Transcript Sports Economics

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:
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
TICKET SALES
•
Price Ceiling
• Quantity Shortage – 2011 Superbowl
• Combination → Dead-Weight Loss
• Attempts to maximize surplus:
- Random Ballots
- Queuing
DYNAMIC TICKET PRICING
•
•
•
•
•
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
TICKET SCALPING
•
Attributes
- Maximizes economic welfare
- Considered unethical
• Form of Secondary Market
- Ticket Quantity Demanded > Ticket
Quantity Supplied
- Due to quantity ceiling from seating limit
TICKET SALES
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
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
• Built
TVbuy
network
“You
don’t
major sports packages now to make
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)
• 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
Price
Demand for Broadcasting
Rights
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
o
o
o
$1.50 per dollar for up to $5 million
$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
o
Early Bird
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
o
First Time Offenders: 22.5%
Second Time Offenders: 30%
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
o
Players
Draft Pick
“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:UTF8&ctx_tim=2012-04-01T17%3A36%3A44IST&url_ver=Z39.882004&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=
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&rft_id=info:oai/%3E
http://www.economist.com/comment/1199599
http://thesportseconomist.com/labels/Elasticity%20of%20demand.htm
http://mjperry.blogspot.com/2011/02/economics-and-logic-of-ticket-scalping.html
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