Welcome to The Economics of Sports!Slide 2
Why study sports financial aspects? Games and entertainment industry is a major business.Slide 3
PRE: Plunkett Research, Ltd.Slide 5
Why study sports financial aspects? Games and entertainment industry is a major business. Games face exceptional industry/firm particular issues Sports is prominent and summons feeling/intensity. Games is brimming with myths and mixed up instinct. Frequently individuals mistake connection for causation, which financial aspects would like to help right. It is regularly a valuable vehicle for backhanded derivation in different commercial ventures.Slide 6
Overview of Course Review of Basic Economics Will to a great extent accept you know this Industrial Organization Do Teams/Leagues Maximize Profits? Do/Should Antitrust Laws Apply? Open Finance Why/how do urban communities money offices? Work Why Do Athletes Make So Much? Unions & Discrimination The NCAA, the Olympics, and Amateur SportsSlide 7
Economics Review Economics is the investigation of decisions under imperatives Who settles on decisions? Families Firms Governments We attempt to model choices in improved systems to segregate the issues that impact choice making.Slide 8
Market Model Demand shifters Income Price of related products Consumer tastes Market size Price desires Supply shifters Input costs Technology Taxes Price desires Number of firms $ S 1 P 1 D 1 Q 1 amountSlide 9
Price Elasticity Measure of value affectability Elastic interest: |E| > 1 Inelastic interest: |E| < 1 More substitutes Big spending plan things Longer time skylinesSlide 10
Elasticityâ¦ TR = $50,000 $ E = ? 50 TR = $48,000 40 D 1 tickets 1000 1200Slide 11
Price Controls Price Ceilings make deficiencies make bootleg trades S 1 P 1 P roof D 1 Q 1 Q d tickets lackSlide 12
Price Controls Price Floors Create surpluses S 1 P floor P 1 D 1 Q d Q 1 tickets overflowSlide 13
Maximizing Profit Profits = p = TR - TC Profit-max guideline: MR = MC What do the NY Yankees offer? What sort of expense is Alex Rodriguezâs pay?Slide 14
Perfect Competition Assumptions Many little dealers/purchasers Homogeneous item Free passage/way out Perfect data ï¨ firms are value takersSlide 15
Perfect Competition MC $ S ATC MR = P 1 D q 1 Q 1 Quantity Market FirmSlide 16
Monopoly Relevant Market Any nearby substitutes? Passage Barriers Economies of scale Control over key info Government confinementsSlide 17
Monopoly Profits are expanded where MR = MC Price is set off of interest bend $ MC ATC P 1 ATC 1 D Quantity Q 1 MRSlide 18
Pricing Strategy: Phillies versus Flyers Each is an imposing business model MC a retrogressive âLâ Does it pay to offer out? $ MC 2 MC 1 P 2 P 1 Q 1 D MR Citizens Bank Park 43,500 Wachovia Center 19,500Slide 19
2006 Ticket Prices Source: philadelphia.phillies.mlb.com and philadelphiaflyers.comSlide 20
The Role of Uncertainty Are the Yankees awful for baseball? Are traditions an awful thought? How regularly ought to the home group win? Why do groups offer season tickets? Exchanges hazard from group to fans Why do fans purchase them?Slide 21
Attendance versus Winning Pct. NFL MLBSlide 22
Can Losing be Good? Cleveland Browns won all the time in AAFC Fans of AAFC lost intrigue Even Browns fans Attendance fell Attendance fell in MLB in 1950s NY groups in each World Series (kind of) Why go see Pittsburgh play Cincinnati? Study took a gander at participation in MLB Controlled for day, time, climate, nature of rival Attendance most elevated when home group won 60% of timeSlide 23
Regression Analysis Regression is a type of measurable examination of monetary conduct and hypothesis. Relapse examination endeavors to clarify the difference of a specific variable of hobby. Participation Function A = f(X 1 , X 2 , X 3 , â¦)Slide 24
Regression Example Consider a model of baseball participation. We imagine that the accompanying things may impact general group participation in the accompanying ways A = Î² 0 + Î² 1 P + Î² 2 POP + Î² 3 C + Î² 4 I + Î² 5 QH + Î² 6 QV + Î² 7 WSlide 25
Here are some real relapse results from Depken (2000, Journal of Sports Economics )Slide 26
Franchise Economics and Owner ObjectivesSlide 27
Franchise Objectives Maximize benefits? Benefit = TR â TC Championships? Awful things can happen if primary concern is overlooked Case in point: Ottawa Senators Best record in NHL: 2002-2003 Declared liquidation: 2003 Ego premium? City mindedness?Slide 28
Franchise Revenues TR = R G + R B + R L + R S Where: R G = Gate Revenue R B = Broadcast Revenue R L = Licensing Revenue R S = Stadium RevenueSlide 29
Gate Revenues: R G NFL: ï¡ = 60% MLB: ï¡ = 66% NBA, NHL: ï¡ = 100% R G = ï¡ R h + (1-ï¡ )R p ï¡ = home teamâs offer R h = home group door R p = pooled entryway from every single other group Impact of Revenue Sharing Financial solidness (early NFL attempted to look after association); "luxury tax" in MLB Competitive equalization Shifts reserves from groups that spend a ton on great players to groups that don\'t; has a tendency to discourage what groups are WTP for players (âtax on qualityâ)Slide 30
Broadcast Revenue: R B National income is shared just as Local income is not shared similarly KC: A little market for MLB however not NFL Green Bay would have vanished Tradeoff: R B versus R G ? ï¨ power outages What decides telecast rights installments? Request by Advertisers Super Bowl XLIII: NBC got $206m for 69 spots ($3m per 30 seconds)Slide 31
Broadcast Money TrailSlide 32
Source: different sourcesSlide 33
Stadium Revenue: R S Concessions Parking Naming rights: aces; universities; people Luxury seats don\'t consider entryway, in this way, don\'t need to share Example : extravagance suite rents for $500,000 every year 20 seats assert every seat is worth $50 ï¨ group must share $3200 = 0.4 * 20 * $50 * 8 amusementsSlide 34
Why have we seen a move to little markets by NFL groups? Rams: LA ï¨ St. Louis Raiders: LA ï¨ Oakland Oilers: Houston ï¨ Nashville Browns: Cleveland ï¨ Baltimore Revenue Sharing is the key!Slide 35
Licensing Revenue: R L Generally imparted to all groups Cowboys softened positions with NFL up 1995 by marking Pepsi for stadium sponsorshipSlide 36
Franchise Costs + OC TC = C P + C A + C T + C S Player Salaries Over half of group incomes Deferred pay Bonuses Workersâ comp Pension commitments Player Development MLB and NHL Administrative Coaches and administration Marketing Travel Stadium Opportunity Costs: Profit that could be earned in another citySlide 37
Average expenses and incomes (in millions) over the significant games in 2006Slide 38
Accounting Games Book Profit and Depreciation Profit = TR â TC Corporate charges rely on upon book benefit Paying high authoritative expenses lessens book benefit Interest is assessment deductible (profits are not) Player contracts are dealt with as depreciable resources Bill Veeck San Antonio Spurs illustration Costs incorporate premium costs and deterioration of capitalSlide 39
Table C San Antonio Spurs Depreciation and Tax Savings 1993-4/1994-5 (All figures in $millions)Slide 40
Accounting Games Vertical Integration Media outlet purchases games group AOL Time Warner ï¨ Atlanta Braves Tribune Company ï¨ Chicago Cubs Disney ï¨ Anaheim Angels/Anaheim Ducks FOX ï¨ LA Dodgers Double syndication?Slide 41
Downstream Firm (Network) Upstream Firm (Team) P down Vertically coordinated firm sets exchange cost to allot benefit crosswise over consolidated substance Set low telecast rights expense to diminish group benefits keeping in mind the end goal to argue neediness amid campaigning for open endowment MC P up MC D MR Q up Q downSlide 42
League Decisions Cincinnati Red Stockings (1869) âbarnstormingâ National League (1876) $0.50 tickets No Sunday amusements No brew American Association (1882) $0.25 tickets on Sunday with lager!Slide 43
League Decisions Setting the Rules # amusements, diversion design, gear Limiting Entry Teams Benefits: Entry expense More income sources Costs: Sharing of class incomes Reduced topographical restraining infrastructure Reduces danger of moving New groups: ABA, WHA, AFL, USFL vast Marketing Free-rider issue Competitive Balance and Revenue SharingSlide 44
If a group dependably offers out its home recreations, financial specialists would say it is likely that: A surplus exists There is overabundance supply There is abundance interest Prices are too highSlide 45
If an industry is a syndication, yield is _____ and costs are _____ than if it were flawlessly focused. Lower, lower Higher, Lower, Higher, higherSlide 46
If interest for tickets to see the LA Lakers is inelastic, Fans will react to a cost increment with a relative lessening in amount requested. fans will react to a cost increment with a not as much as relative diminishing in amount requested. fans will react to a cost increment with a boundlessly huge lessening in amount requested. fans will react to a cost increment with a more than corresponding abatement in amount requested.Slide 47
If pay expands and tickets to see a Notre Dame football game are a typical decent then the interest for tickets will diminish. supply of tickets will increment. interest for tickets will increment. supply of tickets will diminish.Slide 48
The way that participation ascends at baseball stadiums amid âbobbleheadâ days proposes ball games and bobbleheads are supplements. ball games and bobbleheads are substitutes. ball games and bobbleheads are typical merchandise. No data about ball games and bobbleheads can be resolved from this.Slide 49
A negative part of hostile to scalping laws is they counteract offer outs. they make individuals pay more than they are willing to
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