Garrett Durig
Kelly Glitzos
David Laden
Aram Tramblian
Richard Qin

• Advertising of Sports Organizations and
Associations
• Promoting the sport itself
• Using sporting Events, Teams, or Players to promote products

•
•
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.

•
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

• http://www.youtube.com/watch?v=XxFYY
P8040A

•
•
•
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

• $31 Billion Spent nationally on TV Sports
Advertisements in 2011
• Over 25% of Market Share controlled by the top 10 firms

•
•
•
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)

•
•
Prior to 1960s:
•
NFL: larger teams
• MLB: more media coverage
•
NBA: largest city
After the 1960s:
•
NFL
• MLB
• NBA
Equal Sharing

•
• 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)

• The Maximum fee a broadcaster will pay:
F = (Rs – Cs)-(Rc – Cc)

• 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

•
•
• Networks began as monopolists
Newer Technology:
• More Channels
• New media
Greater competition
• Perfect competition

Supplier
-NFL
-NBA
-MLB
Distributer
Local stations
Manufacture r
Network
Consumer
Viewers

•
•
• Revenues are determined by the size of the audience
Broadcasters target young adult males
The demand for an audience is inelastic

•
• $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