Sports Economics

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Sports Economics

Garrett Durig

Kelly Glitzos

David Laden

Aram Tramblian

Richard Qin

Types Of Sports Marketing

• Advertising of Sports Organizations and

Associations

• Promoting the sport itself

• Using sporting Events, Teams, or Players to promote products

Promotion of Products using Sports

Sponsors:

Individuals or Corporations that finance a sporting event or individual in return for advertising time or endorsements.

• Endorsements: Promotions of a product or service. A celebrity

(or in our case, athlete) endorsement is almost always a paid endorsement of the company or a certain product.

Advertisements:

Paid announcements in the print, broadcast, or electronic media, designed to attract public attention or patronage.

Sponsors

Venues:

Heinz Field

Naming Rights: Financial transaction whereby a corporation or other entity purchases the right to name a facility

Teams:

NASCAR

United States Men's National Soccer Team

Athletes:

Mickelson (Professional Golfer)

• http://www.philmickelson.com/

Events:

Olympics

Advertisements

• http://www.youtube.com/watch?v=XxFYY

P8040A

Super Bowl Commercials

Estimated Cost of Commercial Space for

Previous Video: $7 Million per Showing!

• Does not include production costs

Supply of available commercial time for sporting events is inelastic

Demand varies with predicted viewership levels

Concentrated Market

• $31 Billion Spent nationally on TV Sports

Advertisements in 2011

• Over 25% of Market Share controlled by the top 10 firms

Variance of Advertising in

Sports

Commercials only shown during breaks in the actual game

• Baseball, Soccer, Tennis

Game paused for sports advertisements

• Football, College Basketball

Advertisements shown while sport is in progress

• NASCAR

T ICKET S ALES

Price Ceiling

Quantity Shortage – 2011 Superbowl

Combination → Dead-Weight Loss

• Attempts to maximize surplus:

- Random Ballots

- Queuing

D YNAMIC T ICKET P RICING

• Changing the price of tickets between sporting events

• Solves DWL Problems by varying ticket prices with ticket demands

Why do ticket demands vary?

Impact – 15% Increase full price attendance

- 30% Increase total ticket revenue

Problems – Doesn’t Work in all Sports

- Difficult to dynamically change prices

T ICKET S CALPING

• Attributes

- Maximizes economic welfare

- Considered unethical

• Form of Secondary Market

- Ticket Quantity Demanded > Ticket

Quantity Supplied

- Due to quantity ceiling from seating limit

T ICKET S ALES

Price Discrimination

1.

First Degree

• Scalping

2. Second Degree

• Price by Seat Location (Box Seats vs. Bench

Seats)

• Price by Quantity (Season Tickets vs.

Individual Ones)

3. Third Degree

• Price by Age

• Price by Home Location (PGA Tour)

Share of Revenue

Prior to 1960s:

NFL: larger teams

• MLB: more media coverage

NBA: largest city

After the 1960s:

NFL

• MLB

• NBA

Equal Sharing

Sports Broadcasting Rights

• ABC,CBS, and NBC lost millions of dollars without broadcasting rights

Fox upgraded to an NFL contract

• Increased profits

• Greater local ad revenue

• Built TV network money on the deal. You buy them to build the value of your TV network.”

(Badenhausen & Nikolov, 1997, Financial World, June 17. p.52)

Cost of Sports Broadcasting

Rights

• The Maximum fee a broadcaster will pay:

F = (Rs – Cs)-(Rc – Cc)

Demand for Broadcasting

Rights

• Increase in technology and policy leads to an increase in demand for rights.

• Broadcasting rights became more competitive o increase in fees o increase in sports coverage Broadcasting Rights

Competition For Broadcasting

Rights

• Networks began as monopolists

Newer Technology:

• More Channels

• New media

Greater competition

• Perfect competition

U.S. Network-Affiliate model

Supplier

-NFL

-NBA

-MLB

Distributer

Local stations

Manufacture r

Network

Consumer

Viewers

Audience

• Revenues are determined by the size of the audience

Broadcasters target young adult males

The demand for an audience is inelastic

Broadcaster salaries

• $24,707 to $91,563

What affects a broadcaster’s salary:

• Experience

• Location

• Industry

NFL Salary Cap

• 2011 Salary Cap: 120 million o

Hard cap

• Salary floor of 89%

• Most “fair” pay distribution

NFL Salary Cap

• 2010 owners opted out of CBA o

Uncapped year

• Redskins and Cowboys given penalties for spending during uncapped year o

Currently in arbitration

NBA Salary Cap

• 2012 Salary Cap: $58 million

• “Soft” Cap o

Exceptions allow teams to exceed cap

• Luxury Tax o

$1.50 per dollar for up to $5 million o o o

$1.75 for 5-10 million

$2.50 for 10-15 million

$3.25 for 15-20 million

NBA Soft Cap Exceptions

• Mid Level Exception (MLE)

• Biannual Exception

• Larry Bird Exception o

Early Bird o

Non Bird

• Minumum Salary Exception

• Traded Player Exception

• Disabled Player Exception

MLB Salary Cap

• 2011 Luxury Tax Cap: $178 million

• Luxury Tax: pay tax on overspending o o

First Time Offenders: 22.5%

Second Time Offenders: 30% o

Third Time Offenders: 40%

• Four teams have paid tax: NYY, BOS, LAA,

DET o

Yankees have paid 95% of tax

MLB Salary Cap

$197,962,289

$173,186,617

$81,428,999

$75,489,200

$64,173,500

Collective Bargaining Agreements

• Organized Player Union and Owner’s o

Must agree on terms of season

• 2011 NBA Shortened Season

• Possible 2011 NFL Lockout

• 2004-05 NHL Lockout

• Game Theory

Free Agency And Trades

• Restricted Free Agents

• Non-Restricted Free Agents

• Trade o o

Players

Draft Pick o

“Salary Dump”

• Collusion

How salaries are determined

• Minimum salary (price floor)

• Maximum salary (price ceiling)

• Age/Experience

• Prior statistics

• Position

• Team’s need at position

• Depth of position during free agency

• Injury history

• Basic Supply and Demand

How Contracts are structured

• Yearly salary o

“Front loading” and “Back loading” (Redskins ex.)

• Signing Bonus

• Incentive

• Clauses o o o

Opt-out

Retirement

Trade restrictions

NFL Jersey Sales

• Top-selling Data o insidenfl.nflshop.com

• Jersey Advertising o

"Authenticity"

Assumptions for Analysis

• Population is consistent between years

• Temporary Changes vs Permanent Changes o

Reversion to past

• Perception affects changes

Yearly Data

Sources http://www.admsports.biz/PDF/sb.pdf

http://www.ist-ipmedianet.org/Broadcast_econom http://www.ehow.com/info_8075875_averagesalary-sports-commentator.html#ixzz1s7jkiXhHics.pd

http://re5qy4sb7x.search.serialssolutions.com/?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-

8&ctx_tim=2012-04-01T17%3A36%3A44IST&url_ver=Z39.88-

2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primo3-Articlegale_ofa&rft_val_fmt=info:ofi/fmt:kev:mtx:&rft.genre=article&rft.atitle=Sports%20Economics.&rft.jtitle=

Australian%20Economic%20Review&rft.btitle=&rft.aulast=&rft.auinit=&rft.auinit1=&rft.auinitm=&rft.aus

uffix=&rft.au=Booth%2C%20Ross&rft.aucorp=&rft.date=20090901&rft.volume=42&rft.issue=3&rft.part

=&rft.quarter=&rft.ssn=&rft.spage=377&rft.epage=&rft.pages=&rft.artnum=&rft.issn=0004-

9018&rft.eissn=&rft.isbn=&rft.sici=&rft.coden=&rft_id=info:doi/&rft.object_id=&svc_val_fmt=info:ofi/fmt: kev:mtx:sch_svc&svc.fulltext=yes&rft_dat=%3Cgale_ofa%3E215470871%3C/gale_ofa%3E&rft.eisbn=

&rft_id=info:oai/%3E http://www.economist.com/comment/1199599 http://thesportseconomist.com/labels/Elasticity%20of%20demand.htm

f http://mjperry.blogspot.com/2011/02/economics-and-logic-of-ticket-scalping.html

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