Sports Economics

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Purposes of leagues?
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Collusion, efficiency, economies of scale, central planner
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Role of league-based competition?
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Governance, league structure, competition structure, player labour market, creation / allocation revenue, infrastructure
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Types of competitive balance?
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Match-level, within-season, between-season
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Measuring competitive balance?
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ML: betting odds, ladder positions, difference in winning % WS: win % dispersion, standard deviation of win %, ratio of SD, concentration index BS: SD of win % across time, persistence in win % / ladder positions
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Regulating competitive balance?
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Revenue sharing – gate, central negotiation of broadcast Talent sharing – salary cap, luxury tax, reverse-order draft, roster limits, player mobility regulation Schedule adjustment
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Tournament structures?
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Tournament, winner-takes-all, heterogeneous ability, dynamic contests, multistage contests
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Effect of incentives?
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Payoff = p(e)V − c(e) As long as MB > MC → will ↑e
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Determinants of effort?
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Prize, technology of winning, number of contestants, contests
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Complex production functions?
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Adding up performance measures, use regression analysis to determine explanatory factors, estimate dimensions of performance, estimate value of players (unassisted wins, relative unassisted wins, adjustments), managerial qualtiy
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Behavioural influences on player performance?
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Luck, ‘hot hand’, loss aversion, fairness
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Factors influencing strategy and performance?
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Risk taking – depends on whether ahead / behind, size of margin Randomising – no ‘pure strategy’ Nash equilibrium, aim to make other player indifferent, payoffs should be equalised, serially uncorrelated
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Importance of broadcasting?
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Increases consumer well-being, finance, contact, increased audiences, derived demand
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Demand by broadcasters?
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Willingness to pay – maximum fee Pay-TV – trade-off between loss in advertising vs subscription Effect of Government regulations Effect of Pay-TV – ↑ matches, ↑ range, negative when already broadcast free Competition – ‘auction’
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Supply of rights?
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Stadium owner, team owner, players, league Decentralised (reflects fan base) vs centralised (increased market power)
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Determinants of demand for watching the game?
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Viewing quality – stadium, view, atmosphere, comfort, timing Economic influences – price, income, substitutes, population Consumer preferences – standard, habit, bandwagon, discrimination Contest – quality, significance, own-team win preference, uncertainty Supply capacity – stadium size
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Price discrimination?
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Two-part – right to access, usage fee Versioning – different types of seats / prices Extras – higher mark-ups on food Option pricing – selling option to buy ticket at later date
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Under-pricing?
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Excess demand for events Reason – deliberate (implicit contract, uncertainty, appearance makes looks more valuable), behavioural influences, leaning by consumers
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Invariance-proposition
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‘Cross-subsidisation’ devices adopted by sporting leagues will be ineffective / difficult to enforce
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Invariance proposition equilibrium (profit-maximising):
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With no regulation – intersection of two MR curves, bigger team has larger area underneath If MR₁ > MR₂ : Team 1 values extra talent more, will trade for talent
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CB Regulations Effects (profit-maximising)
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Reserve clause – reduces MC of talent, no ∆ in CB, lower salaries Player draft – distribution with gains from trade, no ∆ in CB Salary cap – limits TC, ↑ CB, lower salaries, incentive to cheat, league revenue not maximised Revenue sharing – MR becomes fraction of previous, no ∆ in CB, lower salaries Luxury tax – tax rate with tax threshold, ↑ CB
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Invariance proposition equilibrium (win-maximising):
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Object to maximise win% subject to TR ≥ TC AR curves – value of extra unit of talent Intersection of AR curves Effect – player payments increase, more unbalanced outcome, lower total revenue
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CB Regulations Effects (win-maximising)
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Revenue sharing – shifts respective AR curves, increases CB Bundle of policies – gives more leverage Win-maximising comp shows more results in improvement
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Determining player value / contracts:
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Matching – value may differ across teams Bargaining – outcome from strategies, depends on power / skill – ability to influence employment relations
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Factors affecting supply of players:
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Availability of requisite characteristics / skills – distribution in population, acquisition in junior competitions, size of population Willingness to supply labour – pay, likelihood of winning
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Demand for players:
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Valuing player’s input – contribution to team performance, revenue and wins, knowledge Extent of market – competition, number of clubs, Discrimination – employer / customer, statistical / preference-based Superstars – highly skewed distribution of salaries
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Umpiring – Psychological biases:
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Colour effects, omission , home crowd pressure, ordering, difficulty
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Umpiring – Discrimination:
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Own-race / nation bias Depends on observability – technology may be support / check
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Economic theory of crime:
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Expected payoff = (1−p)B−(p×C)
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Impact of managers:
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Relate differences in performance to change in identity of manager / variation in characteristics Must look across multiple seasons
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Economic influences of cheating:
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Strategic drivers of behaviour – prisoner’s dilemma Probability of detection / punishment Size of benefit Size of cost How much time to allow
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Betting biases:
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Favourite-longshot bias – over-betting of underdogs Home-field advantage – under-estiamted Irrelevant information – expert opinion
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Likelihood of match-fixing:
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Increased probability attempt to fix outcome is successful Reduced probability of detection Low player wages relative Low prize money / prestige
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What is point shaving?
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Asymmetric distribution of outcomes – favoured teams much more likely to win by just less than point spread than by just more
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What are mega-events?
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Irregular, one-off, major international spectator events – generate significant economic / media interest ‘Value’ – substantially greater than min cost Consequences – existence of rents, high competition
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Winning Olympics:
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Size of population, GDP per capita, home team effect
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Economic benefits of mega-events:
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Event – Monetary – expenditure, multiplier, event spending, tourism, trade – Non-monetary – health promotion, psychological well-being Infrastructure – Monetary – expenditure, multiplier, tourism – Flow of services from infrastructure Additional considerations: – In region, crowding out, tax funding, opportunity cost
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Economic costs of mega-events:
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Direct monetary costs – bid, operating expenses, infrastructure O.C of volunteer worker time O.C of disruption to other economic activity Psychological costs Costs of funding
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Justification for Government funding:
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Efficiency rationale Public good Non-rival Non-excludable
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What is competitive balance?
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Degree of parity within a league – distribution of wins
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What is revenue sharing?
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Paying share of revenue from home games to other team
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What is a tournament?
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Teams compete for prize that is assigned on basis of their rank-order finishing position
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What is the BSB method?
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Philosophy of what matters in producing wins
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What is price discrimination?
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Charging different prices to different buyers that do not reflect characteristics in the cost of supply
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What is the reserve clause?
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Rights to a player were retained by the team even at expiration of contract
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What is bargaining?
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Equilibrium is outcome from strategies adopted in bargaining game Power – relative ability to influence employment relations, depends on capacity to impose costs on other
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What is discrimination?
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Players with equal skills / productivity have different labour market outcomes on basis of gender / race / ethnicity Types: statistical (less accurate info, misattribute), preference-based (fans, managers, co-workers)
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Invariance principle?
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Freely functioning markete will direct resources to where they are most valued – hence with low transaction costs, players will go where most valued

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