) for what data analysis can do.

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permalink posted by Brian Goff @ 9:49 AM

Monday, March 22, 2010

Indian March Madness 

If you don't live in India then you probably haven't noticed that one of the World's biggest sporting events started just over a week ago. The Indian Premier League, a Twenty20 cricket competition lasting six weeks is every bit of a national fixation as March Madness is in the US (in fact, to be honest it's bigger), with the 3 hour games achieving ratings which rival the top Indian soap operas. The launch of Bollywood movies is now delayed so as not to clash with the IPL.

The formula is simple- eight franchises representing most of the big cities play 14 games home and away, with the top four going into the play-offs. The $1 billion plus broadcasting contract is enough to attract almost all of the world's top cricketers, and the games are organised with all the razzmatazz of US sports (including cheerleaders) rather than the staid traditions of this ancient game. And it works. The IPL (which is controlled by the governing body of Indian cricket, the BCCI) was launched only two years ago, and they have just sold two new franchises, one for $370 million and the other for $330 million. That places them on a par with the Forbes valuations of the Colorado Rockies and the Cincinnati Reds, or, if you prefer, an average NBA franchise. This is also more than you would have to pay for most European soccer clubs outside of the top ten. Not bad for an upstart.

If you're interested you can watch any of the games for free on Youtube. If you're interested in the economics of sports, you should be watching very closely.

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permalink posted by Stef Szymanski @ 7:24 AM

Sunday, March 21, 2010

March Madness: O Canada Version 

The second round game between Syracuse and Gonzaga today has an interesting sub-plot:  a lot of Canadians will be on the floor.  Syracuse guard Andy Rautins and forward Kris Joseph are Canadian citizens; Gonzaga has four Canadians on the roster.  In Canada, sports channel The Score has the broadcast rights to the Big Dance, and they have naturally been promoting teams with Canadian players heavily. They also do a lot of old school, ESPN-style switching between games to show close finishes.

Dave Berri and a slew of coauthors have investigated the effect of the globalization of sport on competitive balance in sports leagues.  The idea is that, in a given population, relatively few people have the skills necessary to play sports at the elite level, so as sports recruit players from a larger pool, the amount of talent available increases, increasing competitive balance.  The WaPo article linked above credits the NBA expansion into Canada and increased availability of NCAA basketball on TV up here for the increased number of Canadian players in the NCAA, and predicts that there could be 200 Canadians playing NCAA basketball in the NCAA within 10 years.  Bracket-buster Saint Mary's has five Australian players on the roster, further reinforcing the global nature of college basketball.

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permalink posted by Brad Humphreys @ 11:54 AM

Saturday, March 20, 2010

Government Suppression of Economic Impact Critique 

[Association] Football Federation Australia is the national governing body for soccer in Australia. It is financially weak, but politically strong enough to have secured a loan of $45m (AUD) from the Australian Goverment to lodge a bid for either the 2018 or 2022 FIFA World Cups. News Limited have a copy of that agreement available online for those who are interested in contracts (click here). This funding comes after the Australian Government bailed out the former governing body of soccer, Soccer Australia, in the mid 2000's and enforced a strategic review and 'rebooting' of the sport.

According to Mark Davis of the Sydney Morning Herald newspaper, the Australian Government Department of Prime Minister & Cabinet has suppressed the release of a $180,000 commissioned report by economic consultants Access Economics, which:

"is believed to argue that claims by proponents that countries which hosted such events [ie the FIFA World Cup] would secure massive economic benefits often did not stand up to scrutiny. ... In the case of the World Cup, it identifies building stadiums, improving public transport and providing security as significant costs mounting into several billions of dollars".

Access Economics is one of the most respected economic consultancies down under, and such findings will not surprise many readers of The Sports Economist. But the fact that news is breaking now, that such an economic impact critique was not conducted until after the Australian Government has decided to support this bid is sad on many levels. Suppression of such documents is a dismal reflection upon democracy in Australia. That the Australian Government is willing to support the financing of a World Cup bid that would cost billions and offer a questionable return at the same time as running the federal budget from a $21.0 billion surplus in 2007-08 to a projected deficit of $53.1 billion (estimated 4.5% of GDP) (click here for official budget financials) is scandalous. A national election is due later this year.

permalink posted by Robert Macdonald @ 8:26 AM

Friday, March 19, 2010

The Baltimore Charm 

It's official. The Baltimore expansion franchise in the LFL, Lingerie Football League for the uninformed, will be called the Baltimore Charm. For those snickering at the irony of a team of bikini clad women playing football to be called the Charm, I should point out that Baltimore's nickname is Charm City. (As if that isn't irony enough for the people who don't know just what a great place Baltimore is.) The LFL website reports that over 28000 votes were cast. I don't know how voting was conducted or who was eligible to vote. At least three alternatives received votes. Orlando also received an expansion franchise, to be called the Fantasy.

I have to admit that when I heard this news I had no idea that the LFL existed, let alone that Baltimore had gotten an expansion franchise. In the interest of expanding knowledge, I had to do some research on the LFL. The Baltimore and Orlando franchises will bring to 12 the number of teams in the league which grew out of the Lingerie Bowl that was first played at halftime of the Super Bowl a few years ago.

There are two divisions in the LFL, and each team plays the other teams in its division once. The champions of the 2009-2010 season are the Los Angeles Temptation. Games began in September of 2009 and the championship game, Lingerie Bowl VII, was played February 6th at the Hard Rock Live Arena in Hollywood, Florida. You can watch the Lingerie Bowl and earlier season contests on the LFL website.

The ticket information link takes one to ticketmaster's or other ticket sellers' websites but no price information is available. I was also unable to find attendance figures. However, if you know a corporation interested in a suite package, you can email the LFL at tickets@lflus.com.

Rules of the game are available at LFL101. I am sure everyone will go to the website to read the articles. The website doesn't provide information on player salaries or other labor management issues. The league offices, according to Wikipedia's LFL entry, are in West Hollywood, California.

My wife already told me I am not allowed to get season tickets.

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permalink posted by Dennis Coates @ 8:07 AM

Thursday, March 18, 2010

Accounting Madness 

In an article today on CNN.com, the normally quite sharp Chris Isidore, a senior writer for CNNMoney, perpetuates one of the most enduring myths in sports economics: that college sports teams generate significant profits for their host institutions.

The article shows the individual revenues, expenses, profits, and margins for essentially all NCAA Division I men's basketball teams and finds that across the 340+ D1 institutions in the country, basketball made a profit of nearly $280 million last year. As noted by Isidore, "it's clear that men's basketball is a major source of funding for many colleges, and that profits are still far more common than losses for the major teams in March Madness." It's a nice story. It's also 100% wrong.

Let's just take a look at two schools, my own Holy Cross and big-time power North Carolina to highlight the flaws.

According to the article, the Holy Cross basketball team racked up $1,549,329 in expenses while generating an identical amount in revenue and therefore exactly broke even. Nearly a third of the schools on the list show exactly zero in profits as well. A quick look at the source data, however, shows that about $1 million of the supposed revenue for the team came from direct institutional support. The team didn't break even. It lost about $1 million. Large numbers of D1 basketball programs include direct and indirect insitutional support, direct government support, or student fees as part of basketball "revenues". In fact, these are simply tranfers from students, taxpayers, and other parts of the college that disguise losses in the basketball program and athletics in general.

But what about a powerhouse like North Carolina? While Holy Cross sells, perhaps, $100,000 in tickets per year, UNC boasts basketball revenues of nearly $20 million, and this money comes from hard sources like ticket sales, NCAA and conference distributions, and media rights. While the most current year's data from the Department of Education is not broken down into great detail, older data from the IndyStar shows no shenanigans on the revenue side at UNC.

Costs, however, are another matter. Nearly half of all the Tarheels' athletic expenses are not allocated to any individual team, but instead expensed to the athletic department as a whole. The older IndyStar data shows that the University allocated exactly zero dollars in expenses to the basketball team for things like medical trainers, facilities and maintenence, promotion, or indirect institutional support. It's pretty easy to have a profitable basketball team when all of your revenues count towards the bottom line but many of your expenses don't.

Sometimes it is worth presenting the best information you have even though it's not perfect, i.e. something is better than nothing. Other times the information is so flawed that it less than worthless, verging on the harmful. This is one of those cases, and CNN should know better.

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permalink posted by Victor Matheson @ 2:52 PM

Wednesday, March 17, 2010

Mega-Events in Developing Nations 

South Africa has spent at least $6 billion in preparations for this summer's World Cup. How can a poor but developing country like South Africa afford to host such an extravagant party? Simply put, it can't.

This line from an article in today's New York Times pretty well sums it up.
The people who live nearby [the new stadium in Nelspruit], proud as they are to host soccer’s greatest event, also wonder: How could there be money for a 46,000-seat stadium while many of them still fetch water from dirty puddles and live without electricity or toilets?
Of course, this is familiar territory for economists. Six years ago, I wrote an article that appeared in the South African Journal of Economics about mega-events in developing nations. In that article I wrote,
The Nigerian government recently spent $330 million on a new national soccer stadium, more than the annual national government expenditures on health or education. The intense criticism of this project is not directed at the cost of the stadium, but rather the cost of the stadium in the face of other pressing needs in a country like Nigeria.
Substitute the Nigerian national stadium for the new $137 milllion stadium in Nelspruit that will host a grand total of 6 hours of soccer this summer, and there is perfect foreshadowing of the type of misallocation of scarce resources that has come to fruition in South Africa.

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permalink posted by Victor Matheson @ 2:06 PM

Monday, March 15, 2010

NCAA Men's Basketball Postseason Roundup 

March Madness is upon us again.  This year, the men's college basketball postseason features some interesting economic madness across the board.  For the second year in a row, there are four postseason tournaments. Here's a roundup of the four events:
  1. The NCAA Division I Men's Basketball Championship. The "Big Dance."  65 teams in a single elimination "knockout" tournament spread over three weekends in March and April.  Games are held at predetermined neutral sites across the country.  The big economic news here is that this could be the last year of the much-loved 65 team format, which has been in place since 2001.  The tournament had a 64 team format from 1985-2000.  The NCAA generates about 90% of its operating revenue from the massive 13 year, $6 billion contract with CBS to televise this tournament.  The NCAA/CBS contract is in year 10, and the NCAA has an opt-out clause following this year's tournament broadcast.  Much speculation revolves around the NCAA exercising that option, putting the broadcast rights for future tournaments up for bid, and expanding the field to as many as 96 teams.  A new auction and expanded field could substantially increase the value of the contract.  I am a big fan of the 64/65 team format, and would hate to see it go.  The NCAA seems to have a strong incentive to change the format.  Stay tuned.
  2. The National Invitational Tournament. The second tier postseason tournament.  32 teams in a single elimination "knockout" tournament.  The finals are played in Madison Square Garden in New York City.  Founded in 1938, the NIT is actually older than the NCAA tournament, and for a long time it was more prestigious.  The NCAA has owned the NIT since 2005, when it purchased the rights to operate the tournament for 10 years from the Metropolitan Intercollegiate Basketball Association (MIBA), a consortium of NYC colleges, for $56.5 million.  The NIT and NCAA Tournament do not compete for teams; NCAA rules prohibit a team for turning down an NCAA bid for the NIT. Interestingly, Marquette University did just that in 1970, when Coach Al McGuire turned down the NCAA bid to play in the NIT closer to home.  Marquette won the NIT that year.  Most NIT games are televised on ESPN.
  3. The College Basketball Invitational Tournament. A sixteen team tournament operated by the Gazelle Group, a sports marketing company.  Now in its third year of operation, the CBI has a single elimination format until the championship round, which is a best of three series between the last two teams. CBI games are held on campus. Up to 11CBI  games will be carried on HDNet, an all hi-def channel that is available on many satellite and cable providers around North America.  There is some anecdotal evidence that the CBI has tried to compete with the NIT for teams, but it has not been successful. Participants:Akron (24-10), Boston University (19-13), College of Charleston (21-11), Colorado State (16-15), Duquesne (16-15), Eastern Kentucky (20-12), George Washington (16-14), Wisconsin Green Bay (21-12), Hofstra (19-14), Indiana State (17-14), IUPUI (24-10), Morehead State (23-10), Oregon State (14-17), Princeton (20-8), Saint Louis (20-11), and Virginia Commonwealth (22-9).
  4. The CollegeInsider.com Tournament. A sixteen team single elimination tournament operated by, I think, the people who run the CollegeInsiders.com web site.  This tournament is in its second year of operation.  As best as I can tell, the CIT has no television coverage, but games will be streamed on Fox College Sports broadband.  There appears to be quite a bit of competition between the CBI and the CIT for teams.  A recent newspaper report on the CIT indicates that the Athletic Director at Marshall University, the #1 seed in the CIT, was offered bids to both tournaments and "struck a deal" with the CIT that included the possibility of playing 4 home games.  The CIT financial model is to charge each home team $30,000 per game to participate and allow the home team to keep all gate revenues. participants: Fairfield (22-10), George Mason (17-14), Western Carolina (22-11), Marshall (23-9), South Dakota (22-9), Creighton (16-15), Harvard (21-7), Appalachian State (22-10), Middle Tennessee State (19-13), Missouri State (20-12), Portland (21-10), Northern Colorado (24-7), Pacific (20-11), Loyola Marymount (18-14), Southern Mississippi (20-13), and Louisiana Tech (23-10).
For those keeping score, 129 of the 342 Division I men's basketball teams are participating in one of these four postseason tournaments. The biggest issue in men's postseason college basketball is clearly the potential expansion of the NCAA Championship Tournament, which would have an impact on the other three.

There is only one team from a "Big 6" BCS conference in the CBI and CIT: Oregon State.  Three BCS teams participated in the 2008 CBI (Washington, Cincinnati and Virginia), and three participated in the 2009 CBI (Stanford, Oregon State and St. John's).  The University of Michigan ruled out participating in the CBI before bids were announced.  No BCS team participated in the 2009 CIT. Unlike the NIT, these two tournaments allow participating home teams to keep a large fraction of gate revenues. which would seem to appeal to major conference teams that have large arenas and large numbers of fans and students.

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permalink posted by Brad Humphreys @ 5:29 PM

Red Knights smell blood 

Following on from Skip's post a couple of weeks ago, the group of would-be Manchester United owners who call themselves the Red Knights have retained Nomura as their advisers in launching a takeover and they have now called for season ticket holders not to renew this summer. I would imagine that the Glazers could take some kind of legal action faced with this threat, but they seem to be choosing a softly, softly approach, believing that either (a) this process will flush out a bid so high that they can't refuse (they have retained an investment bank to advise them on incoming bids) or (b) these tactics will discredit the Red Knights in the eyes of true fans. Interestingly the Red Knights promise that those who didn't take up their season tickets will be able to take them up if the Red Knights gain control, but it's difficult to see how this can be guaranteed (what if the Glazers manage to sell the season tickets to someone else?). In the end it seems to come down to this: can the Red Knights persuade enough fans to engage in an economic boycott of the club so that the financial position of the Glazers becomes perilous enough that they are forced to sell out? This sounds like a revolution, but the Red Knights should beware; revolutions frequently devour their own children.

permalink posted by Stef Szymanski @ 5:16 PM

Seeding the Madness 

Upset that your favorite team received a 10 or 11 seed when they deserved a few spots higher? Don't be.

As it turns out, the NCAA Men's Basketball March Madness tournament exhibits a strange anomaly in its seeding. While higher seeds generally perform better in the opening round of games than lower seeds, all bets are off when it comes the second round.

While a #8 seed has a better chance of winning their opening match-up against a # seed than a #10 seed has of upsetting their #7 seeded rival, historically #10 seeds, win more games and advance further in the tournament than either #8 or #9 seeds. Because the tournament is not reseeded at each round, a victorious #8 seed almost certainly earns the right to play a #1 seed while a winning #10 seed will face a #2 seed at worst, and a #15 seed at best. The observed probability of advancing to next round and the number of wins per seed are shown in the table below. Among the striking results is that #12 seeds are twice as likely to make the sweet sixteen than a #8.

While this anomaly violates the usual system of rewards given to teams that do well in the regular season, all I can say is thank goodness my Golden Gophers of Minnesota are an 11 seed!


Seed123456Avg. wins
1100.00%88.54%70.83%44.79%23.96%15.63%3.44
295.83%63.54%45.83%21.88%11.46%4.17%2.43
384.38%52.08%26.04%12.50%8.33%3.13%1.86
479.17%43.75%14.58%9.38%2.08%1.04%1.50
565.63%35.42%5.21%4.17%2.08%0.00%1.13
670.83%36.46%12.50%3.13%2.08%1.04%1.26
759.38%17.71%6.25%0.00%0.00%0.00%0.83
846.88%8.33%4.17%2.08%0.00%0.00%0.61
953.13%3.13%1.04%0.00%0.00%0.00%0.57
1040.63%18.75%8.33%0.00%0.00%0.00%0.68
1129.17%9.38%4.17%2.08%0.00%0.00%0.44
1234.38%16.67%1.04%0.00%0.00%0.00%0.52
1320.83%4.17%0.00%0.00%0.00%0.00%0.25
1415.63%2.08%0.00%0.00%0.00%0.00%0.18
154.17%0.00%0.00%0.00%0.00%0.00%0.04
160.00%0.00%0.00%0.00%0.00%0.00%0.00

Update: Thanks for the formatting advice.

permalink posted by Victor Matheson @ 3:28 PM

Wednesday, March 10, 2010

That Giant Sucking Sound from Edmonton 


That sound you heard at the end of each period in the US-Canada gold medal game was the giant sucking sound of a multitude of potties being flushed at the same time in Edmonton. Here is an amusing graphic courtesy of Justin Wolfers of the Freakonomics blog and produced by the good folks at Epcor in Edmonton.

HT John Chilton

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permalink posted by Phil Miller @ 2:46 PM

Friday, March 05, 2010

Uncapped Season Begins in NFL 

Do you feel a bit more uninhibited this morning? In a free-wheeling mood? A lot of NFL front office types do, because as of 12:01am, the NFL entered territory unseen since Bill Clinton was in the White House: no salary cap.

The Collective Bargaining Agreement between the players union and the NFL expires next year. When the current CBA was signed, both sides realized that they could have trouble agreeing the next time, and added a clause to the CBA designed to encourage the players and owners to agree to a new CBA: if a new CBA was not signed by 2010, the final season under the current CBA would be played without a salary cap. So much for that idea.

As of today, no restriction on total payroll exists in the NFL. Teams can sign all the free agents they want, at any salary they want. I imagine Redskins owner Danny Snyder felt like it was Christmas Eve. The Redskins reportedly cut $17 million in 2010 salary obligations minutes before the free agency period began, suggesting someone in Ashburn is getting ready to make some moves. The NFL has a handy sortable list of all the restricted and unrestricted free agents, if you want to do some window shopping for your favorite team.

I am not expecting many wild spending sprees. While Snyder has a reputation for spending like a drunken sailor even with a salary cap in place,the lack of a CBA beyond this season makes a significant work stoppage, and the sharp reduction in revenues that comes with a work stoppage, a real possibility.  Uncertainty about the terms of the next CBA should also reduce the incentive for teams to offer free agents large long-term contracts.

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permalink posted by Brad Humphreys @ 9:34 AM

Thursday, March 04, 2010

Student Demand for College Sports 

Funding has dried up for a lot of things in the Great Recession, including college sports programs. At Cal State San Marcos, the most recent addition to the UC system, students recently voted on a measure to increase their fees from $80 to $200 per year to support their fledgling intercollegiate athletics program. CSUSM is an interesting case. This is a campus in which the prospects are remote for a major college football team, or even a basketball squad seeded 64th in the NCAA tourney. The revenues generated by the fee increase would apparently add $1.2 million to a current budget of $1.7 million. This looks like a significant step up in funding for a very small program of intercollegiate athletics. I assume that the students who voted had a decent sense that what they were voting for was to better fund a small-time program, rather than an entry into the major college sports landscape. Turnout was not large: about 1300 out of 9200 students voted, with 866 supporting the proposal. The immediate consequence would appear to be the formation of men's and women's basketball teams.

Roger Noll once made the observation that sports on campus must be demand driven, ultimately, and not just the result of a conspiracy among boosters, coaches, and board members. After all, boosters and million-dollar coaches are nowhere to be found at small private colleges, which operate in an unsubsidized, competitive market. Yet small colleges compete for students, in part, by spending a significant (5%) chunk of revenue on small-time intercollegiate sports. If reallocating this expenditure yielded a better crop of applicants, you'd expect to see that choice made.

Student votes are taking place at a number of institutions in the current environment, and not all of the sports-funding initiatives are winning. Students at Long Beach State, for example, rejected a $190 per year increase in fees that would have covered "rising costs, cuts, and a new soccer-track stadium." My sense is that Long Beach is a commuter school, and soccer and track don't exactly "galvanize the community." That package seems a tough sell.

Here's the story on CSUSM, with a brief discussion of other fee-based sports funding proposals around the country.

(Note: The original post confused CSU San Marcos with UC Merced, which I attribute to my pre-6am reading and posting on the story. Thanks to CM Gayley for the correction.

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permalink posted by Skip Sauer @ 5:59 AM

Wednesday, March 03, 2010

Canadian Hockey, Sex, and My Golf Game 

Related to Skip's post, how much happiness was generated in Canada by Sunday's hockey victory?
"Thousands on street" in Vancouver (maybe 150,000), Toronto, Ottawa, Montreal and all over the country.
Crowd estimates are always sketchy, but the crowd in Vancouver was large, very large. The team and entire audience's unabashed rendition of "O Canada" during the medal ceremony stirred even a cynical, non-Canadian economist like myself.

What other kinds of non-sports related celebration can match or surpass this kind of national celebration? The list isn't very long. V-E day, V-J day, ...? Where would one find such a large "utility" impact relative to the size of the revenues paid out for out-of-pocket expenditures by consumers?

Skip raises an interesting issue. Are these effects permanent or transitory? As with most utility-raising "recreational" activities ranging from sex to an enjoyable golf day, the warm glow fades. The Vancouver Games afterglow for Canadians may hang on longer due to gold medal performances, and, especially the hockey finish. The hockey finish itself, may have a very long-lived enjoyment value but at a much lower level just as the "Miracle on Ice."

Students sometimes ask me, isn't the enjoyment for the winning team's fans offset by the disappointment for the losing team's fans? Or, what if Canada had lost, is the downer to be subtracted from national "happiness." I like to use my golf game as an analogy. Yes, my relative "glow" increases when I shoot lower, but both bring enjoyment. Even losing a "match play" or scoring low in a tournament brings enjoyment, just less in relative terms.

On occasion, I can play badly enough to regret even going out. Maybe a Canadian loss on Sunday slips into this realm. My guess is that such an outcome would have been more analogous to Canada missing the medal round. Really poor performances raise some tricky questions regarding the intertwining of ex post versus ex ante measurement of happiness when part of the reason for playing is the "chance of winning" -- the participation -- and part is the expectation of winning.

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permalink posted by Brian Goff @ 2:34 PM

Tuesday, March 02, 2010

Report to the Big 10: "Just say yes to expansion." 

In an earlier post, I wrote about Big 10 expansion and argued that if the Big 10 decided to expand, it would look east before it would look west. That was under the assumption the Big 10 would add one team. If it decides to add more than one team, then westward expansion makes more sense.

Now comes word that the Big 10 has received a report it asked to have done that says that expansion is a good thing for the Big 10. I don't think many will argue with that.

A source inside the league told the Chicago Tribune that the report, prepared by the Chicago-based investment firm William Blair & Company, analyzed whether five different schools would add enough revenue to justify expanding the league beyond 11 teams.

"The point was: We can all get richer if we bring in the right team or teams," the source said.

The five analyzed were Missouri, Notre Dame, Pittsburgh, Syracuse and Rutgers. The source, though, called those five "the obvious suspects" and cautioned that other universities could earn consideration.

Like Texas or Nebraska?

In that earlier post, I mentioned that college expansion, unlike that in the pros, doesn't occur with an expansion fee. I may be wrong in that respect this time around:
"You just don't jump into the league and get a full share of what everyone else in this league has established over time," Wisconsin athletic director Barry Alvarez told The Associated Press. "I think someone has to buy their way into the league."
I love how the world of "non-profit" "amateur" sports resembles the world of the pros.

So, just like in the pros, expansion generates value for the entrant, value the incumbents partially want to capture for themselves. It's not that Alvarez doesn't have a point, but I would hope that expansion would increase the size of the Big 10 pie enough to more-than-offset having to share the pie over more schools. Otherwise they shouldn't be expanding.

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permalink posted by Phil Miller @ 12:41 PM

What Determines Bowl Ticket Sales at the Institution Level? 

Todd McCubbin, the executive director of the University of Missouri Alumni Association, writes a short piece on the number of tickets sold by Mizzou to this year's Texas Bowl. His short essay is located on page 47 of the spring 2010 issue of the Mizzou alumni magazine (I don't have a link to the piece, but here's a general link to the alumni magazine).

"The mystery of the Big 12 bowl selection process still casts a shadow on the 2009 campaign. For the third consecutive year, teams the Tigers defeated were selected ahead of them. Our e-mail and phone lines were busy as many of you voiced concerns about the process.

The media shed light: The bottom line seems to be that, unless a team is conference champion, wins and losses mean little. Instead, bowl organizations make selections based partly on television ratings but mosly on how many fans travel to watch the game in person. It can be tough to swallow that a team's performance on the field can count for so little."

McCubbin goes on to say that about 10,000 Mizzou fans made the trip to Houston, but that was short of the school's 11,000 ticket allotment.

As part of my sabbatical research, I have been working on examining the ticket sales made at the institutional level for the 2008-2009 bowl season. My source for tickets sold is this post at the Wiz of Odds. The results are preliminary and, as such, have not been peer-reviewed yet. So take this for what it's worth.

Here are some results from a preliminary STATA analysis on my data. The numbers are the result of an OLS regression.

Variable Parameter Standard Err t-statistic p-value
Tradition 264.3157 45.48273 5.81 0
Years Since Last Bowl 618.8521 112.5678 5.5 0
Dist from Nearest NFL Stadium 17.07413 2.621021 6.51 0
Distance from Bowl Location -2.229766 1.103187 -2.02 0.048
BCS Dummy 3382.728 2124.074 1.59 0.117
Local Population 0.0006327 0.0003135 2.02 0.048
Private School Dummy -4206.533 1783.724 -2.36 0.022
Intercept 1474.826 1355.562 1.09 0.281





N = 64



F(7, 56) = 0



R-Sq = 0.6700



Root MSE = 4785.7



I defined Tradition as the number of Division/FCS level bowls the program has been to in its history. Local population is the local population of the university's city. I tried controlling for university enrollment and bowl city average temperature during the month of the bowl but neither added anything to the results. I didn't have any information on ticket prices.

The regression explains about two-thirds of the variation in ticket sales. Not too bad. The analysis tells me that teams that have more tradition sell more tickets. For every bowl game the team has been to in the past, about 264 more tickets are sold. Teams that haven't been to a bowl in awhile sell more tickets (this tells me that winning is subject to diminishing marginal utility). For every year it's been since the last bowl appearance, the university sells about 619 more tickets. The farther a university is from an NFL stadium, the more tickets sold (about 17 more tickets for every mile in distance away from the NFL stadium). The farther the university is from the bowl location, the fewer tickets sold (about 2 fewer for every mile in distance). Playing in a BCS game doesn't statistically explain the variability of ticket sales. The bigger the local city's population in which the university sits, the more tickets that are sold. Lastly, private schools on average sell about 4,207 fewer tickets to their games.

So, if bowl executives do pay attention to expected ticket sales and to the extent my analysis captures what they do, they pay attention to tradition, how long it's been since the team last went to a bowl, how far a team is from an NFL stadium, the distance to the bowl, the university city's population, and whether the school is public or private.

So how did Mizzou perform in terms of the number of tickets sold through the athletic ticket office to the Alamo Bowl game the football team played in? According to my calculations, Mizzou should have sold about 8,817 tickets. They actually sold 6,050. Part of the difference can probably be attributed to randomness inherent in the data. But part of it could be that there may be some reason for fan disinterest at Mizzou that I don't capture with my regression. If it's the latter, what could it be?

Cross-posted at Market Power

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permalink posted by Phil Miller @ 12:28 PM

Monday, March 01, 2010

Industrial Sabotage at Manchester United? 

When I first saw remarks like those I'm about to quote, I let it pass with an oblique comment (in the Portsmouth post from last week). But industrial sabotage -- driving down the price of a company in order to take it over more cheaply -- is a crime, is it not? If so, why would anyone connected with a takeover bid make the claims that a Mr. Keith Harris has allegedly made to Sky Sports News?
Representatives from law firm Freshfields and investment bank Goldman Sachs, among others, are understood to have been involved in the secret meeting.

Informally known as 'the Red Knights', the group held talks regarding a potential offer to buy out the Glazer family, who are unpopular with United fans.

...Keith Harris, who has been involved with the group considering a potential takeover, recently called on supporters to start boycotting matches in an attempt to force the Glazers' hand.

Harris said last week: "Turning up to games 10 minutes late and things like that just doesn't do the job.

"The green and gold protest is fabulous, a symbolic and significant message to the owners. It is like the white handkerchiefs in Spain. But that won't force the Glazers to sell to us.

"However, if enough people - and I am talking about thousands - stop turning up to matches and do not renew their tickets, then that does it. The supporters have to hurt the Glazers in their pockets.

..." would not talk about this if I didn't have full confidence in our ability to raise the money to do this. I never talk publicly unless I have confidence. Getting the money together is the easy bit.

"But we can't make an offer until the Glazers are placed in a position where they are forced to consider it."
People, do the world a service and educate me! This stuff can't be credible, can it?

Update: Here's a story from the BBC where you can view and listen to Mr. Harris speak on the subject.

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permalink posted by Skip Sauer @ 4:56 PM

Olympic post-mortem 

Personally, less viewing was more fun. It was a shame though, to see "home-cooking" in the Men's 500m short-track race, where a Canadian judge made a marginal call to disqualify my countryman and elevate his onto the podium. If that's what "own the podium" means, the podium's not worth owning. So I'll join England's temporarily pro-American Simon Barnes in sending a somewhat sardonic "Well done, Canada" to our neighbors up North. But why wasn't there an English judge available?

Here at TSE in the past few weeks, we've been riffing on the psychological impact of athletic competition. At the Montreal Gazette, Randy Boswell applys this thinking to his country in "Historic Olympics a nation-building milestone for Canada: experts." Wow. I thought Canada already had a formidable nation? On second thought, perhaps that short track judge has a day job with the Canadian Security Intelligence Service. More seriously, Boswell's story does have plenty of quotes from people who are either measuring or somehow attuned to Canadian psychology at the moment. My money though, is on Montreal historian Jack Jedwab who says "if you ask most Canadians today what they remember about Calgary [ed: site of the 1988 Winter Games], I don’t know that they’ll be able to tell you a lot.”

Back stateside, the impeccably named Casey Curlin focuses on the Olympics' impact "beyond Vancouver:" everything from a boom in orthodontics in Korea to the fallout in Russia from a disappointing haul of medals. "The headlines in Russia were brutal, 'Red Machine Crashes into Maple Tree,' 'Nightmare in Vancouver'," states Curlin. What strikes me as interesting in this case is that perceived Olympic failure is tied directly to Russia's Sports Minister, with the political opposition calling for President Medvedev to take action. In contrast, the U.S. went into these games with an Olympic organization that was universally disliked and apparently dysfunctional, yet somehow American athletes won more medals than ever. Hooray for decentralization!! I'm glad that the U.S. doesn't have a Sports Minister. But I doubt that Medvedev would consider abolishing the Russian office, even for a moment.

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permalink posted by Skip Sauer @ 6:35 AM

Sunday, February 28, 2010

Dave Berri Must Love This 

I found this interesting article about the state of the NBA from Bill Simmons at ESPN. The article is worth a read.

I especially like this bit:

They arrived at this specific point after salaries ballooned over the past 15 years -- not for superstars, but for complementary players who don't sell tickets, can't carry a franchise, and, in a worst-case scenario, operate as a sunk cost. These players get overpaid for one reason: Most teams throw money around like drunken sailors at a strip joint. When David Stern says, "We're losing $400 million this season," he really means, "We stupidly kept overpaying guys who weren't worth it, and then the economy turned, and now we're screwed."

This isn't about improving the revenue split between players and owners. It's about Andre Iguodala, Emeka Okafor, Elton Brand, Andrei Kirilenko, Tyson Chandler, Larry Hughes, Michael Redd, Corey Maggette and Luol Deng making eight figures a year but being unable to sell tickets, create local buzz or lead a team to anything better than 35 wins.


I wonder if it might be because the NBA over values scoring, as Dave, Marty Schmidt, and Stacey Brook contend in Wages of Wins and other places. And maybe some NBA executives are beginning to see that.

permalink posted by Dennis Coates @ 8:24 PM

Friday, February 26, 2010

Did they get a 15 yard penalty for excessive celebration? 

It seems the Canadian Women's hockey team took to the ice twice yesterday. Once to beat the US for the gold medal and then again later to celebrate their victory by drinking beer and champagne and smoking cigars while wearing their gold medals.

Apparently this behavior irked some of the IOC. I wonder how much of the finance for the booze and cigars came from the "Own the Podium" program.

For photos and some commentary see the National Post.

permalink posted by Dennis Coates @ 12:05 PM

Wednesday, February 24, 2010

Decline of Portsmouth... and the English PL 

News reports in England imply that Portsmouth Football Club of the English Premier League, perhaps the richest league in world soccer, is within days of bankruptcy. Like an LA condo in 2008, Portsmouth is now operating under its fourth owner this season! This suggests to me that some soccer-owner-wannabes were a bit slow to catch on to the fact that the incredible decades-long growth in the value of sports franchises was destined to stall in the “Great Recession.”

Of course, this is not the first instance of financial trouble for a team in England’s top flight. Leeds United, a club that’s been champion of England three times, imploded both financially and on the pitch in the past decade. Leeds entered the equivalent of American bankruptcy in 2007 and has fallen into the third tier of English soccer. West Ham United, along with other London clubs that have had a periodic taste of the top, such as Crystal Palace and Queens Park Rangers, have faced financial jeopardy in the past year.

As is the case with homeowners, banks, and auto manufacturers, voices have recently been raised in England to “save the clubs from themselves,” if you will. Or alternatively, and inconsistently, to save the clubs from the foreigners, especially the Americans. There has been no American involvement in Leeds or Portsmouth as far as I know, although prominent American investments in top clubs like Arsenal, Liverpool, and Manchester United have brought forth various levels of vitriol from different varieties of English activists. The irony in this activism is that American ownership in English football increases the likelihood that player wages – the key expense which brings ambitious “climbing” clubs to their knees – will be restrained through league agreement. David Conn’s piece in today’s Guardian makes this latter point, and discusses a UEFA initiative to restrain player wage expenses.

A move to bring in some sort of a salary cap would likely find key allies, again ironically, in unusual quarters of the British polity. For example, a restraint on wages tied to club revenue has been advocated by Arsenal’s manager, Arsene Wenger, who fields a team in North London typically bereft of English players. His apotheosis in that regard, the English Football Association, would welcome the effects of a salary cap because it would limit the imports of foreign players and increase the number of Englishmen on the pitch.

In the case of Portsmouth, I suspect that their supporters would welcome just about any owner with the cash to return them to the EPL as soon as possible (they are surely doomed to relegation this year, regardless of who owns the club). As for Manchester United, there is more than one option which appeals to different segments of their supporters. First, a debt-free, free-spending billionaire to come upon the scene, who is willing to buy out the Glazers and spend oodles of money to combat the like of the Russian-financed Chelsea and the recent upstart, the Arab-financed Manchester City. In short, the sugar daddy that English fans pine for, from Wolverhampton to Notts County. Now, it must be said that while such a sugar daddy (a la G. Steinbrenner) might appeal to Man Utd fans, his appearance would surely appall almost everybody else. But regardless, when one takes the view of the league as a whole, this is fancy. How many people are there in the world who are willing to spend a billion plus pounds on a soccer club, in the interest of pure sport? Ultimately, Manchester United is a commercial enterprise, a fate that its sporting success and worldwide appeal has brought upon it.

Less controversial would be an English takeover which reduced the club’s debt/equity ratio. But again, this issue is poppycock. Basic economics implies that ownership will improve the club when it makes sense, regardless of how much debt the club has on its books. Man Utd’s debt had little or nothing to do with the transfer of Ronaldo, who was destined for Real Madrid regardless of who owned the club. Moreover, Wayne Rooney is still on board, and the purchase of Berbatov for 30 million pounds looks if anything, to be extravagant. Now, some people in finance may be exploiting the current imbroglio to lower the asking price for Manchester United, but I doubt that the Glazers are intimidated by this tactic (in the U.S. the Glazers might consider a lawsuit).

Back to the issue of Portsmouth and bankruptcy. Bankruptcy will dock 9 10 points from Portsmouth and ensure their relegation beyond all doubt. Portsmouth could easily end up where Leeds United is, toiling about the bottom tiers of the Football League. But were they wrong to reach for the stars by buying the best players they thought they could afford? I’m willing to let the league table -- and their FA Cup trophy from 2008 -- pass judgment. As much as I want Arsenal to triumph over the new money of Chelsea and Manchester City, and as much as I’d like to see the likes of Portsmouth and Wolverhampton spared from the trap door of relegation, there is something ultimately appealing about the no-holds-barred competition of the English Premier League. Long may it reign.

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permalink posted by Skip Sauer @ 12:13 AM

Tuesday, February 23, 2010

Free Agency Coming to the Australian Football League in 2012 

The Australian Football League (AFL) and the Australian Football League Players’ Association (AFLPA) today announced agreement on the introduction of free agency to the AFL labour market, to commence in 2012, after the competition expands from 16 to 18 clubs.

For readers not familiar with Australian football and the AFL; the labour market has been governed by a combination of a reverse-order player draft, a hard total player payments cap (per club, the 2010 TPPC is AUD $8.21m for player payments + $537k for additional marketing agreements), and player list restrictions giving each club a maximum primary list of 40 players. This system has been in place since the mid 1980s and has come to be one of the most restrictive system of labour market regulation in any professional team sport in the world. The only way players could move between clubs was to enter the draft system again or to be traded for other players and/or draft picks. Following the precedent in the High Court of Australia case, Buckley v Tutty, such a system was highly likely to fall as an unreasonable common law restraint of trade; but it is worth noting this model of free agency has been negotiated without recourse to the courts or industrial disputation. The system of free agency is summarised as follows:

1. Delisted players:

- All players who are delisted by a club are unrestricted free agents.

2. Listed players with at least 8 seasons at one AFL club, who are out of contract for the first time since reaching 8 seasons of service:

· Restricted free agency for such players who are in the Top 25% of player salaries at that club. Restricted free agents have the right to negotiate with any new club, but their current club has a right of first refusal, which allows current club to match an employment offer lodged by a new club. If the current club chooses not to match the offer, the current club will receive compensation in the form of an additional draft selection if the current club has a net loss of free agents. If the current club does choose to match the offer, but the restricted free agent does wish to leave his current club, the player can only do so by being traded, or by re-entering the pool of players eligible to be drafted.

· Unrestricted free agency for such players who are in the Bottom 75% of player salaries at that club.

3. Listed players with 10 or more seasons at one AFL club, who are out of contract, and have already come out of contract once before in the period of 8+ seasons at one AFL club.

- All such players are unrestricted free agents.

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The AFL website is the best place for news on the specifics of the deal:

The sports pages of the Melbourne-based newspapers, the Herald Sun and The Age, have interesting coverage of the full spectrum of opinions; ranging from applause for a well-balanced deal, to claims this is a portent of impending doom for the competition; in particular, see the colourful report by Patrick Smith inThe Australian newspaper.

Specifics of how the Top 25% of players at each club will be determined, along with the value of compensation for a net loss of free agents are yet to be determined.

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permalink posted by Robert Macdonald @ 6:14 PM

Monday, February 22, 2010

More than a Game 

I am reading More than a Game, written by Brian Billick, former head coach of the Baltimore Ravens and current analyst for Fox and the NFL Network. It is an interesting book on several levels.

Two points I want to bring up here I found interesting. The first is that Billick is quite forceful in arguing that finding a quarterback is very difficult, saying that nobody knows anything. People who have been very successful at picking/finding quarterbacks have all indicated that they were high on some of the bigger quarterback busts in draft history (think Ryan Leaf). Billick mentions in passing that scouting and player evaluation uses regression models. I would love to see those equations. The implication is that evaluation of other players is more successful. I wonder if pro football evaluators feel they are doing a good job in picking wide receivers.

The second point I wanted to bring to people's attention is that Billick mentions the research by David Romer on fourth down. He points out that after the appearance of that paper, the share of fourth downs on which the teams go for it rose each year until 2008. Economists may not get politicians to understand that subsidies are not the best use of public funds for job creation but at least one economist may have successfully convinced head football coaches to go for it a bit more often. Billick also points out that Romer's model does not account for things like media criticism. That is an interesting perspective. Better to do the conventional, if wrong thing, to avoid media criticism, than to give your team a better chance to win the game.

Billick's perspective is interesting and worth a read.

permalink posted by Dennis Coates @ 8:30 AM

Sunday, February 21, 2010

Special Issues of Note 

Two recent publications may be of interest to readers of The Sports Economist.
1. The journal Economic Analysis and Policy (2009, vol. 39(2)), has a special issue on the economics of sport, with articles of varying interest and quality. All articles can be freely downloaded and the best articles cover issues including the economics of doping/cheating, measurement of competitive balance and an interesting take on perverse incentive effects upon sport team performance.

2. Robert D. Tollison is well known for his contributions to many fields of economics including public choice, the economics of religion and, of course, sports economics (or ‘sportometrics’). The latest edition of Public Choice (2010, vol. 142(3/4)) publishes a range of essays in honour of Prof Tollison; many by regulars at TSE and a couple co-authored by the man of honour himself (on economic issues in golf, baseball and NASCAR).

Enjoy!

permalink posted by Robert Macdonald @ 10:30 PM