The Sports Economist

Practice practice practice

2008-11-21T07:48:00.004-05:00

Chris Sprow interviews Malcom Gladwell, the author of Outliers: The Story of Success, at ESPN The Magazine. The context of the interview, of course, is sports. Here are some interesting pieces of it:

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

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

...
That said, you were a distance runner. That's about pure endurance. Your book says success is often about circumstances. Do these ideas fly in the face of one another?
I was a middle and long-distance runner, and Alberto Salazar said something to me recently—he said, "Why is it that the Kenyans dominate long-distance running the way they do?" There's all kinds of theories on genetics, and endurance, and he says, "Look, they have a million teenage boys running 10-12 miles a day. How many boys here run 12 miles a day?" Maybe 5,000, if that. They have a million, and if you have all those kids doing that kind of mileage, you're not only going to develop all the talent that's there, you're not gonna' miss any great runners. You're exploiting 100% of the running potential.
And we see that elsewhere, like Canadian hockey players…
And you can say the same thing for Dominican infielders. There are certain cultures where we like to think they have some innate advantage, but growing up there, baseball is a really, really big deal, and everyone puts an enormous amount of effort into it, and as a result, they produce a hugely disproportionate number of athletes in that model. There's no mystery here: it's about numbers and it's about work.

Most people think genetic variation across countries accounts for disproportionate success rates in different sports. I've had a hard time convincing students, for example, that if Canadians quit playing hockey we'd see a bunch more players like Steve Nash in the NBA. Pistol Pete - an outlier to be sure - fits Gladwell's story in a number of dimensions. The sense in which Pete Maravich was an outlier had little to do with his physical makeup and loads to do with incessant practicing, combined with the favorable circumstances of his youth. Thinking along Gladwell's lines might be useful in addressing positional discrimination both within and across sports.

No Price Discrimination Here

2008-11-20T12:06:00.004-05:00

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

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

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

Cross-posted at Market Power

Czech that boondoggle

2008-11-20T08:54:00.002-05:00

The Czech Republic has apparently learned a lot about democracy in a short time. It seems that Czech lower house chairman Miloslav Vlcek may have used his position to get 35 million Czech crowns worth of funding for a soccer stadium in his hometown. See the full article here. At the current exchange rate that is only about 1.7 million dollars. On the other hand, there are only 3000 people in the town where the stadium was built. The facility is the only one in the country with artificial grass, it meets the standards for the top European football league matches, and has heated seats.

I wonder if the seats in Jerry Jones' Cowboys' palace will be heated.

Two tensions in modern American sport

2008-11-19T07:19:00.008-05:00

1) Athletics vs. academics on campus

The allocation of time spent by student-athletes between sport and study is a long running source of tension on America's campuses. This rather lengthy piece at USAToday focuses on a University of Minnesota task force that dealt with the issue. It should be clear that a school has a problem when degree programs are established or designed for the purpose of athletes (using funds meant for general education), although the article doesn't quite get to that point. Support programs which allow student athletes to compete with their peers in the classroom -- but not cheat, which was an issue at Minnesota -- are the right way to enable students to excel both off and on the field. I find the approach of the Minnesota wrestling coach on this point (to paraphrase, athletes can get an MA later if they are interested in a real degree) somewhat annoying.

Update: Via Glenn in the comments, I see that the story linked above is part of a spread at USAToday. The lead story is "Athletes guided toward 'beating the system'." Glenn points to a particularly interesting graphic, "Same team, same major." The graphic itself is a bit kludgy to use, but the data can be seen in Table form by clicking the "View List" button on the right. You can narrow the list by clicking on your favorite school and or sport in the "Show Results By" box. For Clemson Football, the major is "Parks, Recreation, and Tourism." But note that the stats are for teams with 25% or more of the athletes in the same major, and the figure for Clemson Football is 11 out of 33 players. Some sports have most of the team included, but for football the figures are uniformly low for most schools. The highest number of players listed in football is 59 at the Naval Academy, where 20 are majoring in ................. (drum roll) ................. Economics!

2) Retired vs. current NFL players

I missed this when it came out, but in case you haven't seen it, here is a snip from Alan Schwarz' report on a class action lawsuit between retirees and the Players Association:

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

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

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

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

Here is Schwarz' story in the NY Times, and here is a transcript of the closing arguments. Apparently, the NFLPA took an active role in "anonymizing" the former players in the Madden video game. It's not clear to me why this would be in the interest of EA Sports. If I were to "re-play" the Ice Bowl on Madden NFL, I'd want Herb Adderly, Don Meredith, Bart Starr et al. to be an explicit part of the experience. It is possible that "likenesses" for well known players and explicit anonymity for all was the optimal solution for EA Sports, but that doesn't negate the right to licensing revenue for the people who took part in the original performance.

Bay Area Stadiums

2008-11-18T08:36:00.001-05:00

The proposed stadiums for the A's, Earthquakes, and 49ers were to be financed with proceeds from real estate development. Oops!

Weekend Wrapup

2008-11-17T17:22:00.003-05:00

Quite a weekend in sports economics...

Pittsburgh, San Diego, and Vegas

There was an interesting finish in the game between the Chargers and the Steelers. On the last play of the game, Steelers defensive back Troy Polamalu appeared to return a fumble for a touchdown that would have given the Steelers an 18-10 victory. However, the referees later ruled that an illegal forward pass occurred prior to the touchdown, resulting in a final score of 11-10. This was reportedly the first 11-10 final score in NFL history, an odd outcome since 10 is a common score and 11 can be generated a number of ways (3FG+Safety, the outcome in this game, TD+2 Point Conversion+FG, and the unlikely FG+4 safeties). The interesting angle on the game is that the Steelers were a 4 or 4.5 point favorite in the game. If Polamalu's TD counts, the Steelers cover; after the reversal, bets on the Chargers paid off. According to the betting volume data available on Sports Insights, 70% of the straight bets against the spread were on the Steelers, the home favorite, so the reversal put a lot of money into the pockets of Vegas sports books and bookies.

Mark Cuban and the SEC

Dallas Mavericks owner, and wanna be Cubs owner Mark Cuban has been charged with insider trading. According to reports, Cuban owned 6.3% of the shares in search engine Mamma.com in 2004, making him the largest individual stockholder. The SEC claims that Cuban dumped his 600,000 shares prior to a public offering of additional shares that he had inside knowledge of, thus avoiding $750,000 in losses.

In March of this year, Cuban's estimated net worth was $2.3 billion, which begs the question of why he was willing to break the law to avoid a piddly $750k loss. Recall that Martha Stewart did five months in a federal correctional facility for insider trading a few years ago. I wonder if Cuban will also wind up in the slammer?

Active bidding for BCS TV rights

2008-11-17T17:15:00.002-05:00

The story is pitched as "first major sports event goes to cable," but for me the real information is in the size of the bids:

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

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

That's a 51.5% increase folks. Perhaps it's a sign that we'll avoid economic armageddon after all.

Olympic bailouts

2008-11-16T09:00:00.004-05:00

The developers who are Vancouver's partners in the 2010 Winter Games reportedly have ... financial issues. UBC's Professor Somerville sums up the implications nicely, I think: "We’re looking at a very real potential here for some levels of government to pony up more money. The alternative would be the Olympic tent city." The bailout business continues to boom.

Meanwhile, the cost of the 2012 games in London has escalated from £3.4 billion when they were awarded the bid to £10.3 billion at present. Private financing has gone the other direction however, and half of the government's £1 billion contingency fund has already been tapped.

Financial headaches are doubtless behind this statement from Olympic Minister Tessa Jowell last week: "Had we known what we know now, would we have bid for the Olympics? Almost certainly not." Jowell has since "clarified" her statement, going Keynesian and all that. I'm sure the British people are as happy as a hog in a wallow over the obligation to spend lavishly on Olympic infrastructure.

One thing that both the Vancouver and London plans have in common is "legacy development." More specifically, the idea seems to be to avoid building the proverbial white elephants, and instead leave behind assets that have value to private developers. This is an intriguing possibility, but it could be very, very expensive in the end.

NFLPA, retired players, and NFL owners

2008-11-12T09:31:00.004-05:00

Readers may recall postings on the Sports Economist about relations between retired NFL players and the NFL Players Association. One such posting is Compensation issues in the NFL from July 25, 2006. A new wrinkle has arisen. Retired players sued the NFLPA for failing to market them effectively. On Monday, a jury in San Francisco found for the plaintiffs and awarded 2056 retired players over $7 million in damages and another $21 million in punitive damages. More details on the story are here.

The NFLPA vows to appeal the decision, which it calls "a complete miscarriage of justice".

The interesting part of all this to me is that the NFLPA seems to fight very hard to avoid helping out its retired dues paying members, while at the same time being considered the weakest of the professional sports labor unions in terms of fighting the owners. Bryant Gumbel's remarks about the location of a leash is one case in point. I wonder how much of the differences between the NFLPA and the MLBPA stem from the backgrounds of the Executive Directors. This is particularly relevant now because the NFLPA is searching for a new director, and a background in football is not a requirement. Nonetheless, the main candidates seem to be retired players rather than union organizers/negotiators, as Marvin Miller who made the MLBPA so powerful and militant had been.

Post revised:11/14

I just ran across this providing more insight into the jury decision:

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

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

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

Seems like the NLFPA needs to do some additional scrambling...to clean up this mess among its members.

Trouble in Dallas?

2008-11-11T22:05:00.003-05:00

No, this post is not about PacMan. Looks like the credit market problems are starting to affect stadium construction projects. According to an article in the Sports Business Journal, the Cowboys are trying to borrow $350 million by December 1st to cover -- wait for it -- cost overruns in construction of their new stadium. The loan includes refinancing of a $126 million loan obtained last year plus money for those pesky cost overruns. The original cost estimate in 2004 was $650 million, to be financed with $76 million from the NFL, $350 million in public support, and the rest from the 'Boys. The cost overruns kicked in, and the Cowboys made the unfortunate choice of borrowing in the auction rate securities (ARS) market which melted down last February. That hiccup resulted in automatic interest rate increases that, in turn, led to the 'Boys recent attempt to raise new capital.

It's unclear if the Cowboys will be able to raise that kind of dough in the current credit market conditions. I wonder if they qualify for some of the Federal bailout money? Stay tuned.

Moneyball: Normal v. Abnormal

2008-11-07T16:34:00.004-05:00

What are the limits of a "Moneyball" -- expected value of a particular position -- approach to personell decisions? A Sports Illustrated piece on Albert Haynesworth (A Titanic Force) made me think about this issue. A lot can be said for the idea. Even before Moneyball became a common term and Scott Pioli used it to build the Patriots, guys like former Titan GM, Floyd Reese, used an implicit version. He thought the supply of defensive tackes, for example, high relative to their team value so that paying more than, say, $2 million for one didn't make sense.

One difficulty -- a player whose skills are extreme. Now, it's not enough to know the average contribution of a player at a given position, but a GM needs information on the abnormal or "upper tail" of values. The complication -- the upper values differ by position in ways not necessarily reflected by averages. The relative supply and contributions of a cornerback may make him more valuable, on average, than a defensive tackle, but the once-a-decade DT with skills like Haynesworth creates havoc right in the middle of an offense on every play that even the most skilled cornerback cannot replicate. The Titans defensive coordintor, Jim Schwartz (btw, a user of statistical regression analysis) puts it this way:

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

Ironically, Schwartz doesn't really seem to get the mean versus tails aspect of analyzing someone like Haynesworth:

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

Typically, the media and guys like Floyd Reese are right -- DT of typical skill levels are not all that worthy of big expenditures, but that's not true of a Haynesworth. In the 1990s, the same could be said of Warren Sapp or of Joe Green in the 1970s and Bob Lilly in the 1960s.

Hockey in the Great Depression

2008-11-06T19:13:00.003-05:00

Given all of the talk that sports are acyclical -- and indeed some pieces of evidence -- I found the following set of facts very interesting.

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

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

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

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

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

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

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

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

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

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

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

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

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

Here's more, in a great story by David Staples in the Edmonton Journal. Staples argues that the NHL is currently better prepared for a serious downturn given the existence of long term contracts, and the increased sharing of gate revenue. Let's hope so!

VividSeats -- NBA Tickets

2008-11-06T17:47:00.003-05:00

Finding cheap basketball tickets while still being able to choose your own seats can be difficult to do during NBA season. Try this source for discount sports tickets and game schedules. They’ve got a variety of tickets available this year including Chicago Bulls tickets and seating chart info, as well as Oklahoma City Thunder tickets – the NBA’s most recent team addition and replacement for the Seattle Supersonics.

The Sports Economist thanks VividSeats.com for their support.

How sports agents earn their money

2008-11-05T14:56:00.006-05:00

I told Matt Lindsay this morning that I could hear the hammers at work building tax shelters overseas. Frank Stephenson at Division of Labor links to a piece which indicates that income shifting is likely to take place as well:

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

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

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

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

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

Bang, bang, bang!

Coaching buyouts

2008-11-05T14:20:00.003-05:00

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

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

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

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

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

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

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

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

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

That's from Jon Solomon. Jon argues that Athletic Directors need to "find the discipline and political courage" to make a better bargain with their coaches. I think they buyouts are a form of deferred compensation, in part, and reflect long run marginal products. Bowden, Fulmer, and Tuberville all coached at their schools for a decade or more and each has had a significant measure of success. Not on the field in Clemson's case, but the program has never been as well stocked with talent and facilities, and Bowden is directly responsible for that. Bowden also had an explicit outside option -- the Arkansas job -- when his buyout was negotiated, and both Fulmer and Tuberville have significant earning potential elsewhere. Fulmer is reportedly interested in the Clemson opening, although the behavior of his players in recent years will be a liability with Clemson's administration.

The bottom line is that buyouts are a form of compensation that is market driven. I don't think they exist because Athletic Directors lack courage. The one policy change that would reduce their size would be to pay the players themselves, rather than the player-proxies that prowl the sidelines. But that ain't gonna happen folks.

The Guardian on upcoming mega-events

2008-11-03T07:18:00.004-05:00

These are rants, but interesting ones. The first swing is at the 2010 Fifa World Cup in South Africa:

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

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

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

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

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

Next up, Simon Jenkins on the 2012 Olympics in London:

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

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

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

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

These can't possibly be annual salaries, can they Nick? Regardless, Jenkins has more:

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

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

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

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

Funny how these fat cats can crawl on the "sustainable" train. Do read the whole thing.

Who wants to be a millionaire?

2008-11-01T10:47:00.001-04:00

There is a game being played tonight in which the winning team will be paid $20 million and the losers paid nothing. This in itself is quite newsworthy for a sports economist, but the fact that the game in question is cricket surely tells us that change is in the air. Ten years ago a professional cricketer in England was paid around $30,000 per year, and a top professional might make as much as $100,000. Now the average salary is more like $100,000 while the big international stars make over $500,000. Why is this happening? Because cricket is finally catching up with the TV revolution. The escalation of player salaries in all sports has been driven by TV: first in baseball and golf, then football (footbaaaaall as my children like to say), basketball and tennis, then football (the other one) and rugby, and now, finally, cricket. Why is cricket the last to catch up? Because it never had a format that could sell on TV. The game was played either in the purist’s 3 to 5-day version (wonderful, but who has five days?) or a one-day version (an invention considered radical by the cricket authorities but still not enough to unlock big TV audiences outside of cricket-mad India). However, five years ago a new format was invented in England- Twenty20: a format allowing a game to be completed in 3 hours. Suddenly there was a version that most people could watch from beginning to end. This year has seen a major step forward in cricket’s earning power. Earlier this year India staged a new competition, the Indian Premier League, featuring American-style franchises and the world’s top players in a Twenty20 competition that paid top players $1 million for a six weeks' work ; it was an unbelievable success.

Which brings us to tonight’s extravaganza. The game is being staged by Texan billionaire Sir Allen Stanford (a Yankee with a knighthood!) who has been trying to revive cricket in the Caribbean where he now spends most of his time. The game is between the England team and an all-star Caribbean team. The obvious attraction is the tension of the players- drop that catch and you could lose your team mates a million dollars each, not to mention your own!

Economic woes for the sports business in Baltimore

2008-10-29T15:36:00.002-04:00

The Baltimore Sun had a front page article this morning devoted to the impact of the general economic decline on the fortunes of the Orioles and the Ravens. There is also a bit of discussion about the prospects for the proposed downtown arena project.

Here's one tidbit from the article:

"It's kind of like booze and movies," said John Moag, founder of Moag & Co., a Baltimore-based investment banking firm that specializes in sports. "Psychologically, people do not want to give it up."

A recent study by Moag's firm found attendance and franchise values went up during the bear markets that have occurred between 1970 and this year.

It would be interesting to see the study, but I question the relevance. First, our current economic problems seem substantially more severe than a "bear market". The 6 contractions identified by the NBER since 1969 have averaged a bit under 11 months in duration; focusing on those since 1980 the average duration is about 9 months. The two most recent contractions lasted 8 months each. The contraction associated with the Great Depression, by contrast, is listed on the NBER website as lasting 43 months.

Second, if franchises are valued appropriately it strikes me as unlikely that the value would be terribly responsive to relatively short term economic downturns of the sort we have faced since 1970. Extrapolating from those circumstances to a downturn possibly lasting far longer is very difficult and highly suspect.

It is also interesting to me that the publicly funded arena project may be in danger. Consider that most estimates of job creation from stadium and arena construction done by consulting firms effectively assume that workers on these projects would have been unemployed if not for building the sports venue. If the unemployment rolls continue growing, businesses unable to borrow to finance new projects, and real investment falling, the economy may actually match up with the consultants' assumptions. Just when the case for building the arena may be strongest, at least from a Keynesian fiscal stimulus perspective, the possibility of building it dries up.

Finally, Orioles attendance declined below 2 million for the season for the first time since the 1992 opening of Camden Yards. Since 2004, per game attendance at Camden Yards has fallen from 34300 to 25000. The biggest one year drop occurred between 2005 and 2006, from 32404 to 26583, a rate of 17.96%. Orioles officials argued that major factors in this years decline, 7.61% relative to the 2007 season, are high gas prices and the economic downturn. Ten straight years of sub-500 ball and the first last place finish in two decades may also have had an effect.

MLB and collusion

2008-10-26T13:22:00.002-04:00

After being found guilty of collusion several times in the 1980s and 1990s, including being assessed millions of dollars in damages, one would think MLB owners would be very careful about colluding again. Yet it seems the MLBPA thinks that may be why no team made a bid for Barry Bonds. The Sports Network reports the story.

Report: MLBPA to file grievance over potential Bonds collusion

New York, NY (Sports Network) - The Major League Baseball Players Association has reportedly found evidence that team owners acted in collusion to keep former Giants slugger Barry Bonds from playing in the majors this season.

MLB.com cited Bonds' agent, Jeff Borris, in stating that it's not if a grievance will be filed but when, and that the union has agreed with the commissioner's office to delay the filing of such a grievance until an unspecified time.

Baseball's all-time home run leader at 762, Bonds sat out the entire 2008 season and asked the union in May to consider filing a grievance after he was unable to find a home as a free agent. A 15-year stint with San Francisco ended in 2007 when the team informed him he would not be returning.

Bonds is still in the midst of defending 14 counts of perjury and one obstruction of justice charge in a case with ties to his alleged use of performance-enhancing substances brought against him by the federal attorney's office in San Francisco.

One suspects that the decision to file the grievance at an "unspecified time" is baseball-speak for "after the World Series". Surely neither side wants to distract fans from the Fall Classic.

It will be interesting to see if there is any evidence of collusion or if the only evidence is that no team would offer Bonds a contract.

Sabermetrics to rescue health care

2008-10-24T16:30:00.003-04:00

Here's an interesting op-ed from today's NY Times. It isn't exactly sports, but Billy Beane proposes, essentially, that the methods that made the Oakland A's a success in the 1990s ought to be brought to bear on medical treatments. In other words, medicine ought to use statistics to assess treatments.

After seeing this, I have a few questions. Why did health researchers, health economists, epidemiologists, biologists, biochemists, etc, never think of this? What does the Food and Drug Administration do if not assess the efficacy of drug therapies? How did Newt Gingrich and John Kerry come to agree on something?

Yankees would have left the Bronx

2008-10-24T14:28:00.002-04:00

In testimony before Congress today, President of the Yankees, Randy Levine, said that without the stadium subsidy, the Yankees would have left the Bronx. Here's the story.

I don't know if Mr. Levine means the Yanks would have headed to NJ or Long Island. The idea that they would have left the NY metropolitan area is patently absurd. There is no report about whether the Congressmen and their aides who were present burst out laughing when Levine made the statement.

More news on the sports economy watch

2008-10-24T09:49:00.005-04:00

Sunil Gulati, Columbia economist and president of US Soccer:

Look, economic downturns have negative effects, full stop. For people to say sports is somehow recession proof, that's basically nonsense.

Gong!! I wonder where this term "recession proof" and its relation to sports originated anyway. Anyone know? Here is more from Gulati on the downturn and US soccer.

In the land of the giants (NFL & EPL), viewing is stable, but broadcast revenue is under pressure:

At a conference on the globalization of sports held ahead of Sunday's NFL game in London, Goodell also reiterated that the league will face challenges in the current economic climate, but that the NFL is "incredibly strong" and should weather the downturn relatively unscathed.

However, he said network partners are already reporting that advertisers are pulling back, both on a local and national level.

"The sales market is different than it was even several weeks ago," Goodell said during a panel discussion with Richard Scudamore, the chief executive of the English Premier League. "We see it primarily on a local level, which I think is through a large extent a reflection of what is happening in the automobile industry. But it has now in the recent weeks gone to the national level. It's had an impact. The fortunate thing is that it hasn't had an impact on our viewership."

As in the classic case, price adjustment in the face of an aggregate downturn is key. This story reports adjustments from St. Louis and elsewhere:

The Cardinals cited the uncertain economy this week as a reason for freezing prices on 70 percent of their season-ticket packages. The team is prepared for attendance to be below last season's 3.4 million.

The Blues, who last season opened unsold luxury boxes to noncorporate buyers for individual games, are finalizing a new ticket program -- described by a team official as "creative" -- to meet their goal of 30 sellouts.

If prices were "right" last season, is freezing them the right move? Moreover, the language suggests price increases for 30% of the Cards' tickets. Perhaps last year they were underpriced?

PILOTS Episode 3

2008-10-22T20:37:00.003-04:00

The IRS has issued a ruling allowing the Yankees to use PILOTS to float an additional $300 million of bonds to finance the New Yankee Stadium. Interestingly, the Daily News suggests the IRS may be giving the Yankees a special deal that won't be available to other franchises. "The tax agency imposed tough new national regulations aimed at tightening up the use of tax-exempt financing for private businesses, including sports teams." Of course, the IRS also had some nudging from the politically influential Rep. Charles Rangel (D-Harlem), head of the House Ways and Means Committee, who submitted a letter to the IRS advocating the Yankees' position.

But that isn't all. Regular readers may recall having seen the story about the city of New York allegedly falsifying the assessment of the stadium to give the Yankees a larger benefit. That issue is still alive and well, as this article in the New York Daily News makes clear. New York State Assemblyman Charles Brodsy had this to say about the city's assessment, "This assessment was cooked. It was done in violation of sworn promises to the IRS. That, in and of itself, requires more investigation."

It is fascinating to see the comments following the articles. As of my reading, the comments are nearly unanimous in their opposition or at least their disdain for the subsidies and the Yankees ticket pricing and request for subsidies.

Here is more on the NY case I found after making the original posting:

The recent announced sale for both Mets and Yankee stadium assets such as old seats, player lockers, etc, confirms once again the taxpayers and sports fans have been thrown another curve ball by Yankees and Mets owners. ... Now they want to rip off taxpayers by keeping millions of dollars in proceeds from the sale of old stadium assets!

So, all you landlords out there...It seems that renters may ask you to let them rip up your property and sell it off piece by piece after you have built them a new place to rent.

Internalizing Fan Externalities

2008-10-21T14:23:00.004-04:00

The out-of-control fan problem has concerned me for quite a while. Taking two teenage daughters along to many sporting events is about the equivalent of taking them to a frat party -- I can't tell who is more uptight, them or me. The recent venture to the USC-Ohio State game serves as Exhibit A. Recent articles, one in the WSJ (sub required) and one the the LA Times, discuss attempts by the Philadelphia Eagles and LA Dodgers to reduce the negative externalities, including violence, imposed on other fans by the unruly ones. Around both college and pro sports, many measures have been installed to deal with the issue. It's not easy because a few fans can create havoc for many others.

The old days at the Vet were not about a few unruly fans. It was more an experiment in anarchy or a "mob mentality" as one season-holding police officer calls it. In those days, the Eagles took the approach of undercover cops in the stands and even on onsite court. Since moving to their new stadium, the Eagles intalled an updated, preemptive policy:

Before fans even enter the Linc, they go through three layers of scrutiny. If the ticket-taker suspects the fan is intoxicated or has other concerns, he raises his hand and a second usher makes an assessment. If there's still a question, a "black shirt," usually an off-duty police officer, pulls the fan aside and questions him. If the black shirt thinks the fan is unfit to enter, he walks him over to the ticket booth, gives him a full refund, and says, "Have a nice day."

(Of course, if that guy gets on the road, the externality has just shifted to a different venue.) The Eagles also installed a system that allows fans under siege to anonymously text security who can investigate without the fan becoming a target. The Dodgers have addressed the problem in the more traditional way by employing more patrolling officers -- a system that doesn't always work well:

"It was pretty intense," said Dan Pike, 28, a Las Vegas resident and Phillies fan who was tormented for much of Monday's playoff game at Dodger Stadium by two brew-bleary home-team supporters sitting behind him. He endured pushing, shoving and obscene taunts, along with a seat soaking by strategically spilled Buds whenever he stood to cheer. "After about eight beers, they were getting a little physical," said Pike, whose misery ended only when security officers hauled off the pair.

From a team's perspective, even if only thinking about the bottom line, the degree of aggressiveness in limiting fan behavior can be a tricky thing, balancing the long term and short term. Long term, if parents cannot take their children to games, where will the future fans come from?

In a counterpoint to efforts to limit bad behavior, I went to a PBR bull-riding event in Nashville (hey, I'm an eclectic sports fan) a few years ago and was surprised to see whiskey and mixed drinks being sold. I don't generally take my daughters to bars. I thought, what next, pole-dancing?

Running Nonsense

2008-10-21T14:12:00.002-04:00

This is more Sports Statistician than Sports Economist, but, shooting down sports "folk wisdom" of the talking heads is one of my hobbies. Cold, Hard, Football Facts' Kerry Byrne (via Si.com) blisters the prevailing notion among the "tough guy" pundits that running and stopping the run wins NFL games. What about the Titans? A separate post on CHFF lauds their defensive prowess (so far) at keeping teams from passing into their end zone versus intercepting other teams.