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 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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