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The Sports Economist

Economic Commentary on Sports & Society

Updated: 2010-04-13T07:36:41.592-04:00


Stadium debt


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

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

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

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

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

Assorted Links on the NCAA


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

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

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

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

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

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

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

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

Why Government Spending Stimulus Often Fails to Stimulate


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

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

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

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

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

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


Four years after George Mason Wins the Lottery, Butler has reached the thin air normally reserved for teams from the "major conferences." Their success prompted me to do a comparison among the "little guys."Of course, such comparisons bring up the question of what is "major?" The term "mid-major" is generally applied now to just about any conference outside the Big Six (ACC, Big 10, Big 12, Big East, SEC, Pac 10) even though some of these might be best described as "Near Major" (USA, A10?, Mountain West?), Mid Tier, and Low Tier. For time and space, I'm proceeding with the "outside the Big Six" definition, even though this throws in Cornell with Memphis.The other issue is how to measure success. Given no exact metric, I'm using three yardsticks related to NCAA tournament success: total wins over 2000-2010, number of years with wins, and highest level of advancement. The results appear in the table below (based on a quick tabulation, so errors likely):'Rank by WinsRank by Years with WinsRank by Highest LevelGonzaga (11)Gonzaga (7)Memphis (Final)Memphis (11)Xavier (6)Butler (Semifinal + ?)Xavier (10)Memphis (5)George Mason (SemiFinal)Butler (8 + ?)Butler (4)Memphis (F8 - 3) S. Illinois (5)Nevada (3)Xavier (F8 - 2)Tulsa (5)S. Illinois (3)Davidson (F8)George Mason(4)Tulsa (3)Temple (F8)Kent (4)Utah (3)Gonzaga (S16 - 4)Nevada (4)Kent (2)Memphis (S16 - 4) St. Joseph (4)Pacific (2)Butler (S16 - 3)Temple (4)Sienna (2)S. Illinois (S16 - 2)Utah (4)St. Joseph (2) Davidson (3)Temple (2) UAB (3)UAB (2) UNLV (3)UNLV (2) WKU (3)VCU (2) Bradley (2)WKU (2) Cornell (2) N. Iowa (2) Pacific (2) St. Mary's (2) UW-Mil. (2) Wichita St. (2) Along with who is included and how to measure success, the time frame also matters. If two more years are included, Gonzaga's win total increases to 14 and they have a Final 8 appearance. Utah's relative performance also increases from a couple more years.The decade long performances of programs such as Gonzaga, Memphis, Xavier, and Butler are very impressive. To find programs averaging more than a win per year, one has to look at places like Kansas, North Carolina, and Duke. Their performances stand above past national champs such as Louisville or Louisville and way out front of champs-turned-strugglers like Arkansas. The talking heads who like to refer to how Gonzaga hasn't beaten X or advanced past the Sweet 16 in more than a decade just don't get it.While my interests here lie mainly with individual team performance, some interesting conference comparisons jumped out also. For example, five different teams from Butler's relatively obscure Horizon league have won NCAA tourney games, four from Gonzaga's WAC, and a whopping seven from the Missouri Valley have won. More competition at the conference level, such as the MVC, both helps and hurts individual teams -- helps by playing better competition, raising seeds and hurts by making it tougher to make the tournament.One thing that jumps out at me from these numbers is how well these "mid-majors" perform relative to the Big Six teams when playing them at neutral sites. Regular season records are very much skewed by the ability of Big Six teams to stack their home schedule. It would be interesting to look at regular season matchups at neutral court sites or on the home sites of the "little guys" -- maybe a different post down the road.[...]

Sweet Lew's Sweet Compensation Package


Major college athletic programs are run in ways that are very similar their professional brethren. They compete in markets for top talent (except that in college, the players can't be paid). They practice price discrimination. For example, colleges routinely give ticket discounts to students, an example of what we economists call third-degree price discrimination. They use two-part tariffs to allocate tickets. In the pros, they use personal seat licenses. In college, they use donations. Both the pros and the colleges employ revenue sharing. The primary difference between the colleges and the pros is that the revenue programs in college, generally football and men's basketball, generate revenue for cross-subsidization of non-revenue programs.But Phil, you'll say, colleges are non-profit while the professional team owners do what they do for profit. Fair enough, but I'd counter that being a non-profit in terms of tax status only restricts what you do with excess income. It does not restrict your underlying motive. Moreover, colleges try to generate as much revenue as possible. Further, since most of their costs are fixed costs, as in the pros, maximizing revenue is the same as maximizing profits (or minimizing losses).So when I see, for example, coaching salaries in the academy that look similar to those in the pros, I usually don't raise an eyebrow.But this raised both of my eyebrows. Lew Perkins, the University of Kansas athletic director, was the state’s highest-paid employee in 2007 at $646,281.But that’s a paltry sum compared with what Perkins received in 2009 — $4.4 million.Perkins’ pay is the equivalent of $85,000 a week — about 10 KU students’ average yearly tuition payments. What’s more, $4.4 million appears to place Perkins far beyond that of any athletic director in the nation.Nice pay if you can get it. Andy Zimbalist is quoted in the next paragraph and he, like me, was flabbergasted. Iowa State's Jamie Pollard was paid $379,000 in 2009. The Kansas City Star has done some research on AD salaries and finds that Mizzou's Mike Alden gets base pay of just over $234,000 with some potential for bonus pay, but nothing even close to $4.4 million. Texas, where everything is supposed to be bigger, pays its AD, DeLoss Dodds, $750,000. According to the article, the next highest salary is the nearly $1 million paid to Florida's AD Jeremy Foley. Shoot, Perkins got paid more last year than KU men's basketball coach Bill Self last year, and AD's usually aren't in the same salary league as their football and basketball coaches. Where did KU get the money?Jim Marchiony, associate athletic director at Kansas Athletics, said the more than $4 million required for Perkins’ compensation package in 2009 came from general Kansas Athletics revenue, including supporters’ donations, conference revenue, student fees and other sources. No specific fundraising effort was used to raise money for Perkins’ bonuses, he said.I don't blame Perkins for taking this kind of pay and he's done some good things at KU according to the KC Star. But $4.4 million seems like a steep price to pay for an AD, especially one that was apparently paid less than $150,000 at Connecticut. But like I said: nice pay if you can get it.[...]

The IMF Surveys the Impact of Mega-Events


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

The NFL's Priorities


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

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

Feds Looking at Kansas Jayhawk Basketball Ticket Sales


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

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

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

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

Notes from the NCAA Hoops Head Coach Meat Market


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

MIT Sloan Sports Analytics Conference


Watching NBA highlights last night on NBATV, I stumbled across this video story on the 2010 MIT Sloan Sports Analytics Conference. Daryl Morey, GM of the Houston Rockets, helped establish the conference (now in its 4th year) that includes a variety of owners (Mark Cuban, Robert Kraft), GMs, coaches, and statistical assistants. Panels cut across a variety of on-the-field analysis (basketball analytics, baseball analytics, limits of analytics) as well as off-the-field issues (attendance, expansion, and others). Data-oriented sports analytics now appears to be in mid-stream when viewed along Zvi Griliches S-Curve for the spread of innovations. When Moneyball appeared in 2003, it chronicled some of the earliest innovators. In looking over the conference panels and the NBA's website articles on the nature and uses of "analytics" in their area, the fingerprints of the Moneyball-"metric" approaches are explicit. Of course, a generation or more earlier, the contributions in Sabermetrics as well as in sports economics-statistics like that of Rotemberg, Scully, Quirk-Fort, and others began plowing this soil, even if those works don't receive much explicit attention. After all, Bill Walsh may receive most "mentions" for modern passing schemes while Coryell and, even earlier, Sid Gillman did much of the early development. With that said, there are a lot of sports-focused "metrics" out there with little or no connection to economics or economists. That's healthy. Statisticians with different training bring their own comparative advantages to the table. In looking over Chance or the American Statistician, it's clear that statisticians (math stats types) tend to focus much more heavily on distributional issues than economists. Others, like the StatCube outfit mentioned in the NBA article, specialize in the collection and management of data. Do economists have a niche even beyond academics and in the "engineering" type data analytics discussed at the conference? I think so. The background of economists gives us some advantages at disentangling (identifying) specific relationships, thinking in terms of omitted variables, and other model-building skills. (See 2009 TSE piece on ECONFL.) Like other data-oriented disciplines, econ also contributes by raising awareness among undegrads (like Bill Belichick and Jim Schwartz) for what data analysis can do.[...]

Indian March Madness


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

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

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

March Madness: O Canada Version


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

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

Government Suppression of Economic Impact Critique


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

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

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

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

The Baltimore Charm


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

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

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

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

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

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

Accounting Madness


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

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

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

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

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

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

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

Mega-Events in Developing Nations


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

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

NCAA Men's Basketball Postseason Roundup


March Madness is upon us again.  This year, the men's college basketball postseason features some interesting economic madness across the board.  For the second year in a row, there are four postseason tournaments. Here's a roundup of the four events:The NCAA Division I Men's Basketball Championship. The "Big Dance."  65 teams in a single elimination "knockout" tournament spread over three weekends in March and April.  Games are held at predetermined neutral sites across the country.  The big economic news here is that this could be the last year of the much-loved 65 team format, which has been in place since 2001.  The tournament had a 64 team format from 1985-2000.  The NCAA generates about 90% of its operating revenue from the massive 13 year, $6 billion contract with CBS to televise this tournament.  The NCAA/CBS contract is in year 10, and the NCAA has an opt-out clause following this year's tournament broadcast.  Much speculation revolves around the NCAA exercising that option, putting the broadcast rights for future tournaments up for bid, and expanding the field to as many as 96 teams.  A new auction and expanded field could substantially increase the value of the contract.  I am a big fan of the 64/65 team format, and would hate to see it go.  The NCAA seems to have a strong incentive to change the format.  Stay tuned.The National Invitational Tournament. The second tier postseason tournament.  32 teams in a single elimination "knockout" tournament.  The finals are played in Madison Square Garden in New York City.  Founded in 1938, the NIT is actually older than the NCAA tournament, and for a long time it was more prestigious.  The NCAA has owned the NIT since 2005, when it purchased the rights to operate the tournament for 10 years from the Metropolitan Intercollegiate Basketball Association (MIBA), a consortium of NYC colleges, for $56.5 million.  The NIT and NCAA Tournament do not compete for teams; NCAA rules prohibit a team for turning down an NCAA bid for the NIT. Interestingly, Marquette University did just that in 1970, when Coach Al McGuire turned down the NCAA bid to play in the NIT closer to home.  Marquette won the NIT that year.  Most NIT games are televised on ESPN.The College Basketball Invitational Tournament. A sixteen team tournament operated by the Gazelle Group, a sports marketing company.  Now in its third year of operation, the CBI has a single elimination format until the championship round, which is a best of three series between the last two teams. CBI games are held on campus. Up to 11CBI  games will be carried on HDNet, an all hi-def channel that is available on many satellite and cable providers around North America.  There is some anecdotal evidence that the CBI has tried to compete with the NIT for teams, but it has not been successful. Participants:Akron (24-10), Boston University (19-13), College of Charleston (21-11), Colorado State (16-15), Duquesne (16-15), Eastern Kentucky (20-12), George Washington (16-14), Wisconsin Green Bay (21-12), Hofstra (19-14), Indiana State (17-14), IUPUI (24-10), Morehead State (23-10), Oregon State (14-17), Princeton (20-8), Saint Louis (20-11), and Virginia Commonwealth (22-9).The Tournament. A sixteen team single elimination tournament operated by, I think, the people who run the web site.  This tournament is in its second year of operation.  As best as I can tell, the CIT has no television coverage, but games will be streamed on Fox College Sports broadba[...]

Red Knights smell blood


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

Seeding the Madness


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

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

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

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

Seed123456Avg. wins

Update: Thanks for the formatting advice.

That Giant Sucking Sound from Edmonton


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

HT John Chilton

Uncapped Season Begins in NFL


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

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

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

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

Student Demand for College Sports


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

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

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

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

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

Canadian Hockey, Sex, and My Golf Game


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

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

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

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

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

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


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

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

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

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

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

Like Texas or Nebraska?

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

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

What Determines Bowl Ticket Sales at the Institution Level?


Todd McCubbin, the executive director of the University of Missouri Alumni Association, writes a short piece on the number of tickets sold by Mizzou to this year's Texas Bowl. His short essay is located on page 47 of the spring 2010 issue of the Mizzou alumni magazine (I don't have a link to the piece, but here's a general link to the alumni magazine)."The mystery of the Big 12 bowl selection process still casts a shadow on the 2009 campaign. For the third consecutive year, teams the Tigers defeated were selected ahead of them. Our e-mail and phone lines were busy as many of you voiced concerns about the process. The media shed light: The bottom line seems to be that, unless a team is conference champion, wins and losses mean little. Instead, bowl organizations make selections based partly on television ratings but mosly on how many fans travel to watch the game in person. It can be tough to swallow that a team's performance on the field can count for so little." McCubbin goes on to say that about 10,000 Mizzou fans made the trip to Houston, but that was short of the school's 11,000 ticket allotment. As part of my sabbatical research, I have been working on examining the ticket sales made at the institutional level for the 2008-2009 bowl season. My source for tickets sold is this post at the Wiz of Odds. The results are preliminary and, as such, have not been peer-reviewed yet. So take this for what it's worth. Here are some results from a preliminary STATA analysis on my data. The numbers are the result of an OLS regression. Variable Parameter Standard Err t-statistic p-value Tradition 264.3157 45.48273 5.81 0 Years Since Last Bowl 618.8521 112.5678 5.5 0 Dist from Nearest NFL Stadium 17.07413 2.621021 6.51 0 Distance from Bowl Location -2.229766 1.103187 -2.02 0.048 BCS Dummy 3382.728 2124.074 1.59 0.117 Local Population 0.0006327 0.0003135 2.02 0.048 Private School Dummy -4206.533 1783.724 -2.36 0.022 Intercept 1474.826 1355.562 1.09 0.281 N = 64 F(7, 56) = 0 R-Sq = 0.6700 Root MSE = 4785.7 I defined Tradition as the number of Division/FCS level bowls the program has been to in its history. Local population is the local population of the university's city. I tried controlling for university enrollment and bowl city average temperature during the month of the bowl but neither added anything to the results. I didn't have any information on ticket prices.The regression explains about two-thirds of the variation in ticket sales. Not too bad. The analysis tells me that teams that have more tradition sell more tickets. For every bowl game the team has been to in the past, about 264 more tickets are sold. Teams that haven't been to a bowl in awhile sell more tickets (this tells me that winning is subject to diminishing marginal utility). For every year it's been since the last bowl appearance, the university sells about 619 more tickets. The farther a university is from an NFL stadium, the more tickets sold (about 17 more tickets for every mile in distance away from the NFL stadium). The farther the university is from the bowl location, the fewer tickets sold (about 2 fewer for every mile in distance). Playing in a BCS game doesn't statistically explain the variability of ticket sales. The bigge[...]