The Economics of Sports

Description

The sports industry provides a seemingly endless set of examples from every area of microeconomics, giving students the opportunity to study economics in a context that holds their interest. Thoroughly updated to reflect the current sports landscape, The Economics of Sports introduces core economic concepts and theories and applies them to American and international sports. Updates for this sixth edition include: More coverage of international sports, including European football; A revised chapter on competitive balance, reflecting new techniques; A brand-new chapter on mega-events such as the Olympics and World Cup; New material on umpire bias; A completely redesigned chapter on amateur competition that focuses exclusively on intercollegiate sports. This chapter is also now modular, enabling instructors who wish to intersperse it with the other chapters to do so with greater ease. This accessible text is supported by a companion website which includes resources for students and instructors. It is the perfect text for advanced undergraduate and graduate courses on sports economics. Title......Page 4 Copyright......Page 5 BRIEF CONTENTS......Page 6 DETAILED CONTENTS......Page 8 List of Figures......Page 17 List of Tables......Page 21 Preface......Page 23 Part One: Introduction and Review of Economic Concepts......Page 30 1 Economics and Sports......Page 31 Introduction......Page 32 1.1 The Organization of the Text......Page 35 Special Features and Additional Resources......Page 36 Opportunity Costs......Page 38 Absolute and Comparative Advantage......Page 39 Biographical Sketch: Babe Didrikson Zaharias......Page 41 Summary......Page 46 Discussion Questions......Page 47 Problems......Page 48 2 Review of the Economist’s Arsenal......Page 50 Introduction......Page 51 Learning Objectives......Page 52 2.1 The Supply and Demand Model......Page 53 Demand, Supply, and Equilibrium......Page 54 Changes in Supply and Demand......Page 59 A Note on the Definition of Output......Page 71 The Production Function......Page 72 Price Ceilings and the Economics of Scalping......Page 76 Perfect Competition......Page 78 Monopoly and Other Imperfectly Competitive Market Structures......Page 81 The Impact of an Increase in Costs......Page 87 2.4 The Rise of Professional Sports......Page 89 Biographical Sketch: Mark Cuban......Page 92 Summary......Page 96 Discussion Questions......Page 97 Problems......Page 98 2A.1 Constrained Maximization......Page 100 2A.2 Using Indifference Curves and Budget Constraints: The Rise of Soccer and Baseball......Page 109 Appendix 2B: Regression Analysis in Brief......Page 113 Part Two: The Industrial Organization of Sports......Page 122 3 Sports Leagues and Franchises......Page 123 Introduction......Page 124 Learning Objectives......Page 126 3.1 Open versus Closed Leagues......Page 127 Maximizing Profits or Maximizing Wins?......Page 130 Revenue Is Determined by Demand......Page 138 A Detailed Look at Revenue......Page 144 Costs......Page 157 League Size, Opportunity Cost, and Team Movement......Page 158 3.4 Open Leagues: Revenue and Cost in European Soccer......Page 166 Profit Maximization in Soccer......Page 169 Biographical Sketch: Bill Veeck......Page 176 Summary......Page 180 Discussion Questions......Page 181 Problems......Page 182 4 Monopoly and Antitrust......Page 190 Introduction......Page 191 Learning Objectives......Page 192 Monopolists and Deadweight Loss......Page 193 Do Monopolies Always Charge Monopoly Prices?......Page 198 Promotion, Relegation, and Monopoly Power in Open Leagues......Page 199 4.2 Strategic Pricing......Page 201 Variable and Dynamic Ticket Pricing......Page 202 Bundling......Page 206 Price Discrimination and Two-Part Pricing......Page 207 4.3 What’s Right with Monopoly?......Page 214 4.4 Strategic Barriers to Entry......Page 217 4.5 Society’s Response to Monopoly: Antitrust Laws......Page 220 An Important Anomaly: Baseball’s Antitrust Exemption......Page 221 Leagues That Lack an Antitrust Exemption......Page 226 Limited Exemptions: The NFL and Television......Page 228 Biographical Sketch: Alvin “Pete” Rozelle......Page 229 Summary......Page 234 Discussion Questions......Page 235 Problems......Page 236 5 Competitive Balance......Page 243 Introduction......Page 244 Learning Objectives......Page 245 The Fans’ Perspective......Page 246 The Owners’ Perspective......Page 249 The Effect of Market Size......Page 250 The Influence of Diminishing Returns......Page 253 A Brief History of Competitive Balance......Page 254 Within-Season Variation......Page 256 Between-Season Variation......Page 261 Illustrating Competitive Imbalance......Page 266 The Invariance Principle......Page 269 Revenue Sharing......Page 273 Salary Caps and Luxury Taxes......Page 275 The Reverse-Order Entry Draft......Page 277 Promotion and Relegation......Page 282 Biographical Sketch: Bud Selig......Page 283 Summary......Page 287 Discussion Questions......Page 289 Problems......Page 290 Part Three: Public Finance and Sports......Page 297 6 The Public Finance of Sports: Who Benefits and How?......Page 298 Introduction......Page 299 Learning Objectives......Page 301 Facilities, Attendance, and Profits......Page 302 The Size and Shape of Stadiums and Arenas......Page 306 The Size and Shape of Basketball and Hockey Arenas......Page 313 The Size and Shape of Football and Soccer Stadiums......Page 314 Do New Facilities Create Better Teams?......Page 316 Teams as Public Goods......Page 318 6.3 How Cities Benefit from Teams and Facilities......Page 321 Positive and Negative Externalities......Page 322 Facilities, Spending, and Tax Revenue......Page 326 Studies of Economic Impact......Page 333 Interest Groups and Public Choice......Page 334 Location, Location, Location......Page 337 Biographical Sketch: Al Davis......Page 339 Summary......Page 344 Discussion Questions......Page 345 Problems......Page 346 7 The Public Finance of Sports: Who Pays and Why?......Page 353 Introduction......Page 354 Learning Objectives......Page 355 Teams on the Move......Page 356 The Four Eras of Stadium Construction......Page 358 Leagues, Cities, and Market Power......Page 363 How Exchange Rates Affect Costs......Page 369 Why Most Stadiums Are Not in the Center of Town......Page 372 7.4 Stadium Costs and Financing......Page 375 7.5 Paying for Stadiums......Page 380 Who Pays a Sales Tax?......Page 384 Incremental Financing......Page 387 Taxes That Spread the Burden......Page 388 The Benefits of Debt......Page 389 Biographical Sketch: George W. Bush......Page 392 Summary......Page 395 Discussion Questions......Page 396 Problems......Page 397 8 Mega-Events......Page 403 Introduction......Page 404 Learning Objectives......Page 406 8.1 A Brief History of Mega-Events......Page 407 The Original Mega-Event: The Ancient Olympics......Page 408 The British Ethic and the Rise of the Modern Olympics......Page 410 The Modern Olympic Games......Page 411 FIFA and the World Cup......Page 414 8.2 The Short-Run Benefits of Hosting Mega-Events......Page 415 Two Types of Event Studies......Page 417 Problems with ex ante Economic Impact Studies......Page 418 Ex post Economic Impact Studies......Page 424 8.3 The Long-Run Benefits of Hosting Mega-Events......Page 430 General Infrastructure......Page 432 Advertising and Branding......Page 433 8.4 The Costs of Hosting Mega-Events......Page 436 8.5 Why Do Cities Continue to Bid?......Page 444 Non-Economic Rationales......Page 445 The Winner’s Curse......Page 446 The All-or-Nothing Demand Curve......Page 448 Biographical Sketch: Willard “Mitt” Romney......Page 450 Summary......Page 453 Discussion Questions......Page 454 Problems......Page 455 Part Four: The Labor Economics of Sports......Page 462 9 An Introduction to Labor Markets in Professional Sports......Page 463 Introduction......Page 464 Learning Objectives......Page 466 9.1 An Overview of Labor Supply and Labor Demand......Page 467 Labor Supply......Page 468 Labor Demand......Page 471 Labor Market Equilibrium......Page 474 Human Capital and Player Compensation......Page 479 9.2 Rank-Order Tournaments and Superstar Effects......Page 481 Tournaments and Effort......Page 482 Women and Tournaments......Page 485 The Economics of Superstars......Page 486 Tournaments, Superstars, and the Distribution of Income......Page 487 9.3 The Dangers of Tournaments and Superstar Effects......Page 490 Pay Disparities and Externalities: The Case of NASCAR......Page 491 The Danger of Trying Too Hard......Page 493 Performance-Enhancing Drugs......Page 494 Biographical Sketch: Scott Boras......Page 498 Summary......Page 502 Discussion Questions......Page 503 Problems......Page 504 Appendix 9A: Using Indifference Curves to Model the Labor–Leisure Choice......Page 506 9A.1 The Labor–Leisure Model When Hours Are Fixed......Page 515 10 Labor Market Imperfections......Page 524 Introduction......Page 525 Learning Objectives......Page 526 The Economics of Monopsony......Page 527 The Impact of Rival Leagues......Page 529 The Reserve Clause......Page 531 A Brief Introduction to the Economics of Unions......Page 533 The Unique Role of Player Associations......Page 538 Professional Associations......Page 539 The Advent of Free Agency......Page 542 Forms of Free Agency......Page 544 The Franchise Tag......Page 546 Salary Arbitration......Page 547 Measuring Monopsony Power......Page 549 Salary Caps......Page 550 Luxury or Competitive Balance Taxes......Page 555 10.4 Conflict and Compromise in Collective Bargaining......Page 557 Economic Theory and Labor Conflict......Page 558 Labor Conflict and Professional Sports......Page 561 Biographical Sketch: Marvin Miller......Page 563 Summary......Page 567 Discussion Questions......Page 568 Problems......Page 569 11 Discrimination......Page 576 Introduction......Page 577 Learning Objectives......Page 578 11.1 Evidence of Discrimination in Sports......Page 579 11.2 The Economic Theory of Discrimination......Page 581 Employer Discrimination......Page 583 Does Anyone Win with Employer Discrimination?......Page 588 Employee Discrimination......Page 594 Consumer Discrimination......Page 596 Positional Discrimination or Hiring Discrimination......Page 600 11.4 Gender Equity......Page 604 What Is a Woman?......Page 606 Biographical Sketch: Branch Rickey......Page 607 Summary......Page 612 Discussion Questions......Page 613 Problems......Page 614 Part Five: Sports in the Not-for-Profit Sector......Page 623 12 The Economics of Intercollegiate Sports......Page 624 Introduction......Page 625 Learning Objectives......Page 626 A Brief History of the NCAA......Page 627 The Structure of the NCAA......Page 630 12.2 The Costs and Benefits of Big-Time College Sports......Page 632 The Revenue from Intercollegiate Athletics......Page 633 The Cost of Intercollegiate Athletics......Page 640 Do Colleges Make a Profit from Athletics?......Page 644 The NCAA and Optimal Cartel Behavior......Page 645 Prisoner’s Dilemma: How Rational Actions Lead to Irrational Outcomes......Page 648 Academic Standards: A Key to Academic Integrity or Exercise of Monopoly Power?......Page 651 Antitrust and College Sports......Page 654 College Sports as Public Goods......Page 656 Admissions......Page 657 Donations and State Funding......Page 658 The Value of Athletes to Colleges......Page 660 The Value of College to Athletes......Page 661 Racial Discrimination......Page 670 Title IX and Gender Discrimination......Page 671 Biographical Sketch: Sonny Vaccaro......Page 675 Summary......Page 679 Discussion Questions......Page 681 Problems......Page 682 References......Page 693 Index......Page 748