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Sports Economics Uncut

Brian Goff

“Sport has the power to change the world.” Sports Economics Uncut expresses this insight from Nelson Mandela, exploring sports as a fascinating mirror of the world and a powerful agent of change. In it, Brian Goff covers subjects ranging from the ebb and flow of racial discrimination, to inequality, law enforcement, managers and risky decisions, club membership, and politics. Much more than merely a review or synthesis, this book extends existing perspectives and explores provocative questions such as: how systematic is racial bias in pro sports today? Is all racial segregation in sports due to racial bias? How much are college athletes really worth, and is league parity really optimal? 
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Chapter 1: Why consumers wear sports gear

Brian Goff

“Sport has the power to change the world. It has the power to inspire.” This quote is significant in that it is not from a noted athlete, sports owner, league commissioner, or city council person vying for the public to pay for a new sports stadium. It is from Nelson Mandela – the acclaimed South African advocate of human rights and statesman, who, seemingly, would have had a much bigger view of the world than sports. Nonetheless, he made this statement in the context of South Africa hosting the 1995 Rugby World Cup and its importance to his country. The same idea is expressed more succinctly by the tag line, “sports matters,” for ESPN’s E:60 program, which highlights inspirational and moving sports stories.

Yet, there is a deep irony embedded in these references to the power of sports. Its influence does not readily stand out using common measures of economic performance. Yes, there are several billions of dollars in revenue generated by the National Football League (NFL), Major League Baseball (MLB), the National Basketball Association, and the National Hockey League (NHL) along with college sports and other pro sports. Yet, in comparing revenues generated by all sports leagues and college sports programs in the US to other kinds of businesses, the sports industry appears to be of minor importance. Figure 1.1 presents an example of this kind of comparison, showing revenue for the top professional sports leagues in the US along with the top 125 schools from the National Collegiate Athletic Association (NCAA) and three of the four top retailers. The sports revenue ranges from $13 billion per year for the NFL down to $3.7 billion for the NHL with a sum of about $39 billion. In contrast, the revenue for CVS, Costco, and Kroger all exceed $100 billion per year and amount to nearly $400 billion, and this excludes the nation’s top retailer – WalMart. With it included, the top four retailers account for nearly $900 billion per year in sales.

Even with the revenue from every sporting league lumped together with these from the top five sports producers, it amounts to less than half of a single large retailer like Costco. Going beyond retailers, the sum of the revenues of the top five US-based companies exceeds $1.2 trillion dollars. The next five add up to nearly $700 billion. The revenue from these top five sports producers roughly equals that of individual companies like Merck or Best Buy. This is not trivial, but it is not a major industry. Adding in the $13 billion per year generated by the world’s top five soccer leagues  – Premier League, German Bundesliga, Spanish La Liga, Italian Serie A, and French Ligue 1 – does not change the story by much.

Note: The sports revenue data are from various sources. The retailer figures are most recent reports from Yahoo Finance.

Figure 1.1 Comparing revenues of top US sports and selected retailers

Going beyond direct revenues and considering indirect, tangible impacts on communities offers a similar story. Most detailed and careful studies of the impact of sporting events or sports stadiums on local economic activity or tax revenues indicate that these impacts are relatively small and rarely justify subsidies directed toward them. These results are not really surprising given the modest size of the revenue figures.1

Yet, there is another side to the ironic twist about the importance of sports. It attracts an enormous amount of attention among consumers – way of out of line with the revenue that it produces. Longtime sports economist Gerald Scully put it this way, “Sports, in general, and professional sports, in particular, play a larger than life role in the United States.” When the rest of the world is pulled in, the point is even clearer. Over one billion people watched the 2014 FIFA World Cup final between Germany and Argentina with an estimated 12 million Germans watching in public spaces.

Figure 1.2 demonstrates one of the more novel ways in which this attention has been measured and illustrates how far the influence of major sport events like the World Cup final can extend into everyday life. It displays Berlin water usage data in the hours during and surrounding Germany’s 2014 World Cup match with Brazil. Usage dropped by 60 percent during the first half, jumped above the pre-game baseline during halftime, fell again by 60 percent during the second half, and then recovered briefly after the match before falling after midnight. Short of war, it is hard to imagine other events that could bring about this kind of impact.

Note: Data are from http://m.fifa.com/worldcup/news/y=2014/m=6/news=tvviewingbreaks-records-in-first-fifa-world-cup-matches-2378078.html and http://wwwiptvnews.com/2014/07/world-cup-final-breaks-records-worldwide-for-tv-broadcasters/.

Figure 1.2 Berlin water usage during 2014 World Cup Final, Germany v Brazil

Similarly, the Olympic Games generate worldwide attention. Figure 1.3 illustrates this by showing the number of countries to which the summer Olympic games have been telecast since 1956. As television was emerging in the 1950s, coverage was sparse. Now the games beam to over 200 countries. For the Beijing and London Olympics, there were about 3.5 billion viewers. At modest viewing amounts such as 100 minutes, these figures translate into roughly 40 billion viewer hours devoted to the games. If the value of time for these viewers were valued at $10 per hour, then this leisure time spent watching the game amounts to $400 billion.

The degree of media attention and time devoted to sports by consumers swamps that of industries and companies with much higher revenues. WalMart may generate $500 billion per year in revenue, but few people walk around wearing hats or shirts emblazoned with the companies name or logo. Stanford University scientists have won over 20 Nobel Prizes and Northwestern University scientists have many notable achievements, yet trips to the Rose Bowl by their football teams create much more public awareness. There are no trading cards for executives at ExxonMobil or Google as there are for high profile athletes. Consumers do not continue talking about their enjoyment of a gallon of gasoline for days or weeks after purchase like they will “Music City Miracle.” There are no fantasy leagues for cough syrup sales.

Note: Data are from Olympic Marketing Fact File, 2015.

Figure 1.3 Countries televising Summer Olympic Games

These are all visible indications of the large, intangible value of sports, and they appear in other ways that are even more obvious. Every major newspaper in the country has a sports section – even the Wall Street Journal now has a page devoted to sports. Neither Costco nor the entire discount superstore industry or very large industries claim stand-alone sections devoted to them. Sports have spawned dedicated television channels. ESPN started in 1979 as the first 24-hour, seven-day-a-week television coverage of sporting events and news. Now, there are multiple ESPN channels along with one or more sports-dedicated channels for NBC, CBS, and Fox along with stand-alone single sport channels such as the NFL Network, MLB network, NHL, the Golf Channel, the Tennis Channel, and others. Fans still converse about Michael Jordan’s shot against Phoenix in the NBA finals 20 years later, the “immaculate reception” from the 1972 Pittsburgh-Oakland game or the Dodgers move from Brooklyn to Los Angeles 60 years after the fact.

Few sports, if any, illustrate the depth of feelings of fans as international football (soccer). The level of commitment and affection extends well beyond attending or viewing matches and into more visceral and demonstrative displays.

For instance, in the days leading up to the match between Russia and England in the 2016 European Championships, their fans clashed in Marseille, France. These incidents included verbal and physical combat with several arrests. In this case, the Russian fans were reported to be the instigators, but in many infamous incidents in the past in both international and domestic contests, English fans played the role of soccer hooligans. Because of past incidents, home and visiting fans in Premier League matches are often separated by physical barriers during games and police form human barriers to separate fans as they exit stadiums.

Placing monetary figures on these intangible values is not easy. Typically, economists have related housing values to characteristics and amenities in a community to associate a dollar value for these characteristics and amenities of a location such as proximity to the ocean or the amount of pollutants in the air.2 These housing price-based methods are problematic for sports teams because of sample issues and other obstacles. While there are cities with and without NFL teams, for example, the ones without are almost all on the lower end of metropolitan area population and do not give close comparisons for metro areas of five or 10 million people. Los Angeles went two decades without an NFL team; there has always been a lingering expectation of the return of a team, which confounds the interpretation of its housing values as reflecting a city with no NFL team.

In spite of the lack of hard estimates, it is not a stretch to say that the value of time spent reading, discussing, and reliving sports is large. The existence and size of fantasy sports provides an emphatic illustration as well as allowing for back-of-the envelope calculations of time and its value in this niche. Taking estimates of the amount of time spent on fantasy sports and multiplying it by a frequently used measure of the value of time – the average wage rate – yields a figure around $70 billion dollars. These values are derivative from the athletic contests. Yet, the time spent on fantasy sports captures only a small part of the overall time spent by fans reading about, discussing, or thinking about sports. Again, using the average wage rate as a gauge of the value of time, for every one million NFL fans of each team who average one hour per week for the entire year thinking about or discussing the team beyond time spent watching actual telecasts, the value is near $40 billion.

Most of this value goes uncaptured by teams. Traces of it show up in here and there as teams or advertisers attempt to turn fan value into a monetized revenue stream. One such example is in the merchandising revenues for teams, which range from $12 to $14 billion per year since 2009 for North American sports teams.3 Of course, sports teams receive only a portion of these billions paid out to them as royalties from licenses granted. The point is not that teams are capturing all of the intangible value from consumers through this mechanism, but that the very existence of these kinds of sales highlights the existence of these underlying intangible values. There are fans out there who are willing to express some of the value that they get from watching the New England Patriots by wearing a Tom Brady jersey. In addition to team merchandise, individual players in collaboration with sellers of various products are also able to cash in. Michael Jordan receives $60 million per year from his longstanding Nike shoe deal. LeBron James and Kevin Durant both have deals in the region of $30 million per year. At his performance and earning peak, Tiger Wood’s income from his Nike endorsement hovered around $90 million per year.

DURABILITY OF SPORTS CONSUMPTION

What gives sports this unusual power to grab attention in spite of relatively modest revenues? A suggestion for a starting point into an answer lies in the fact that along with athletes, celebrities from film and television also share in lucrative endorsements. George Clooney appears in Nespresso ads, Charlize Theron for Dior, and Beyonce for Pepsi with each receiving about $5 million per year. It is easy to forget that sports are part of the larger entertainment industry. Like sports, other forms of entertainment create unusual connections to the public. Seemingly, when Meryl Streep referred contemptuously to people who would rather watch a football game than a film during her speech at the 2017 Golden Globe Awards, she overlooked the parallels between sports and its cousins in other areas of entertainment.

Not only is sport like film or theater in creating drama and imitating aspects of life, but like these other forms of entertainment, consumers recall and discuss great movies long after the initial viewing. Highly successful adventure or fantasy films like the Star Wars or Harry Potter series spawn a variety of merchandise sales, a method of monetizing some of the intangible value created among consumers. Outside of entertainment, such merchandising revenues are rare.

With entertainment, what are considered consumption items actually possess a durable value similar to physical assets such as houses or automobiles. The value of a gallon of gas disappears as soon as the engine uses the last drop, but the value of the game or movie lives on past the narrow time span of the event itself. Beyond commercial entertainment, other forms of enjoyment and recreation like romantic evenings, family vacations, or hiking and fishing trips also have this quality. Yet, the degree of this kind of post-performance enjoyment and conversation in sports entertainment far outstrips most of these others, particularly other forms of entertainment. People relive games and seasons 50 years on. Green Bay Packer fans alive during the famous 1967 “Ice Bowl” NFL Championship game against Dallas can envision Bart Starr crossing the goal line as if it happened recently. The phrase “Miracle on Ice” – team USA’s unlikely defeat of the Soviet Union in the 1980 Olympics hockey tournament – immediately conjures up the memory to millions of individuals.

Observing this long-lasting consumption quality of sports raises a question on the next level. Why does entertainment, and sports entertainment in particular, possess this durable quality? This question digs into the psychology of consumers. At its root, sports is life, or, at least, life lived out on a stage. It mirrors life with its celebrations, disappointments, tensions, tradeoffs, furious activity, tedium, and subtleties. In this way, it taps into and appeals to emotions and deep-seated psychological underpinnings across a wide array of individuals, who emotionally invest in sports in the same way that they do in great movies or plays and, possibly, more so. The cooking pot from Costco or the gasoline from the convenience store does not create a similar emotional or deep-seated psychological attachment.

Recognizing sports as life is not a novel insight. Many times, commentators have noted that “baseball is life.” This close association between baseball and everyday life has spawned over 100 baseball-related films. Because baseball first secured the position of “America’s pastime,” it has been cited most often in regard to mirroring life, but the point can be expanded to all of sports. Soccer has been called the “theater of dreams.”

In this role, sports becomes more than mere entertainment. Because of sports’ deeply embedded and durable connection with society, it serves as an important institutional and cultural mechanism for social change. Jackie Robinson did far more than simply reflect societal changes – he shaped them. Similarly, the players of Texas Western forged new roads in winning the 1966 NCAA championship with an all-black starting lineup, as documented in the film Glory Road.

MORE THAN CONSUMERS

Most of this book is devoted to examining the overlap between sporting issues and other areas of life. In many ways sports consumers are like any other consumers. They express their preferences with their expenditures, and these expenditures are limited by their incomes. When examined in more detail, however, the preferences and behavior of sports consumers exhibit features that are not seen in most other settings. They have a passion for the product that rarely, if ever, emerges in relation to other goods or services. Few fights or shouting matches break out between the buyers of Grape Nuts and the buyers of Cheerios. Sports fans will travel far and wide to follow their favorite team. They will endure rain and snow to sit through games or queue for tickets. They will celebrate championships in the streets and lament losses for years. Sixty years after the Dodgers left Brooklyn, there are people who talk about it with sadness and conviction. Over 30 years after his death, some Alabama fans still wear hounds tooth hats in either homage to Bear Bryant or as a symbol of his enduring legacy in the program.

In England and other places in Europe, soccer is like a tribal identity even beyond what is seen among American sports fans. The teams have been around for a long time and fans have close geographic attachment to a team – in many cases, the proximity is, literally, on a neighborhood level. Among Premier League teams, Tottenham Hotspur and Arsenal divide up consumers in north London with stadiums only about four miles apart. Chelsea draws from west London and West Ham from the east side. Alongside these clubs, even smaller neighborhood affiliations around London exist for clubs that have hopped in and out of the Premier League including Charlton, Crystal Palace, Fulham, Queens Park Rangers, Watford, and others. Manchester hosts two of the most financially successful clubs in the world in Manchester United and Manchester City, but a bevy of other clubs and their fans are scattered in and near the metro area. Birmingham splits supporters among Birmingham City, Aston Villa, and West Bromwich Albion. Liverpool is divided between Liverpool FC and Everton with their stadiums separated by less than a mile. These clubs are among the more recognizable, but England is dotted with teams that divide cities and neighborhoods. Nottingham holds Nottingham Forest as well as Notts County. Bristol contains Bristol City and Bristol Rovers.

In the framework and terminology of economics, the identification of local residents with these teams and the tribalism means that the consumers are not merely consumers. These fans become members of a club. As club members, they are part consumers of team services but are also part producers. The club membership has evolved into formal and explicit relationships such as when fans purchase “memberships” into Premier League teams or college fans purchase membership in some level of a booster club or organization by making donations. The language of fans also gives explicit expression to these ties that bind them to the club. They refer to “we” rather than “them” when discussing team performance and outcomes.

The club-like features between sporting teams and fans run much deeper than these explicit mechanisms and indications. There is a branch of economics about clubs.4 At its root, the economics of clubs focuses on shared aspects of a good or service, whether the shared elements arise in the production or consumption of the good. Concepts drawn from club economics have been applied to a diverse set of settings, ranging from activities of religious groups to the workings of the European Union. In the case of sports, the fans share both in consumption and production. As consumers they attend games in person or watch the game as a shared experience. However, while attending or watching, fans yell and scream not merely to get something out of the game, but to put something in. Their efforts impact both the team as well as the experience of other fans. Even the mere presence of other fans at the game produces a more enjoyable experience than watching at home or sitting in a stadium that is nearly empty. The shared experiences revolving around the team go beyond the time spent watching games. Conversations among fans about past or future performances of the team become part of the consumer-producer experience.

The club aspect to sport spawns fan affiliation and loyalty that extends far beyond what is typically seen for goods and services. Not all English citizens care about soccer and not all residents of Alabama follow Crimson Tide football. For many who do care, their interest far surpasses a recreational diversion. It becomes a deep-seated, common cultural experience, more akin to highly committed religious or political association and fervor than the purchase of an item from the grocery store or even other forms of entertainment such as a night out at the movies. Moods for the day or week can be determined by the latest performance of the favored team.

At its extreme among diehard fans, team loyalty becomes a defining characteristic of people’s lives and connections. Phrases like “Red Sox Nation,” “Big Blue Nation,” “Leeds Forever,” and similar are indicative of the strength of these bonds. The reasons that fan affiliation and club loyalty develop to a stronger extent in some places than others seems tied to geographic connectedness. Where a large percentage of fans live near the team their entire lives, a stable, long-run connection between teams and fans develops. After all, for the tribalism to develop, fans need to be in close contact with each other and near enough the team to receive regular media coverage. Another factor has been the competition from other sporting and recreational outlets.

Advances in technology and changes in television programming are reducing the need for geographic proximity among fans for them to build strong connections to the team and between each other. College and professional football games are now accessible to fans spread across the country. The internet allows fans to access media coverage of their favorite team regardless of location and to interact with other fans through blogs and discussion boards. While this may never replace daily, face-to-face interactions, it does diminish the reliance on it to a degree.

THE WIDE WORLD OF SPORTS ECONOMICS

With the expansive interest in sports, the “economics of sports” attracts a number of followers among professional economists and beyond. In a narrow sense the “economics of sports” centers on revenues, costs, industry structure, compensation practices, and related topics. It is the study of sports in and of itself.

Yet, sports intimates connection to life and the importance that consumers vest in sports allow for a bridge beyond sports economics for the sake of sports alone and to broader socio-economic topics that overlap with sports. That is the focus in this volume. What are lessons learned on playing fields and in sports institutions that provide insights into other areas? Such inquiries are not without critics inside and outside of academic economists. To them, sports amounts to only a small industry of little importance involving mere games. The outcomes do not really “matter.” To these critics, there tends to be far too much focus on sports already.

These criticisms overlook the points that we have just discussed and related ones considered below. In spite of modest revenues and impacts in terms of typical economic metrics like revenue, the outcomes matter deeply both to participants and consumers. The enormous attention devoted to sports, even inordinate to those critical of sports, is itself prima facie evidence that sports outcomes really do “matter” – not because life and death hinge on them but because people invest importance in them. There is more to the study of sports than merely the comparison of batting averages, passing efficiencies, or player salaries. There are connections to much more general questions in life.

Whether looking narrowly at sports economics topics or more broadly, sports offer rich environments for data analytic studies of all sorts. The observability of these environments has sometimes led to comparisons to laboratory settings.5 It is not exactly a laboratory setting in that researchers cannot manipulate outcomes and hold certain factors constant, although it frequently provides “natural experiments” where a rule or institutional change occurs while most other influences are constant. For example, the elimination of the 2-line offsides pass in the NHL creates a switch in incentives and optimal strategy.

Beyond these natural experiments, sports affords countless opportunities for “field research.” The variety of settings, observability of outcomes, and tradition of detailed statistical measurement allows for empirical investigation of a wide array of topics that can hardly be rivaled by any other setting. The behavior of labor, management, ownership, leagues, officials, and consumers can all be observed and monitored in measurable ways so much so that economics journals of all sorts regularly publish sports economists’ articles; and an entire journal, the Journal of Sports Economics, is now devoted to the subject along with economics-oriented articles in related journals such as the Journal of Sport Management and the Journal of Quantitative Analysis in Sports. The tentacles of economicsbased sports research have grown wider with the explosion of the analytics and “big data” era. In fact, sports research has led the way into the sports analytics era as evidenced by books like Moneyball and the MIT Sloan Sports Analytics annual conference.

Of course, sports do not incorporate every aspect of everyday life, particularly at the extremes. There are no murders, assaults, child abuse, or similar extremes on sporting fields. Short of these extremes, however, most aspects of life are reflected in sports to some extent. There may be no divorces, per se, but there are break-ups with strong emotional content. There may be no births, but fans and players celebrate victories and championships with as much vigor. After Team Canada secured the gold medal in the 2010 Winter Olympics in Vancouver, Canadians poured out into the streets in celebration by the hundreds of thousands.

Simon Rottenberg (1956) kicked off the use of economic research using sports markets with his study of baseball labor markets and the allocation of players among teams.6 He explained a simple but powerful and somewhat controversial thesis at the time: the allocation of players among teams would not be very different in a free agency setting versus a world where a single club reserved exclusive rights over a player. The essence of his reasoning was that the Yankees could obtain higher quality players either in a free-agent world by paying them directly or in a restricted labor world by paying lower revenue teams.

His insight expresses the fundamental logic behind the famous Coase Theorem in economics – the idea that with low costs of reaching an agreement (low transactions costs), the assignment of rights will not impact the allocation of resources. Yet, Rottenberg’s article predates Coase’s by five years and vividly illustrates important connections between the world of sports and broader economic and social issues in the world beyond. Ronald Coase won the Nobel Prize for economics in 1991, in large part, for this idea.

In another seminal contribution with regard to sports labor markets, Gerald Scully (1973) showed that MLB’s Reserve Clause, which allocated negotiating rights to a single team, lowered the pay of major league baseball players below what they could have earned in an open market setting. The problem Scully addressed was how the open market value of an MLB player could be determined when MLB markets were not open. He developed a simple but ingenious solution by using statistics to link player performance statistics like slugging percentages for hitters and strikeout to walk ratios for pitcher to team performance, and then linking these player performances to their contribution to revenues by way of the impact of team performance on revenue. His approach became a template for estimating market values in restricted markets. Methods derived from this have been employed to generate market values for college athletes and used as a template to examine whether workers in broader contexts receive payments in line with their contribution to firm revenues outside of sports settings.7 It also served as a precursor to the “Bosman ruling” in soccer that switched exclusive rights from players to teams. The ruling has not only impacted player compensation but has had a major impact on migration of players and growth of revenues of leagues like the English Premier League.8

An area of longstanding connections between sports economics and broader research in economics is the structure of industries and how firms compete and cooperate within them. The earliest premise presented by Neale (1964) in the Quarterly Journal of Economics were that sports leagues emerged as collusive arrangements between producers that restrict output or price with the ultimate aim of increasing profits above a competitive level – cartels.9 This cartel view of sporting leagues and associations was long dominant among economists and captured many essential elements of league structure and decision making. Extension and expansion of the view focused on game-theoretic dilemmas faced by such arrangements in terms of potential gains from restrictive agreements but, simultaneously, set up ongoing incentives for behavior that undermines the agreement.10 The suit brought against the NCAA cartel by the University of Georgia and the University of Oklahoma that, ultimately, found its way to the US Supreme Court and ended some of the cartel practices continues to reverberate in conference shifting to the present time.

Over time, a more nuanced understanding of industry structure and firm relationships emerged in economics, in general, with sports analysis also evolving.11 Sports leagues are now seen as joint ventures that may integrate some cartel functions but continue to compete as separate entities and cooperate in some ways that are benign with regard to consumer or labor interests.12 For example, schools in the NCAA may continue to act as a cartel with respect to player restrictions at an association level; however, teams in conferences behave more like participants in a joint venture. In other cases, rather than joint ventures among independent firms, a sport like National Association for Stock Car Auto Racing (NASCAR) is organized with a centralized structure operating as a single firm. The PGA Tour operates with this kind of structure with individual players rather than teams as the key operational unit and excels at extracting rewards from local tournament sponsors.13 Ross and Szymanski (2005) have considered whether this structure might also be more efficient for other sports.

This brief summary and sampling of references provides a guide to many of the starting points of the interface between economics and sports. For many years, sports economics focused primarily on labor markets and industry or firm structure. Over the past few decades, as economics widened its scope, many more topics related to sports came under examination by economists. These include race and discrimination, law enforcement and corruption, managerial decisions, strategic behavior, inequality, market efficiency, and many more. These topics comprise the subject matter for the remainder of this volume. Of course, not every topic related to sports and economics is covered in the following chapters. One example is the relative efficiency of market mechanisms and participants in their decisions. Economists have used the extensive data available in sports betting markets with a view toward evaluating the degree to which markets are efficient in eliminating systematic profit opportunities and whether these betting values reflect valuable information. By and large, participants, at least as a group, are highly skilled in utilizing existing information, but some interesting exceptions crop up. One exception found with regularity is the over-betting of longshots while under-betting of favorites in terms of expected returns. Recent evidence suggests that this error by market bettors grows out of misperceptions of the probabilities; however, the size of the error is small, not allowing for systematic profits above transactions costs.14

PUSHING THE BOUNDARIES

My intent in this volume is not to provide a comprehensive review of existing contributions to sports economics or take on every topic. There are a number of existing economics-oriented books that push into various corners of sports topics.15 I select a few topics deserving of additional attention such as the idea that sports really matters, topics on race, inequality, the balance between traditional economic views of managers and behavioral views, and a few others. The “uncut” part of this book comes from my effort to push these topics, highlight dilemmas, probe for insights, and ask questions that are unanswered or avoided. I have not tried to be bombastic or provocative for its own sake. While being sensitive to the delicate nature of some of these issues, I have tried to push outside the box of politically approved explanations.

Even though sports fans share some common attributes and behave like club members, all sports fans are not created equal. In Chapter 2 the discussion centers on how it took MLB more than a decade to realize that its fans differed from NFL fans. In fact, the rethink occurred, largely, as a result of the entrepreneurship of the Braves and Cubs against the wishes of other teams. Also, college sports represents an anomaly in not only sports but entertainment more broadly in that a lower-skill production, college football and basketball, can rival the consumer interest at a higher-level of production, professional football and basketball, at least among top programs. I examine the factors behind this along with consumer interest in women’s sports and the long-run threats to the fan bases of the most popular sports like football and baseball.

In Chapter 3 I ask what the race-related studies in sports indicate about trends in terms of bias and discrimination and current degree of such biases. Studies in sports economics have long found substantive evidence of discrimination. Over time, however, the nature of the evidence has been changing in terms of the magnitude of bias and discrimination. It is one thing to say that bias and discrimination still exists, but it is a different thing to show that it matters in substantive ways. In fact, the evidence now indicates that to the extent that discrimination lingers in sports, it is on a scattered, random basis or in very microscopic quantities. The discussion goes on to ask more provocative questions: is a zero-bias world the goal or is bias all bad? At first glance, the answer seems obvious, but when bias is considered as a different label for affinity, it seems both unrealistic and undesirable to work toward an affinity-free world.

Bias and bigotry persist in the world, yet one of the ongoing stories in sports economics is that markets penalize these attitudes. Beyond the bias and discrimination, there is a story of racial integration and the factors behind it. These are the subject matter of Chapter 4. The Jackie Robison story has been widely told and dramatized in movies, along with the Texas Western story. The wider story of how process of integration as a type of innovation and competition worked out on a wider scale in MLB and college basketball is less well known but informative about the way and time in which markets root out bias.

A related and also controversial question is addressed in Chapter 5, coauthored with Dennis Wilson, as to whether segregation should always be taken as a sign of discrimination. The study of “positional discrimination,” as the label implies, attributes observed differences in catchers versus pitchers or quarterbacks versus wide receivers to discrimination and bias. Likely, such discrimination in positions existed at one time, but continued differences in usage of blacks and whites at different positions may be due to alternative explanations that are innocuous and reflect economic motives.

Chapter 6 draws on the studies of sports, law enforcement, and corruption to raise a question regarding the longstanding antagonism that seems to exist between the public and the police. Many people, who are not serious criminals, go through life suspicious of police in spite of their “public servant” role. In sports, such antagonism arises, in part, because officials help one team when punishing their opponent. Beyond this element, however, there are interesting issues that arise with regard to incentives to and evaluation of officials. Different sports leagues employ different evaluation and incentive mechanisms. On a related twist, I consider the ongoing antagonism toward NFL Commissioner Roger Goodell and what is at the heart of the push for more independent arbitrators to decide punishments.

In business settings and in personal settings, decision makers often come relatively close to the optimizing behavior expressed in fundamental economic models. However, there are well documented departures from such models as studied in the sports betting literature as well as sports management literature, which lend themselves to more of a “behavioral” view of decision making. For example, NFL teams punt more frequently on 4th down than is implied by expected point difference maximization. While these decisions may be less than optimal from a team standpoint, there are underlying incentives on managers that may contribute to this kind of outcome. This is the focus of Chapter 7. Beyond small departures from simple models of optimal decision making, managers sometimes engage in egregiously bad behavior. New Orleans Saints head coach Sean Payton blatantly ignored explicit instructions from the NFL Commissioner and his owner to stop the payment of “bounties.” In a scandalous and sad case, the revered longtime coach at Penn State, Joe Paterno, enabled the continued behavior of a child molester. We use these sports examples to explain how unconstrained, poorly monitored behavior leads to bad decisions in and out of sports settings.

In Chapter 8, I consider some of the complexities that arise regarding competitive balance and equality among sports teams. One of the ongoing themes of competitive balance in sports leagues that have limited revenue sharing or soft salary caps is the ability of well-endowed teams to establish longstanding dominance. College football fits this world where teams like Alabama, USC, and Texas have advantages that help establish winning records, albeit with some bumps. At the same time, smaller schools like Western Kentucky University can compete better in football against major programs in a way they could not 25 years ago. Why is this? Likewise, it is natural to think that a team boosting its financial resources with a generous owner will make life harder for lower teams. However, the entry of Chelsea and Manchester City into the upper echelon of the English Premier League seemed to make life more difficult for Manchester United and Arsenal as much as or more than lower-placed teams.

College athletics is a world of cognitive dissonance. On the one hand, it is easy to observe the large and growing revenues generated by major football and basketball programs. On the other hand, many programs show little or no surpluses, leading analysts and reporters to conclude that schools subsidize college sports to a large extent. Chapter 9 explains how the world of college sports provides instructive lessons on the world of not-for-profit firms and how valuations of the contributions of college athletes can be made in relatively simple ways.

Chapter 10 shows how the power of sports can make a difference on a national scale in addressing problems or expressing common sentiments. The quote from Nelson Mandela at the beginning of this chapter is part of his use of the 1995 World Cup as a means to attempt to unite South Africans and heal some of the longstanding wounds of apartheid. Besides South Africa in 1995, many other sporting events illustrate the political overtones embedded in sports. Some of the most famous incidents include the 1956 “Blood in the Water” water polo match between Hungary and the USSR or the 1980 “Miracle on Ice” victory of the US over the USSR in Olympic ice hockey. While sports can have a positive impact on a large scale, this kind of power and overlap with politics also creates dilemmas on an international level by giving rise and power to super-national organizations like FIFA as well as on a local level with debates about public subsidies to sports stadiums.

NOTES

1.  Some examples across different stadium settings include Noll and Zimbalist (1997), Coates and Humphreys (2003), Dehring et al (2007).
2.  Carlino and Coulson (2004) estimate the net benefits to a city of hosting an NFL team, finding sizable effects in total. Coates et al (2006) express criticisms of their methods, prompting a reply by Carlino and Coulson (2006). Atkinson et al (2008) consider the intangible impacts of the London Olympics, while Humphreys et al (2011) estimate the value of medals for Canadian athletes in the 2010 Winter Games in Vancouver.
3.  The merchandising revenue figures are from https://www.statista.com/statistics.
4.  The seminal contributions to the economics of clubs are Buchanan (1965) and Olson (1965). An extensive discussion is available in Sandler and Tschirhart (1980). There are more recent articles in both sports economics and sports marketing focusing on fan affiliation and loyalty.
5.  Goff and Tollison (1990, Ch 1) first raise the comparisons between laboratory experiments and sports settings. They are explored in greater detail by Kahn (2000).
6.  An overview of connections between sports labor markets and broader issues in labor economics are provided by Rosen and Sanderson (2001) and Kahn (2000).
7.  Brown (1993, 1994) uses it as a basis to consider the value of college athletes, a topic we take up in a later chapter.
8.  See Simmons (1997) and Goddard et al (2012) for examinations of the impact of the Bosman ruling.
9.  Fort and Quirk (1995) offered a wide-ranging review of the economics of sports leagues in the Journal of Economic Literature and then authored a comprehensive study of professional sports (Quirk and Fort, 1997) and abuses in pro sports (Quirk and Fort, 1999). Noll and Zimbalist (1997) is another wide-ranging examination of sports leagues. Zimbalist (1994) focuses on baseball.
10.  Fleisher et al (1992) present a detailed study of the NCAA as a cartel. Fleisher et al (1988) and DeSchriver and Stotlar (1996) are studies that explore the NCAA’s cartel-like arrangements.
11.  Abere et al (2012) provide detailed discussions of the economic structure of NASCAR.
12.  The joint venture perspective on sports leagues appears in Tollison (1999) and Flynn and Gilbert (2001).
13.  Cottle (1981) is responsible for this insight into the PGA Tour’s activities.
14.  Sauer (1998) provides a review of many of the early studies of the efficiency of sports betting markets. He explains that the evidence generally supports market efficiency, but with some interesting exceptions. Brown and Sauer (1993) show that betting markets respond to team abilities and special factors rather than just fluctuating due to random noise.
15.  Bradbury (2007) looks at baseball with an economist’s eye.