The Sports Economist

NFL Power Rankings -- TSE Style

2009-11-06T09:50:00.001-05:00

Looking over SI.com's and ESPN NFL "Power Rankings," I wondered what drives them. They are part beauty contest trying to attract readers but contain some kind of informational content. Particularly, do the power rankings suffer from "path dependence" -- punishing teams for an early loss or two, or do they weight a bad loss or two a lot. In the NFL, performance, even for good teams, varies considerably from game to game in a long regular season based on injuries, game-specific strategy, officiating, weather, and bounces of the ball (See Media and Probability Distributions.) Also, did they account very well for the problem of discreteness of W-L records versus more continuous performance measures like point differentials. How do they stack up versus market-based, betting rankings.

First, I collected data on game-to-game point differentials for Super Bowl winners over the past 5 regular seasons to get a sense of the level and variability of performance. (Similar numbers appear if using just the first 7 games of the season.)

Average Differential = 7.0
Median Differential = 7.0
Standard Deviation = 13.3

The outcomes form a near perfect normal (bell) distribution based on all the typical measures. Cross-game performance varied more than I had expected. These very good teams can easily range from two touchdown winners to touchdown losers and with some regular frequency lose by two touchdowns or more. An NFL season is a lot like running a marathon -- it's a long, long race and everybody has at least a bad mile or two.

Second, what would a "Power Ranking" based on point differentials at this point of the season would look like? I used median differentials rather than averages so that a blow-out in seven or eight games would not carry too much weight. The Table below presents these results along side the SI and ESPN rankings as well as a ranking based on current odds to win the Super Bowl and VegasInsider.

Team	W-L	Median Pt. Dif	Rank by Pt. Dif	SI	ESPN	Vegas
Colts	7-0	21	1	2	2	2
Eagles	5-2	19	2	8	9	6
Saints	7-0	18	3	1	1	1
Cowboys	5-2	13	4	9	8	8
Vikings	7-1	12	5	3	3	5
Steelers	5-2	8	6	7	7	4
Broncos	6-1	7	7	4	4	10
Cardinals	4-3	7	8	13	13	11
Falcons	4-3	7	9	11	11	16
Patriots	5-2	6	10	6	5	3
Ravens	4-3	5	11	10	10	9
Packers	4-3	5	12	16	12	14
Giants	5-3	4	13	14	15	7
Chargers	4-3	4	14	15	16	12
Bengals	5-2	3	15	6	6	13

Next, for comparisons of these rankings, I estimated correlations between each pair:

Rankings	Correlation
PtDif-SI	0.64
PtDif-ESPN	0.66
PtDif-Vegas	0.71
SI-ESPN	0.96
SI-Vegas	0.68
ESPN-Vegas	0.67

The SI and ESPN rankings track each other nearly perfectly. The Point Differential ranking more closely correlates to Vegas odds but only slightly more than the SI or ESPN rankings. The Vegas market for predicting the Super Bowl winner seems to place more weight on "reputation" from recent season success such as New England which jumps up to third in Vegas and Pittsburgh which jumps to fourth.

Tour Operators and Mega-events

2009-11-05T11:16:00.003-05:00

The displacement of normal business by events such as the Super Bowl or the Olympics has been a staple issue in academic economists' analyses of economic impact. These warnings from the ivory tower are typically been derided by local commercial spokesman, as if we are imagining things.

Well, here's a change of pace. Today comes news from the European Tour Operators Association, who claim that the London Olympics will have a measurable negative impact on their business. From BBC News:

The ETOA report, which said benefits of 2012 Games were "wholly illusory", looked at tourism figures for the past six Olympics, including Athens in 2004 and Sydney in 2000.

Whilst some of the events saw a peak in demand during the games, all saw a major disruption to their normal tourism market and none showed any obvious signs of tourism growth.

Beijing, the last city to host the Olympics, showed international visitor arrivals plummeted by 30% in the month before the games, compared with the previous year.

In the months after the games, the tourism slump continued with international arrivals down by more than 20%.

Beijing fared considerably worse than the rest of China in 2008, which was not a strong year in general for tourism in the Asia-Pacific region.

Following the Sydney 2000 Olympics, the city's tourism lost "significant ground" to other Australian and New Zealand cities, it added.

"We have yet to have a games where tourism has not been disrupted, and disrupted in a way that causes real harm," said ETOA executive director Tom Jenkins.

"Even in the case of Athens, where they carefully restricted new capacity, there were considerable losses before and after the games both in the capital and throughout Greece," he added.

How about that!

New Stadiums as Black Holes

2009-11-04T07:58:00.006-05:00

A common and important point made by economists when critiquing economic impact claims is that most of the expenditures are realized by the teams themselves. The rationale for stadium subsidies depends on the indirect effects of spending on the ballgames. We know these can be significant (I see them every football weekend in Clemson), but they are notoriously difficult to measure properly, and as a result lend themselves to being overstated in the pitch for subsidies.

A key feature of the amenity-laden modern stadium is the incorporation of numerous opportunities for fans to spend on food, drink, and apparel. As stadium design has morphed around this concept, the intended but little noticed consequence is that a chunk of the indirect spending associated with a sporting event disappears, and is captured by the team itself.

This interesting article in the NY Times focuses on the disappointing revenues of merchants around the new Yankee Stadium. Diversion of expenditure from restaurants and other vendors to operations inside the stadium appears quite evident:

On Monday, about an hour before the start of the Yankees-Phillies game, about a dozen customers were eating and drinking in the Hard Rock Cafe built into the southeast corner of Yankee Stadium. Less than a block south, the steel security gates were pulled down at Stan’s Sports Bar and Stan’s Sports World, longstanding businesses that catered year-round to the crowds drawn to the old stadium.

The city’s Economic Development Corporation estimated that each home playoff game produced $15.5 million in economic activity, including $6.7 million in spending on hotel rooms and taxi rides and in restaurants, bars and stores.

But on River Avenue in the Bronx, merchants said that very little of that money was trickling their way. Mr. Alawy, who said he had pulled about $30,000 out of savings to cover his costs this year, wistfully recalled the bounty that his family reaped during the 1996 World Series, when the Yankees played the Atlanta Braves.

While working in his father’s souvenir shop up the block, he recalled, there was no time to fold the T-shirts before selling them. Customers were lined up three and four deep at the counter yelling out orders and tossing wads of bills.

The story has many other interesting anecdotes. It suggests to me that the models used to estimate indirect expenditures (such as that of the Economic Development Corporation) should be revisited, in light of the strategies employed by teams to capture these revenue streams.

TSE Halloween Edition

2009-10-31T12:33:00.004-04:00

Interesting article in the WaPo about the practice of scattering cremated remains at sports venues. Sports teams in the US clearly want nothing to do with this practice, despite obvious demand. Two observations: (1) this is a worldwide phenomenon; and (2) this is an unexploited profit opportunity. A quote from the article makes both points:

In Argentina, the tradition of scattering ashes on the wildly popular Boca Juniors soccer team's pitch each time a goal was scored got so out of hand that the club opened a cemetery in 2007 expressly for fans, in part out of concern for the health of the playing surface. A soccer club in Hamburg followed suit in 2008, overrun with scattering requests.

Other businesses make money on the "business of death." You can buy a casket on the web from WalMart. According to the article, it's possible to buy officially licensed MLB urns to hold ashes, so the league was not squeamish about that licensing deal. I'm sure those cemeteries opened by football clubs are not free. The article notes that the owner of a business that arranges "scatterings" at other venues has had no success at sports venues in the US. The teams mention "concerns about superstitious players" and fears of overwhelming demand. That sounds like a significant profit opportunity to me. So what are the economic barriers here?

Black Sunday in Vegas

2009-10-28T14:02:00.002-04:00

Yahoo Sports columnist Dan Wetzel had an interesting column yesterday about the beating that Vegas sports books are taking on NFL games this season. The "standard" model of sportsbook behavior predicts that point spreads are set to attract an equal volume of betting on either side of a game. Since point spread betting requires that bettor to risk $11 to win $10, when betting is equal the bookie collects $11 from losers, pays $10 to winners, and pockets a tidy 10% profit from the vig. However, when the betting is unbalanced, the sports book "takes a position" on the game, and can either win big or lose big. There is a huge academic literature indicating that point spreads are efficient in that on average the spread is equal to the expected point difference on games, but this does not mean that betting volumes are equal on games.

There are a lot of bad teams in the NFL this year. According to this article, the Vegas books are unable to set lines big enough to attract equal betting on games involving the dregs of the league (Lions, Rams, Bucs, Chiefs, Redskins, Titans, etc.), leading to big losses.

Officiating Errors & The Role of "Models"

2009-10-26T15:47:00.004-04:00

Recent poor calls in collegiate football and MLB (Yankees-Angels video) have generated a lot of internet traffic. While all "human error" in a generic sense, specific factors probably make such errors more or less likely such as weighting officials down with too many rules to enforce (TSE-Why Good Refs Make Bad Calls) along with variation in evaluation and incentive systems across leagues (TSE-Tail Wags Dog in Some Leagues).

The episode in the Yanks-Angels game brought to mind the role of "anticipation" in these errors -- making a call based on a "model" of the situation that the mind builds based up on the most easily observed or common "inputs" rather than the final result itself. In the Yanks-Angels scenario, the usual inputs are two runners tagged while one or more occupy the same base. Instead of the usual, both runners stood off the base (by an easily observable fairly large amount) but it's likely the ump's mind had already plugged in the usual inputs.

Official instruction, training, and discussion warns against such "anticipation." The difficulty for officials is that anticipation of unfolding events is not all negative. Instructional guides for officials encourage it when discussing getting in a better position to make a call. (Here's a soccer example). In John Feinstein's book, A Season Inside, collegiate ref Joe Forte and others emphasize moving so as not to get "straight-lined." Feinstein, in fact, thinks one of Forte's gifts as a referee is his implicit awareness of where to be.

Whether readily admitted by officials or not, I would conjecture that they use anticipation (easily observed inputs) to cut down on uncertainty of highly dynamic and hard-to-observe outcomes. RFor example, the seemingly widespread use of the "ball-beat-the-runner" in MLB tag plays. Tag plays are very hard to see in real time. Observing when the ball arrives relative to the runner's position supplies a predictable model that may improve the percent correct over the long haul versus trying to plug in all of the noisy observable data.

A second conjecture: officials employ such "modeling" of plays less often when subject to greater scrutiny such as plays at home, or possibly playoff games. Doing so does not increase the average accuracy of calls -- after all, that's the point of using the model in the first place. However, it may reduce the variance of calls, or, at least, reduce the number of egregiously bad calls.

It's Still Good to Be the Cupcake

2009-10-22T10:11:00.001-04:00

I've written before on cupcakes in college football (see here as well). You know the cupcake. The team expected to lay down in front of your superior squad in exchange for a sexy payout. The team that allows you to tailgate without much gnashing of teeth. The team that allows you to bring your kids to a game and allow let them be free range kids without all the worry. You won't miss a thing while you're spending time parenting.

Why is it good to be the cupcake? Because they get paid hundreds of thousands of dollars to come to your place for a shellacking. Moreover, according to press reports, because of the added 12th game in D-1 football (or FBS, or whatever you want to call that rose), the demand for cupcakes has risen, giveing rise to bigger payouts to the cupcakes.

Because those payouts are lucrative, at least one team decided to take a guaranteed loss - a 100% percent guarantee, mind you - in exchange for a nice payout. And that was a loss on top of the highly-probable, almost-certain loss it was going to be given at the hands of the Michigan Wolverines.

You see, the Michigan Wolverines dangled $550,000 in front of the Hornets to play this Saturday. The only catch: Delaware State already had a conference game set against North Carolina A&T for that date.

So what did the Hornets do? Well what every Football Championship Series team would do: forfeit the conference game, take the money and, oh yeah, lose to Michigan 63-6.

Sounds like a win-win to me, right?

HT Stephen Karlson who chirps:

It's amateur sports. It's all for the experience. Heck, Delaware State played Michigan just for practice. But don't say it has anything to do with money.

Of course not. The schools are non-profits, although when you sit down and look at the things they do (setting ticket prices and negotiating coaches' salaries, for example), they behave an awful lot like the pros. It has something to do with the invariance hypothesis.

Cross-posted at Market Power

Update: A Tank McNamara Cartoon.

Income inequality in pro sports

2009-10-21T14:22:00.005-04:00

Mark Perry has a neat post at The Enterprise Blog, looking at income inequality in the NFL. As elsewhere in the economy, the long term trend is increasing, for both median income and income inequality.

Perry states that rising income inequality "is a natural and expected outcome of ... the expanded opportunities that come from larger and increasingly competitive global markets." Is this so, especially for the NFL? Clearly, income inequality should increase with an increase in the dispersion of skill (productivity) across players. Players today are more skilled than ever before, and it may be that increases in the level of skill and increases in the dispersion of skill go hand in hand. If this argument is correct, then MLB, NBA, and NHL data should be moving in the direction that Perry documents for the NFL.

Anti-francophone discrimination?

2009-10-21T13:43:00.003-04:00

A new book may renew debate on whether the NHL discriminates against french-speaking players. Here is some discussion from The National Post:

With the number of hockey stars that Quebec has produced, from Maurice Richard and Guy Lafleur to Mario Lemieux and Vincent Lecavalier, one wouldn't think racism was holding back players from the province.

But a book published Monday by former National Hockey League player Bob Sirois, examining four decades of professional drafts, comes to the explosive conclusion that francophone Quebecers are systematically thwarted by an "anti-francophone virus" plaguing the NHL.

Francophone Quebecers are wrongly disparaged as too small, too lax on defence and not suited to the robust "Canadian" style of play, Mr. Sirois writes in the book, published in French and titled Le Québec mis en échec (Quebec Bodychecked). "Myths, prejudices, stereotypes and favoritism make up an integral part of every draft session in the National Hockey League."

...Mr. Sirois found that, proportionate to their share of the population, francophone Quebecers were less likely to get drafted than anglophone Quebecers and francophones were generally selected lower in the draft. He notes that about 10% of all NHL players were completely passed over in the draft but managed to break into the league; the rate among players from Quebec, 19%, is almost twice as high. "In light of these figures, don't even ask whether it's true that Quebecers are under-estimated by NHL scouts," he writes.

Those discrepancies indeed suggest that the francophone players face a higher hurdle in the NHL draft. Sirois' book would make for interesting reading, assuming you can read French. Here is a somewhat skeptical review of the book from Hockey Book Reviews.com.

Hat tip to Wil!

Report: Lower Ticket Prices for Women's Basketball is Due to Institutional Sexism

2009-10-21T10:28:00.002-04:00

From the Chronicle of Higher Ed.:

"Colleges charge a premium for admission to see males play, even when women's basketball teams are ranked as among the very best performers in the nation," write the authors, Laura Pappano and Allison J. Tracy, both of the Wellesley Centers for Women. By charging less for admission to highly ranked women's games, the authors say, athletics departments engage in "institutional discrimination that is camouflaged as sensible economic practice."
The report analyzed ticket prices at every level, from single-game to season tickets, at 292 Division I colleges. The results showed that ticket prices for women's games lagged far behind those for men's games at the same institution at all of the top 25 women's basketball programs in the country—even at colleges where the men's team ranked lower than the women's team.

Here is the abstract to the report.

Tickets to college sports—and men’s and women’s Division I college basketball in particular—may appear on the surface no different than tickets members of the public may buy to attend professional sporting events. But unlike professional franchises, colleges are non-profit organizations and, in many cases, public institutions. Decisions around ticket prices do not reflect an actual marketplace, but internal calculations and decisions that necessarily reflect a value placed on the event by the institution. This distinction is critical because previous research shows that lower-priced events are perceived as lower quality and less worth watching or attending. Our review of ticket prices for men’s and women’s Division I college basketball for the 2008-2009 season considered entry fees charged by 292 institutions at various seating levels, including season ticket packages and single game tickets. Our results showed significant gender gaps at every pricing and seating level with colleges charging a premium for male play. This gap persisted even among teams identified by the NCAA as top-ranked women’s teams with large fan followings. Analysis of attendance figures further showed that the gender differential in price across schools is not accounted for by differences in attendance. Because athletics, and particularly college basketball, have an increasingly prominent cultural profile, the practice of effectively de-valuing women on the court has implications off the court as well. The results support the broader contention that women athletes—as women in traditionally male arenas—continue to face institutional discrimination that is camouflaged as sensible economic practice.

I do not doubt their findings, but I wonder if they took into consideration something: that basketball fans are more willing to buy men's tickets than women's tickets, and not because of sexist attitudes. Perhaps, just perhaps, sports fans find men's games, on average, more exciting to watch than women's games.

I wonder if the authors asked themselves this question: why would those in athletic departments be willing to "leave money on the table" to feed their sexist attitudes? They note themselves that top-ranked programs tend to charge less for women's games than men's games. If fans are willing and able to pay the premium, why aren't they charged the premium?

One "solution", if you want to call it that, would be to force all colleges to charge exactly the same price for men's and women's ball (and to not set lower prices for men's games). Then let's see what happens to attendance at women's games.

Here's Stacey Brook with a similar take that it is the demand side of the market that the authors of the paper are ignoring.

Cross-posted at Market Power

Ottawa stadium proposal

2009-10-19T09:21:00.004-04:00

This article in the Ottawa Citizen has plenty of details on a plan to spend $100 million or so in public money to renovate Ottawa's empty and "dilapidated" Frank Clair Stadium. The developers promoting the investment are up front about the likelihood that the stadium will pay for itself -- it won't. So they propose that taxes and rents from a proposed retail district adjacent to the stadium be used to pay off the bonds and cover the stadium's operating losses. It appears that the developers plan to sink their own money into the retail district.

It's an interesting exercise to figure out what the motivation is for the development group. After all, why divert the revenue from a profitable investment (retail) into an unprofitable one?

No Country for Old Men: The Bowden Saga

2009-10-16T11:14:00.005-04:00

Due to travels, I missed writing about the Bobby Bowden affair during the height of the storm. The dismay among FSU fans is strong. In an Orlando Sentinel blog poll, 42% thought it time for Bowden to go -- although a minority and not necessarily a good indicator of the precise number of such fans, it is still a fairly strong signal of the uneasiness with the situation.

The topic of age and coaching performance fits into the realm of an article by my former colleague, Tom Wisley and myself, on Is There a Managerial Life Cycle?. Using NFL data from 1920-2004, we found strong evidence of improvements with age and then a gradual decline in performance that mimics (with a 10 year lag) the decline seen in athletic performance as found by Ray Fair. Skip and his coauthor, Tom Goodwin, find similar effects in academic research. In Chapter 8 of From the Ballfield to the Boardroom, I find similar results look specifically at long-tenured coaches.

For NFL coaches, by their mid 60s, the gains of the earlier years are completely offset by the decline. Coaches who stay on beyond this point perform, as a group, very poorly relative to earlier years. Of course, these are averages -- any given individual coach may perform considerably better or worse than the averages. The effect may be less at the college level because of less demanding strategic abilities or greater because of the need to recruit players.

I applied these methods to the careers of the leading octogenarians in college coaching, Joe Paterno and Bobby Bowden, while also taking account of their switch from independents to conference members. For Bowden, predicted performance began declining by age 62. By his early 70s, this decline put him below his predicted performance at the outset of his FSU years. Now the model predicts his performance to fall below 50 percent wins. For Paterno, the evidence is mixed. Using all Penn State years, there is no discernible age effect. Although, if the sample were truncated in 2004, there is a strong age effect detectable. Somehow, PSU has overcome the usual course of performance with an aging coach.

The turmoil created by the political economy of these kinds of situations is readily apparent in the current Bowden saga. How do you unload a legendary coach? You either appear as hearltess winning-only fools, played up by the media, or you let your program slide, maybe irreparably into mediocrity. Jerry Jones barely survived his first couple of years in Dallas after firing legendary Tom Landry.

In the era without mandatory age requirements, such a situation was bound to crop up. Maybe, mandatory age retirements were an institutionalized means of avoiding such prickly situations. Such forced retirements are a blunt tool, lumping workers with diverse skills together, but they avoid the unseemly task of asking someone who has been a productive worker but is in obvious productivity decline to step aside. (Edward Lazear offered an alternative to this kind of productivity based answer for mandatory retirements back in a 1979 article).

With mandatory retirements now largely obsolete and illegal, another mechanism to deal with the likely productivity decline is to set up contracts well in advance where a retirement age is agreed upon. If FSU had in Bowden's mid-60s agreed that he would retire by 75, and they could have avoided this "prisoner's dilemma" that they now face and that was inevitable if Bowden's performance declined but he wanted to stay on anyway.

Williamson, the Economics of Governance, and Sport

2009-10-15T06:51:00.010-04:00

As most economists would know by now, Oliver Williamson won half of the Sveriges Riksbank Prize in Economic Sciences earlier this week. By this stage, half of the economics bloggers in the world have whipped themselves into a frenzy, so the questions should be asked, what role for Williamson and transaction cost economics in sports economics, or more broadly, sports management?

As the recent Amicus Brief prepared by Roger Noll and a good many other esteemed sports economists for the US Supreme Court case American Needle v NFL shows, questions of governance and the efficiency of league design are central issues in our discipline. Yet bizzarely, given the nature of sporting leagues, it may be argued that we see fewer references to quite important theories of the firm and of economic governance in the sporting domain than in other elemenst of the economics profession where the idea of a 'hybrid' organisation is less readily visible.

At the very least (and apologies to the authors below for this is a sample of three) if we look at the most recent sports economics textbook on the market by Downward, Dawson & Dejonghe (2009) 'Sports Economics: Theory Evidence & Policy', 'transaction cost (economics)' doesn't make the index (nor do 'agency', 'hold up' or 'residual claimant' for that matter), O. Williamson cracks it for five citations in the bibliography, and, for that matter, three of the classics of the theory of the firm: Coase (1937), Jensen & Meckling (1976) and Alchian & Demsetz (1972; who in fact have a lengthy footnote on the nature of sporting leagues which is worthy of discussing any time we mention Walter Neale's 'peculiar economics' of sport in my opinion) all miss out.

The same problem exists in one of the leading recent texts in sport management, Hoye & Cuskelly (2007 ) 'Sport Governance', where at least there are some index listings for agency theory, though Williamson, Coase, Jensen, Meckling, Alchian and Demstez all miss out of a citation. In Trevor Slack & Milena Parent's (2005) 'Understanding Sports Organizations: The Application of Organizational Theory' the index at least is even more grim; so maybe economics can't be used to study either organisations or governance. Hmph.

Things are much more promising in the aforementioned amicus brief, where transaction costs and the relative efficiency of markets and hierarchies, Williamson and Coase (1937) all attract attention. So where to from here for sports economics and the economics of governance?

We have the Europeans, Franck, Dietl and co. suggesting no role for an independent competition organiser, though seem very keen on the assumption that an independent competition organiser has a profit motive of its own (we can blame Bernie Eccelstone for that I guess). In Anglo corner we have Szymanski & Ross arguing from a legal as much as an economic viewpoint, in favour of an independent competition organiser, though they seen to be still grappling with the question of who should own that independent competition organiser. Meanwhile, Down Under, we have had a competition organiser that we've been writing about down here in the Australian Football League for twenty-five years, where the only residual rights accruing to the not-for-profit clubs are (i) the right to elect the Board of that independent competition organiser and (ii) to overturn a decision of that independent competition organiser to admit, expel, merge, or relocate clubs.

Has the world of sports economics been so focussed upon Rottenberg (1956) and thus Coase (1960), that we have forgotten the earlier lessons of Coase (1937), his arguably natural succesor Oliver Williamson and other theories of the firm to our detriment? The charge is far more damning in the domain of sport management, where I have literally read sport governance / organisation research that can get away with ignoring both the economics and the law of governance... . That would be alright in itself if it were harmless - let the 'kinesiologists' cite themselves to live long day without ever going back to the first principles of economics they probably weren't taught in the first place (see Humphreys & Maxcy (2007) for more on that) - except for the fact that such research is informing government agencies with regulatory oversight on the matter of how regional, national and international sports governing bodies should be structured. This just reminds me of Hayek's concerns in 'The Fatal Conceit'.

Anyhow, congratulations to Williamson and Ostrom!

Venezuela May Nationalize, Close Golf Courses

2009-10-14T21:41:00.002-04:00

Venezuelan president Hugo Chavez appears to be taking steps to nationalize and close golf courses. Chavez has already nationalized oil, steel, and cement companies. Several weeks ago, the BBC reported that Chavez was taking steps to seize two privately owned golf courses in the center of Caracas in order to provide housing for the poor. Chavez recently called golf a "bourgeois sport."

A person interviewed in the NPR segment noted sagely: "how can you nationalize a sport? I mean, that would be the extreme of totalitarian government, wouldn't it?" I'm sure this will work out well. After all, "land reform" has worked really well in other settings.

Bookies all tied up

2009-10-10T08:37:00.001-04:00

The start of the English Premier League season has been remarkable for one fact- the collapse in the number of tied games. Typically 25% of EPL games are tied (around 100 games a season), but so far this season only 12% of games have been tied. In fact, before last weekend, when there were four, the number of ties was below 8%. There is no obvious reason this should be so, and everyone is scratching their head trying to think of an explanation. None more so than the bookies, who appear to make their money out of ties. In this article, Chris Bell, the CEO of Ladbrokes explains that the loss of revenue is part of the reason for raising £275 million (about $440 million) to bolster their balance sheet. I must admit I’m surprised that bookies are so exposed to the frequency of ties, even if the current run is an exceptional event.

Baseball and the Economy: What Happened to TV Ratings?

2009-10-09T04:00:00.001-04:00

Attendance at MLB games this past season was 6.9% lower than it had been the previous year. That is a HUGE drop. An intriguing question is, what happened?

One possibility is that the rather sudden drop in housing prices and employment led people (individuals AND corporations) to cut back on their spending on entertainment, including baseball. If so, and if people's tastes for baseball haven't changed much, we should expect that the television ratings wouldn't have changed much from 2008 to 2009. In fact, tv viewership might even have increased as more people stay home to watch the game on tv instead going to the ballpark in person. Of course the change in television programming (notably the change at TBS) from one season to the next will have confounded this effect.

Unfortunately, I haven't been able to locate the full season ratings for 2009. One source I did come across said that as of late May, the tv ratings were about the same as they had been the previous season, but that was early in the season.

Another possible explanation is that there was only one close play-off race, the AL Central. Most of the other play-off teams were well-decided a week or two or more before the season ended. If increasing numbers of the races were, in this sense, "less interesting", that, too might have had an impact on attendance at the ballpark. If this hypothesis is correct, then tv ratings should have been lower in 2009 as well, especially near the end of the season.

In other words, the data on television ratings might help us discern the relative strengths of the two hypotheses. Given these competing hypotheses (both of which could be right, of course in varying strengths), can anyone shed any light on what happened with tv ratings this past season?

Fans as Inputs, An Apparently On-Going Series

2009-10-08T12:44:00.004-04:00

In an earlier post I mentioned that there aren't too many treatments in the formal sports economics literature that examine fans as inputs. One notable exception is that from David Boyd and Laura Boyd that appeared in the Journal of Economics and Finance in 1998 (issue 2/3 pp 169 - 179). They develop a model where fans are an input in winning and they use it to give an explanation as to why the common finding of inelastic ticket pricing is not inconsistent with profit maximization.

Here's the conclusion to their article.

Increasingly, economists are utilizing standard microeconomic analysis in an attempt to better understand the world of professional sports. However, since most of microeconomic theory is based on profit-maximizing behavior, the assumption of profit maximization in the sporting world must first be justified before microeconomists can legitimately apply their tools. In this paper, we have shown that some existing empirical evidence regarding the elasticity of demand for tickets to professional sporting events which, on the surface, seems to raise questions about profit-maximizing ticket pricing policy is not necessarily inconsistent with team profit maximization.

We have offered here a theory of team sports ticket pricing, based on the home field advantage, which implies that the traditional price elasticity of demand, measuring the ceteris paribus effect of changing ticket prices on attendance, is less elastic than is the elasticity of demand relevant for team profit maximization. The results of the theoretical analysis generated the prediction that accounting for simultaneity between attendance and team performance would result in a more elastic point estimate of the elasticity of demand for tickets. This hypothesis was supported using data from professional baseball. Moreover, the model generated predictions about how traditional, ceteris paribus elasticities of demand for tickets are likely to vary across different professional team sports. Again, these predictions were consistent with the results of existing empirical work on professional baseball and basketball. Although the assumption of profit-maximization as applied to professional athletics is far from fully vindicated, the results of this work can certainly be used as one piece of evidence for those who continue to use microeconomic theory to better understand the world of professional sport.

There are other reasons which were put forth by previous researchers (and mentioned by Boyd and Boyd) as well as others since this paper was published in 1998, but I won't go into them here. Here is the other part to this little series of posts.

Thank's to commenter Peter G. for his Super Bowl comment that spurred me to remember the Boyd and Boyd paper.

More on Fans as Inputs

2009-10-08T09:51:00.004-04:00

In the comments to my piece yesterday regarding fans as inputs, Rob MacDonald pointed out a study showing that home crowds can affect official decision making. Here's the link he posted to a paper by Mohr and Kelly (1998) if y'all don't want to go back to the comments there.

Examined umpire allocations of rewards to (1) teams from the same state (instate) as the central umpires and (2) teams from other states (outstate) in 171 Australian rules football matches over a period of 4 yrs. Data were game statistics. For each game, the statistics included the final score, the number of free kicks awarded to each team, the location, the names of the field umpires, and the crowd size. The dependent variable was the number of free kicks received by each team in a match. The instate teams received significantly more free kicks than the outstate teams did in matches between them. The extent of the instate adjudication advantage varied by year; it was significantly greater for matches on an instate home ground than for matches on an outstate home ground. The umpires manifested ingroup favoritism in rewards of low value-salience (obstruction of outgroup scoring opportunities) rather than in rewards of high value-salience (facilitation of ingroup scoring opportunities). (PsycINFO Database Record (c) 2009 APA, all rights reserved)

And here's a piece by Rob Simmons writing over at Dave Berri's fine Wages of Wins in which he describes research that he, David Forrest, and Babatunde Buraimo have done on the matter of referee bias. The kicker: it appears officials favor the home team, and the crowd may have an effect.

Intriguingly, for Germany, lenient treatment of home players is much less pronounced when the sample includes only matches at stadia where the field has a running track around it. This is suggestive that crowd influence on referees is reduced if the crowd is well back from the action. So our analysis suggests that referees can indeed be intimidated. And the level of intimidation is influenced by of all things, how the stadium is constructed.

Yes, Virginia, capital and labor are complements in production. And here's an earlier post in which I was writing about complementarity between players and facilities and didn't realize that I was writing about fans as an input as well (consider that an unintended assumption).

Lastly, as I was driving down to Columbia, Mo. for tonight's (very wet!) Missouri-Nebraska game, I picked up the Louisiana State University's Les Miles coach's show broadcast out of NOLA. LSU plays in arguably the biggest game of the week nationwide when they take on conference rival Florida. Not only are these teams ranked 1st (UF) and 4th (LSU) in the current Associated Press Poll, these two teams have won the last three BCS titles and 4 of the last 6. It won't be too hard for the LSU faithful to get up for this game. During his program, Coach Miles talked fondly about his home crowd and how they were going to play an integral part in his team's game.

Fans are an important part of the game. They are paying customers but they can also have an impact on the field, meaning that they are an input. But unlike the typical way we think of "workers" - people who have to be paid to offer their "labor", fans' "labor" is generated spontaneously once they are in the park.

Fans as Inputs

2009-10-07T10:32:00.006-04:00

After last night's Twins/Tigers game - helluva game, no? - the announcers for TBS mentioned that the fans played a big part in the Twins win. 54,000 Twins fans hollering and waving their rally towels would have been impressive to see.

This isn't the only time that fans have been noted as an important part of the game. Texas A&M officially calls their student body the 12th Man, and the team honors one of its players by having him wear the number 12. Basketball teams call their crowds the 6th man because of their effect. Gary Pinkel, the university of Missouri coach, has asked his team's fans to wear gold to tomorrow night's game against the Nebraska Cornhuskers. The last time this happened, Faurot Field in Columbia looked like grass meadow surrounded by maples turning color in fall: bright golds with reds interspersed throughout.

I'm the guy in the gold at the top of the picture.

There are a lot of things unique to the sports industry that make it interesting to economists. For instance, unlike other industries, a monopoly position is impossible to hold because the product is competition and, well, it takes two to tango (Billy Idol excused).

Another quality is that the consumer of the product can also be thought of as an input. I know that this has been mentioned in the research Cairns, Jennett, Sloane (1986), but I haven't seen it discussed much. So I ask you, Sports Economist readers and co-bloggers, this: if fans are indeed both consumers and inputs, what are some of the qualities we should see in sports that we would see if fans were mere consumers.

In other words, suppose two theoretical models were built to explain a sport, say baseball. One of the models treat fans as simple consumers and the other model treats fans as consumers and inputs, what would be the difference in terms of the results?

Here's one off the top of my head: inputs are paid for their effort. Consumers pay for their products. My sense is that ticket prices would be lower than if fans were merely consumers and not inputs.

Skyboxes for me, but not for thee?

2009-10-07T08:43:00.003-04:00

This story from Mobile, Alabama, brings to mind movie scenes of Roman emperors, seated in the prime seats of the Coliseum:

In late August, when the Mobile City Council and Mayor Sam Jones first toured the $2.5-million addition to Ladd-Peebles Stadium, including 11 new skyboxes, District 6 Councilwoman Connie Hudson said she was surprised to hear the city council would have a suite separate from the mayor’s, which is located just between the 40- and 50-yard lines.

“It was announced to me on the day we toured,” Hudson said. “We’ve always shared, like we do with the Baybears.”

The 11 new skyboxes bring the total at city-owned Ladd-Peebles Stadium up to 14, as three were built in 1997 in part of the press box addition. In addition to the two skyboxes available to the city, the Mobile County Commission also has a suite, which brings the total of skyboxes for local government use to three, or 21 percent of the skyboxes in the 61-year-old stadium.

Speaking generally, and taking into consideration the differences between facilities in other cities, Bud Ratliff of the Mobile Bay Sports Authority says most stadiums have only two skyboxes reserved for city and county use, but doesn’t see a problem with the current arrangement at Ladd-Peebles.

Silly, me, until reading this I had not considered the possibility that public officials themselves were direct beneficiaries of the public investments made in commercial sports facilities. The story is titled "Skyboxes at Ladd-Peebles Could Provide Huge Economic Impact." There is nothing in the story that remotely supports that contention. Rather, the story is entirely consistent with the public choice analysis of stadium subsidies, with the caveat that we add direct benefits to the politicians themselves to the analysis. As one spokesperson said, this setup "is standard across the country." Don't you just love the political class?

My Limitations as a Forecaster

2009-10-06T11:42:00.002-04:00

I am a terrible forecaster. I used to teach a class on economic forecasting. After teaching the class several times, my forecasting limitations were painfully revealed each semester. Just last week I told a reporter that I thought Chicago would get the 2016 Olympic Games.

In early August, when discussing the Michael Crabtree holdout here on TSE, I wrote " I expect that Crabtree will eventually sign a contract worth less than Heyward-Bey's before the start of the season." Crabtree is still holding out, again demonstrating my limitations as a forecaster, even though his contract will almost certainly be worth less than the one signed by Heyward-Bey. Of course the holdout also demonstrates Crabtree's limitations as a rational economic decision maker, but that's his failing, not mine. Anyway, a recent media report claims that Crabtree is now ready to resume negotiations because he is "getting bored just watching games this season." No word about whether he is "getting tired of not drawing a paycheck" or "worried about how far he might fall in the 2010 draft if he sits out the entire season."

Monday Potpourri: Olympic Edition

2009-10-05T14:29:00.005-04:00

Rio was selected to host the 2016 Summer Olympic Games. Despite lobbying by President Obama, First Lady Obama, and mega-star Oprah, Chicago's bid was eliminated in the first round of voting. The aftermath of the decision has been quite interesting. President Obama's critics immediately seized this opportunity to criticize the president. The blame game started immediately in the USOC, and the fall out there may include a purge of executives. In my opinion, now would be a good time to re-examine the whole Olympic bid process. The IOC awards the Games in a way that extracts maximum rents from the host city and country. Chicago reportedly spend $50 million on their bid, and Tokyo and Madrid probably spent that much. The money for the Chicago bid came from donations, but that doesn't mean that there was no opportunity cost. Why do we continue to allow the IOC to operate this kind of rent extraction scheme? Here are two Canadian takes (link two) on the bid process.
Meanwhile, down in Rio, the first estimate of the cost of new facilities for the 2016 games: $1.1 billion. I'm sure Brazil really needs a billion dollars worth of oversized new sports venues.
Speaking of initial cost estimates, TSE co-blogger Stefan Szymanski points out that losing the Olympic bid may not be such a bad thing, based on recent events in London. Stefan does a great job of shooting down a number of myths about hosting the Olympic Games.
Finally, in an interesting development, the IOC is going to set up a program to monitor betting on Olympic events to help detect any fixing. Good to see that the IOC recognizes the power of prediction markets.

UEFA's Definition of "Fair Play"

2009-10-02T10:07:00.000-04:00

ESPN Soccernet recently reported UEFA's passage of a new "financial fair play" standard to go in effect in 2013. Stefan Symanski raised the alert back in 2006 and wondered about enforceability -- a topic I'll leave to him. In Eurocrat-speak, "fair play" means that a club cannot spend more on transfers or wages than their earn in soccer-related revenue defined as

money received only from ticket sales, sponsorship, merchandise and television income. It would not include any financial investment by owners or major shareholders.

UEFA President Michael Platini explained

"We don't want to kill or hurt the clubs, on the contrary we want to help them in the market"

Eurocrats are a lot like NCAA-crats -- they don't even flinch when offering explanations and rhetoric that are total baloney. The new standard permits owners to use

their own money on some other inputs -- stadiums, youth systems -- but not on current labor inputs. So, while the effect shares something in common with a salary cap by limiting owner salary expenditures, it entrenches the status quo for wealthy clubs in a way that a salary cap does not.

Not surprisingly, the real impetus for these restrictions arises from competitors. A January Soccernet story explicitly names (not surprisingly) the European Club Association (an association of top clubs) as the instigators of this policy in view of recent foreign owner influx, and, in particular, the moves at Manchester City. In effect, clubs like Man U and AC Milan are saying, "Hey, are cartel is big enough, no new members welcome."

Why no huge outrage among lower tier clubs? My guess is that such a rule is a lot like imposing low-flow toilet rules, very few people are impacted in any given time period. Most mid-table and lower clubs are not expecting a foreign ownership takeover anytime soon. On the other hand, they fear that now a formerly beatable club, like Man City, will move up into the unbeatable zone and make the struggle against relegation that much harder, so that they, at least silently, sign on to the big clubs' proposal, even though it helps keep the big club "club" smaller.

Kansas City's Sprint Center Still has No Permanent Major Leauge Sports Tenant, And That's No Big Deal

2009-10-01T12:46:00.000-04:00

The Sprint Center in Kansas City was opened in 2007 to much fanfare. A gorgeous facility built in a struggling downtown area, one of the hopes was that the Sprint Center would attract and NHL and/or an NBA team. Neither has yet happened, but according to the Kansas City Star, that's no big deal.

Kansas City is expected to cash in on a rocking year of concerts and events at the Sprint Center to the tune of $1.8 million.

The surprise boost comes from a profit-sharing section in the development agreement between the city and the arena’s operator, Anschutz Entertainment Group.

Here's an interesting bit regarding sports at the arena

Any professional team would likely demand big chunks of the facility’s revenues from luxury suites, concessions and sponsorships. That would cut the arena’s ultimate profits.

“The economic model of this building is quite successful,” said Leiweke, who was in town for a preseason NHL match Tuesday night between the Los Angeles Kings, owned by AEG, and the New York Islanders.

“The last thing we or the city want to do is throw away that model and make the arena a loss leader with another tenant,” he said.

“It’s a tougher scenario with a professional team,” he added. If there were a team there now, “I’m sure we wouldn’t be able to write a check to the city for $1.8 million.”

While landing a professional sports team as an anchor for the arena remains the ultimate goal for AEG, Leiweke said the presence of a team also could diminish its popularity as a concert venue. Now, the arena has an abundance of options to offer concert promoters.

This is not good news to any proponent of public funds for sports stadiums. It also affirms the notion that using public funds to generate a positive city-wide economic boost does little good. The economic impact that comes from sports in a stadium flows mainly to fans and to owners, leaving little or no externalities.

Cross-Posted at Market Power

Judge Rejects Jim Balsillie's Offer for the Pheonix Coyotes, Reaffirms Single Entity Status in Franchise Location Decisions

2009-10-01T12:25:00.001-04:00

Judge Redfield Baum has rejected Jim Balsillie's offer to buy the Phoenix Coyotes. The NHL was adamantly against Balsillie's offer because of his desire to abandon the Phoenix market and move the Coyotes up to Hamilton, Ontario. Not only would that put an NHL team in a smaller media market, but it would also move a team within 60 miles, more or less, of two existing NHL franchises, the Buffalo Sabres and the Toronto Maple Leafs.

Judge Redfield T. Baum rejected outright Balsillie's offer to purchase the team and move it to Hamilton, Ontario, which the NHL had vehemently opposed. The judge upheld the league's right to decide who owns its teams and where they play.

As noted above, it's not a complete victory for the NHL because its offer was also rejected. But Judge Baum did affirm that the NHL can be treated as a single-entity when it comes to franchise locations. That's a huge victory for the NHL. I'm not sure the same can be said of the average hockey fan.

Cross-posted at Market Power