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Monopoly and Antitrust. Inefficiency of Monopoly. Competitive Outcome P = MC Q = Q C Monopoly Outcome P M > P = MC Q = Q M < Q C. $. A. P M. B. C. MC. D. MR. Q C. Q M. quantity. A+B+C. A. --. B. A+B+C. A+B. --. C. Rent-seeking may add to DWL. Price Discrimination.

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inefficiency of monopoly
Inefficiency of Monopoly
  • Competitive Outcome
    • P = MC
    • Q = QC
  • Monopoly Outcome
    • PM > P = MC
    • Q = QM < QC

$

A

PM

B

C

MC

D

MR

QC

QM

quantity

A+B+C

A

--

B

A+B+C

A+B

--

C

Rent-seeking may add to DWL

price discrimination
Price Discrimination
  • Pricing strategy that attempts to capture more consumer surplus
  • Types
    • 1st Degree:
    • 2nd Degree:
    • 3rd Degree:
  • Conditions
    • Market power
    • Segment the market
    • Prevent resale

Charge each consumer the highest price they’re WTP

Quantity discounts

Charge prices based on price elasticities

first degree price discrimination
First Degree Price Discrimination
  • Monopolist is able to capture CS

…and eliminate DWL by selling until P = MC

CS

PM

PS

DWL

MC

D

MR

QM

QC

second degree price discrimination
Second Degree Price Discrimination
  • Offering discounts based on the number of games attended
  • Offering discounts based on the number of people in your group

PM

MC

D

MR

QC

QM

third degree price discrimination
Third Degree Price Discrimination
  • Segment market into groups with differing elasticities
    • Adults
    • Senior citizens
  • Profit max rule: MRA = MRS = MC
    • MRA = PA[1 – 1/EA]

Example:

EA = 3

ES = 5

MC = 8

PA = $12

Charge higher price to group

less elastic demand

PS = $10

personal seat licenses
Personal Seat Licenses
  • People pay for the right to buy season tickets
  • Two-part tariff: entrance fee + per unit charge
    • Per unit price = MC = $10
    • Entrance fee = resulting CS = $145/game

$5,945 for 41 game PSL

$300

P = 300 – 0.02Q

MR = 300 – 0.04Q

π= $2,102,500

$525,625

$155

MC = 10

$1,051,250

$525,625

MC

$10

Seasonticketrights.com

MR

D

7250

14,500

monopsony
Monopsony
  • Monopoly on the buyer side
  • Labor Market and the Reserve Clause
are the detroit lions a monopoly
Are the Detroit Lions a Monopoly?
  • Relevant Market?
    • Broader the definition, the lower the market power
  • Natural Monopoly?
    • High fixed costs; low MC

 Economies of scale

    • ATC = TC/Q = [FC + VC]/Q ≈ AFC + MC
  • Public Good?

$

ATC

MC

Quantity

barriers to entry
Barriers to Entry
  • Broadcast contracts
    • NFL spread contracts out over CBS, Fox, NBC, ESPN
  • Pre-emptive franchise location
    • AFL vs NFL in Dallas and Minneapolis
  • Limit pricing
antitrust law
Antitrust Law
  • Sherman Act (1890)
    • Section 1: prohibits cartels (or “trusts”)
      • Every contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations is hereby declared to be illegal.
    • Section 2: attacks monopoly itself
      • Every person who shall monopolize or attempt to monopolize any part of the trade or conspire with any other person or persons to monopolize any part of the trade or commerce among the several states or with foreign nations, shall be deemed guilty of a misdemeanor…
baseball s battle of the leagues
Baseball’s Battle of the Leagues
  • Federal League’s 1914-1915 challenge to the AL-NL

American League

New York Yankees

Chicago White Sox

Washington Senators

Boston Red Sox

Cleveland Indians

Detroit Tigers

Philadelphia Athletics

St. Louis Browns

Federal League

Baltimore Terrapins

Brooklyn Tip-Tops

Buffalo Blues

Chicago Whales

Indianapolis Hoosiers

Kansas City Packers

Pittsburgh Rebels

St. Louis Terriers

National League

Boston Braves

Brooklyn Dodgers

Chicago Cubs

Cincinnati Reds

NY Giants

Philadelphia Phillies

Pittsburgh Pirates

St. Louis Cardinals

federal baseball v nl 1922
Federal Baseball v NL (1922)
  • US District Court (1914)
    • Judge Kennesaw Mountain Landis
    • Delayed ruling for a year
    • All Federal League teams were bought out except one
  • Baltimore Terrapins filed suit against NL because of reserve clause
    • Supreme Court (1922)
      • Ruled baseball was not interstate commerce
  • Result: Baseball is exempt from antitrust laws
      • Toolson v. NY Yankees (1953)
      • Flood v. Kuhn (1972)
contrast with nfl
Contrast with NFL
  • Radovich v NFL (1957)
    • Blacklisted for playing in AAFC
    • NFL lost at Supreme Court

 no legal monopoly power or monopsony power

  • Tried to retain monopsony
    • “Gentleman’s Agreement” until early 1960s
    • “Rozelle Rule” imposed when that broke down
      • Mackey v NFL (1976)
      • Players’ Association negotiated deal that allowed Rule to continue
  • Tried to establish monopoly
    • Got limitedexemptions for TV and merger with AFL
    • No games on Friday (HS) and Saturday (NCAA)
impact of baseball s exemption
Impact of Baseball’s Exemption
  • MLB has had few challengers
    • Federal League was last major rival
    • Other leagues have had regular challenges
  • Baseball has been stable
    • Montreal Expos moved to Washington – 2005
    • Washington Senators to Texas – 1972
    • Blocked attempts by Giants, White Sox, & Pirates
nfl has been far less stable
NFL Has Been Far Less Stable
  • 1980: Oakland Raiders sue NFL
    • Challenged NFL’s right to block move to LA
    • Jury – drawn from LA! – agrees
  • NFL cannot force other teams to stay put
    • Moves from Baltimore, Cleveland, LA (2X), Houston, St. Louis
    • Did dissuade
      • New England from moving to Hartford, CT
      • Seattle from moving to LA
cartel theory

Nash Equilibrium

Cartel Theory
  • Prisoner’s Dilemma

Dominant Strategy?

 Each team would set Low Price

Competitive Outcome: (Low, Low)

Cooperative Outcome: (High, High)

Unstable due to incentive to cheat

ncaa an incidental cartel
NCAA: An IncidentalCartel
  • 18 football-related deaths in 1905
    • President Roosevelt threatened to take action
    • NCAA formed to control “on the field” behavior
  • The Sanity Code (1946)
    • Rules for “off the field” behavior
      • Limits to financial “aid” to athletes
      • “Seven Sinners” refuse
      • NCAA failed to get 2/3 majority needed to expel the 7
        • NCAA in tatters – cannot enforce own rules

Boston College

The Citadel

University of Maryland

University of Virginia

VMI

VPI

Villanova

new life for the ncaa
New Life for the NCAA
  • “Point shaving” scandal breaks out in 1952
    • CCNY ruined as national power
  • Kentucky implicated
      • UK Coach – Adolph Rupp – likely involved as well
      • Also found illegal payments to players by Rupp
    • NCAA failed to respond
    • Embarrassed SEC suspends UK
  • NCAA establishes “Death Penalty”
    • Boycott by other members
    • UK is suspended for one season

SWLa basketball 1973

SMU football 1987

Morehouse soccer 2003

MacMurray tennis 2005

Alabama** football 2002

Baylor** basketball 2004

applying the ncaa s cartel power
Applying the NCAA’s Cartel Power
  • Monopsony Power
    • Drive down price of labor
    • Problem: Schools cheat
  • Monopoly Power
    • Early TV contract
      • Limited teams to 3 TV games every 2 years
      • CFA lobbied for more TV
      • NCAA created I-A and I-AA; reworked revenue sharing
    • CFA v NCAA (1984)
      • Antitrust result: many broadcasts, but less revenue!

1984 proposed NCAA deal: $74m

1984 actual CFA/NCAA deal: $31m

Football Bowl Subdivision (FBS)

Football Championship Subdivision (FCS)

competitive balance

Competitive Balance

The Value of Uncertainty of Outcome

turnover in champions
1949

Yankees beat Dodgers

1950

Yankees beat Phillies

1951

Yankees beat Giants

1952

Yankees beat Dodgers

1953

Yankees beat Dodgers

1954

Giants beat Indians

1955

Dodgers beat Yankees

1956

Yankees beat Dodgers

1957

Braves beat Yankees

1958

Yankees beat Braves

1959

Dodgers* beat White Sox

1960

Pirates beat Yankees

1961

Yankees beat Reds

1962

Yankees beat Giants*

1963

Dodgers* beat Yankees

1964

Cardinals beat Yankees

Turnover in Champions?
is baseball unique
Is Baseball Unique?
  • In 1960s only 2 NBA champions

Celtics: 1959-66, 1968-69

  • Since 1987 only 7 NBA champions

Bulls: 1990-1993; 1996-1998

Lakers: 1987-1988; 2000-2002

Pistons: 1988-1989; 2004

Rockets: 1994-1995

Spurs: 1999; 2003; 2005; 2007

Heat: 2006

Celtics: 2008

  • Similar results for hockey
leagues want competitive balance
Leagues Want Competitive Balance
  • Stimulates interest
    • Attendance
    • TV Ratings
  • Optimal Winning Percent?
    • “law of diminishing returns”
    • Market size effects
  • What is competitive balance?
    • Even competition in each game?
    • Turnover among champions?

$

MC

MRL

MRS

Winning

percentage

WL > WS : League wants large market team to win more often

WS

WL

measuring competitive balance
Measuring Competitive Balance
  • Between Season Variation
    • Hirfindahl-Hirschman Index (HHI)
      • HHI quantifies turnover in champions
      • Also used to measure monopoly power
      • Where: fi=#championships by team i;

T=#Years

Large HHI means

few teams dominate

what is the hhi for the nba since 1987
Championships

Chi: 6

LA: 5

SA: 4

Det: 3

Hou: 2

Miami: 1

Boston: 1

N =21 years

HHI = [62+52+42+32+22+12+12]/21

HHI = 4.4

What is the HHI for the NBA since 1987?
baseball and the hhi
1950s

AL Champions

Yankees (8); Indians; White Sox

 HHI=6.6

NL Champions

Dodgers (5); Giants (2); Braves (2); Phillies

 HHI=3.4

1990s

AL Champions

Yankees (3); Indians (2); Blue Jays (2); Twins; Athletics

HHI=2.1

NL Champions

Braves (5); Reds; Phillies; Marlins; Padres

HHI=3.2

Baseball and the HHI
  • Conclusion of HHI measure:
    • League Championships less concentrated in 1990s
competitive balance28
Competitive Balance
  • Within Season Variation
    • “evenness of competition”
    • Standard deviation
      • Average distance that observation lies from mean
    • Actual: σA =
    • Ideal: σI =
    • Ratio: R = σA / σI

T = number of teams

G = number of games

R > 1 indicates imbalance

attempts to promote competitive balance
Attempts to Promote Competitive Balance
  • Revenue Sharing
    • Indirect method of redistributing players
    • Two conditions:
      • Teams must benefit financially from improving performance
      • Players must be able to move among teams

Example: 60-40 Gate split

NY: RG = $36m and C = $28.8  π = $7.2m

KC: RG = $18m and C = $16  π = $2.0m

πNY = 0.6(36) + 0.4(18) – 28.8 = $0

πKC = 0.6(18) + 0.4(36) – 16 = $8.2m

attempts to promote competitive balance31
Attempts to Promote Competitive Balance
  • Salary Caps
    • NFL (2009): $123m
    • NBA (2008-09): $56.7m
    • NHL (2008-09): $56.7m
slide32

2009 NFL Salary Cap Numbers

(Cap = $123m)

Source: http://www.profootballtalk.com/2009/02/11/team-by-team-cap-numbers/

attempts to promote competitive balance33

George Steinbrenner

Attempts to Promote Competitive Balance
  • Salary Caps
    • NFL (2009): $124m
    • NBA (2008-09): $56.7m
    • NHL (2008-09): $56.7m
  • Luxury Taxes
    • MLB (2008): tax on amount over $155m threshold

 goes into league pool

  • Soft caps:
  • “Larry Bird exemption”
  • Contract restructuring

Yankees (222.2-155)(.40) = $26.9m

Detroit (160.8-155)(.225) = $ 1.3m

attempts to promote competitive balance35
Attempts to Promote Competitive Balance
  • Salary Caps
    • NFL (2009): $124m
    • NBA (2008-09): $56.7m
    • NHL (2008-09): $56.7m
  • Luxury Taxes
    • MLB (2008): tax on amount over $155m threshold

 goes into league pool

  • Reverse Order Drafts
    • Incentive to lose late in season?
  • Schedule Adjustments
  • Soft caps:
  • “Larry Bird exemption”
  • Contract restructuring

Yankees (222.2-155)(.40) = $26.9m

Detroit (160.8-155)(.225) = $ 1.3m

impact of strategies
Impact of Strategies
  • Low correlation between payroll and winning
impact of strategies37
Impact of Strategies
  • Coase Theorem
    • If property rights are well-defined and transactions costs are low enough, then private bargaining can result in an efficient allocation of resources
reserve clause vs free agency
Reserve Clause vs Free Agency
  • Reserve Clause: players are the property of the team that drafted them
  • Free Agency: players can negotiate with any team

New York

Seattle

Revenue = $12m

Revenue = $40m

Salary = $1m

Salary = $1.1m

Reserve Clause

Revenue = $12m

Revenue = $40m

Salary = $12m

Free Agency

impact of strategies39
Impact of Strategies
  • Coase Theorem
    • If property rights are well-defined and transactions costs are low enough, then private bargaining can result in an efficient allocation of resources

Rottenberg’s Invariance Proposition

Initial allocation of player rights does not affect the final distribution of talent

public finance

Public Finance

The Market for Sports Franchises

golden age of baseball 1903 1952
No teams entered, exited, or changed cities

Construction of “old” parks

Change:

Boston Braves  Milwaukee (1953)

St. Louis Browns  Baltimore Orioles (1954)

Philadelphia A’s  Kansas City (1955)

Brooklyn Dodgers  Los Angeles (1958)

NY Giants  San Francisco (1958)

Golden Age of Baseball: 1903-1952

Shibe Park (Phil)

Fenway Park (Bos)

Forbes Field (Pit)

Comiskey Park (Chi)

Navin Field (Det)

Wrigley Field (Chi)

Yankee Stadium (NYY)

Ebbets Field (Brk)

dodger blues
Dodger Blues?
  • Before the move
    • Most profitable team in MLB
    • Alone accounted for 47% of NL’s profits
  • Key Lessons
    • No city “safe”
    • Starts involvement of cities
      • Before 1950 – only 1 stadium publicly built
      • By 1980 – almost all were
what power do teams have
What Power do Teams Have?
  • Monopoly Power
  • All-or-Nothing Demand Curve
  • Winner’s Curse
monopoly power limit output
Monopoly Power: Limit Output
  • Leagues slow to expand
    • By 1953: U.S. demographics had changed
      • Los Angeles had no baseball teams – St. Louis had 2
    • Baseball & Football moved rather than expand
      • NFL did absorb 5 teams from rival leagues
  • MLB expanded (1961-62)
    • Prevent new league (PCL and Rickey)
      • Minnesota, LA Angels, NY Mets, Houston
    • Avert Congressional intervention (Senators)
  • NFL expansion tied to AFL
      • First expanded (1960) to try to kill it
      • Next expanded (1966) to merge with it
all or nothing demand curve
All-or-Nothing Demand Curve
  • Firms generally can’t set both price and quantity
    • Standard monopoly pricing sets price at P1 and allows buyers to buy Q1
      • Consumers earn surplus
      • Firm earns profit
  • Teams confront cities with an all-or-nothing choice: Point A
      • Consumers willing to absorb loss as long as net gain is positive
      • How far can you push consumers?

$

A

Surplus

P1

Loss

MC

D

MR

Q1

Q2

Games

paper clip auction
Guess how many clips are in the cup

Each clip is worth $0.03

Write down your bid (and name) on a piece of paper

Average bid usually lower than actual money value of clips

Winning bid will generally exceed money value

Why did winner overbid?

Most bidders are risk averse

Not all bidders have same expectations

Only most optimistic bidder wins the prize

Does winning the auction become the goal itself?

Paper Clip Auction
winner s curse
Winner’s Curse
  • Buyer overbids due to uncertainty over value of prize
    • V =
    • Who wins?
  • Winner expects greatest payoff – could be:
    • Best suited to exploit opportunity
    • Most optimistic
    • Most intent on winning per se
  • Olympic “competition” for host site

V = bidder’s value

Bt = benefits of prize

r = interest rate

case in point the olympics
Case in Point: The Olympics
  • 1976 Montreal: C$1.6 billion
    • Debt ~C$1.0 billion paid over 30 years
  • 1984 LA
    • Only city to bid on 1984 Summer Olympics
    • $200 million profit!
  • 2004 Athens: $15 billion
  • 2008 Beijing: $42 billion
  • 2012 London: $19 billion?
stadium economics
Stadium Economics
  • What’s true about each facility in Era #1?
    • Name of owner/builder
    • “park” or “field”
  • In Era #2?
    • Reflects source of funding
    • Municipally built
  • In Era #3?
    • Naming rights
      • $2m per year
    • What do firms get for naming rights?

What’s in a Name?

size matters
Size Matters
  • Saw that baseball teams seldom sell out
    • Best: Giants, Red Sox & Cubs
      • Have new – or very old – ballparks
    • Why?
  • Optimal size for baseball stadium 30-40,000
  • Football has larger optimal size
    • Used to rent space from baseball teams in off-season
    • Municipal stadia built when football took off
shape matters too
Shape Matters, Too
  • Municipal “Cookie Cutters”
  • Designed by committee
    • No one happy
    • Lose unique shapes
      • Shibe Park built to fit in city grid
      • Polo Grounds built to fit between tracks & lot
slide53

Metrodome

Minneapolis, MN

location location location the urban ballpark
Location, Location, Location: The Urban Ballpark
  • Retro look
  • Retro location?
    • Municipal stadia often not even in home city
      • Irving Cowboys vs East Rutherford Giants
    • Left decaying stadia in decaying neighborhoods
  • Old ballparks not built downtown
    • > Yankee Stadium built in “Goatville”
    • > Shibe Park on site of hospital for Contagious Diseases
location location location cars and costs
Location, Location, Location: Cars and Costs
  • Fans have moved to suburbs
    • Urban neighborhoods decay
    • Need place to leave cars
  • Result: “a sea of asphalt”
  • Stadium is “space intensive”
    • Creates problems for a downtown location
    • Space costs money
the rent gradient

Rent gradient

The Rent Gradient
  • Center City v. Outskirts
    • Why are NYC hotels taller than in Zanesville, OH?
  • Cost of land falls as move from center of town
    • Height of buildings mimics cost curve

Cost of land

Distance from city center

rent gradient a circular city
Rent Gradient: A Circular City
  • People evenly spread
  • Identical stores on city edge
  • What does A do?
    • How does B respond?
    • What is equilibrium location?
  • Move to center
    • Central business district
  • Implication for housing prices?

A

B

stadia and team values
Stadia and Team Values
  • Problems in stadiums built since 1993
    • 10 of 12 teams drew less in 2003 than last year in old park
    • 4 most valuable teams in 2008 (Yanks, Red Sox, Mets, Dodgers) all in pre-1965 facilities
  • New facilities still seem lucrative in NFL
    • 8 of 10 most valuable teams in new facilities
  • Trend in NBA or NHL?
public finance ii

Public Finance II

What’s in it for the cities?

slide61
Having a football team back in Houston will bring thousands of visitors to our city, and it will generate millions of dollars in our city. I’m excited about our new stadium with a retractable roof. And we’re also very happy about getting a Super Bowl, and as you know that’s very important economically to the city. It will generate probably $300 or $400 million into our economy. But more importantly, it focuses attention on a city that people do not know enough about. Houston Mayor Lee Brown, 1999.
  • Without the Chiefs and the Royals, Kansas City would be nothing but another Wichita… or Des Moines… or Omaha.”

Kansas City mayor Emanuel Cleaver, 1997.

what is point of government
What is point of Government?
  • Set and enforce rules of behavior
  • Macroeconomic stabilization
  • Deal with monopoly
  • Provide public goods
  • Deal with externalities
what are externalities
What are Externalities?
  • Costs/Benefits imposed on non-consenting people
  • Spillover effects
    • Negative Externalities
      • What you do hurts me
      • You don’t compensate me
      • Examples?
    • Positive Externalities
      • What you do helps me
      • I don’t compensate you
      • Examples?
impact of negative externality
Impact of Negative Externality
  • Free Market: P1, Q1
  • Games cause congestion

 imposes cost on others

 shifts supply curve left

  • Optimal Outcome: P2, Q2
  • Free market “overproduces”

 causes DWL

  • What can government do?

S2

$

S1

P2

External cost

P1

D1

Q2

Q1

Games

impact of positive externality
Impact of Positive Externality
  • Free Market: P1, Q1
  • Games generate “winning attitude”
    •  generates benefits for others
    •  shifts demand curve right
  • Optimal Outcome: P2, Q2
  • Free market “underproduces”
    •  causes DWL
  • What can government do?

External benefit

$

S1

P2

P1

D2

D1

Q1

Q2

Games

subsidizing team losses
Subsidizing Team Losses
  • Standard monopoly with high fixed costs may suffer losses
  • Government may offer subsidies to keep team in city
  • Subsidy =

$

ATC

PM

ATC

MC

D

MR

QM

Quantity

can a stadium be a profit center for a city
Revenues

Rental Payments

Share of Concessions, Parking, Luxury Boxes, etc.

Precise arrangements vary by facility

Costs

Standard operating costs (labor, utilities, etc)

Depreciation (facility will eventually be worthless)

Opportunity Cost: Could have invested $$

Foregone tax revenue – city can’t pay itself

Average subsidy to team ~$7 Million/year

Baltimore Ravens pay no rent.

Chicago White Sox pay $1 per year

Cleveland Indians pay rent on a sliding scale:

$1.25 per ticket if A > 2.5 million

$1.00 per ticket if 1.85 < A < 2.5 million

$0.00 per ticket if A < 1.85 million

Cleveland Cavaliers pay rent on same sliding scale as Indians

San Diego Chargers

City receives 10% of ticket revenue

City reimburses team 100% of value of unsold tickets

Ex: $50 ticket

Chargers receive $27 [=(50)(.90)(.60)] if sell ticket

Chargers receive $50 if don’t sell ticket

Can a Stadium be a Profit Center for a City?
calculating the implicit subsidy
Calculating the Implicit Subsidy

S = Operating Revenue – [Depreciation + Opp Cost of Funds + Foregone Taxes]

Estimated Annual Subsidies

($Thousands)

Source: Quirk and Fort (1992).

Note:

NOR = Net Operating Revenue

DEP = Depreciation

OCF = Opportunity Cost of Funds

FPT = Forgone Property Taxes

measuring the value of a franchise
Measuring the Value of a Franchise
  • Economic Impact Studies
  • Cost/Benefit Studies
what do sabres bring to buffalo
What Do Sabres Bring to Buffalo?
  • 2003 estimates by NY State Comptroller:
    • $31M in gate receipts
    • $8.6 M in concessions revenue
    • $4 M in advertising and broadcast revenue
  • Subtotal: $43.6 million
  • Total Impact = $65 million = ($43.6) x (1.5)

Multiplier

multiplier effects
Multiplier Effects
  • Initial spending generates ripple effects

DY= DX + DX*MPC + (DX*MPC)*MPC+…

DY= DX*(1+MPC+MPC2+MPC3+MPC4+…)

DY= DX

  • Example

DX = $35

MPC = 0.80

Where:

X = initial spending

Y = aggregate income

MPC = ΔC / Δ Y

Simple multiplier

Δ Y = 35(5) = $175

The higher the MPC, the higher the multiplier.

modified multiplier
Modified Multiplier

Mlocal =

Example:

MPC = 0.80

f = 0.5

Where f = fraction of spending that is local

Mlocal = 1.67

benefits of a franchise
Benefits of a Franchise
  • Direct Benefits (New Spending)
    • Higher APC?
    • Net exports?
      • Players live elsewhere?
      • Substitution effects?
  • Indirect Benefits
    • Positive externalities?
      • Big league image
      • Sense of identity

MLB revenues < Fruit of the Loom

Single team worth less than sizable department store

Chicago has 5 major league franchises

Sports account for .08% of personal income

Buffalo Sabres: $65 million

Marietta College: $40 million

And now, YOUR Columbus Blue Jackets!

costs of a franchise
Costs of a Franchise
  • Direct Costs
    • Construction
    • Operating
    • Depreciation
    • Opportunity cost of funds
  • Indirect Costs
    • Negative externalities
      • Crime
      • Congestion
      • Noise

Such costs may already have been

internalized for older stadiums

teams and jobs
Teams and Jobs
  • Arizona Diamondbacks [Deloitte and Touche]
    • 340 full-time jobs
    • Cost to city: $240 Million
    • $706,000 per job
  • Baltimore Ravens [MD Dept of B&E Development]
    • Cost per job: $127,000 - $331,000
baade and dye 1990
Baade and Dye (1990)
  • “Impact of Stadiums and Professional Sports on Metropolitan Area Development”
  • Uses sample of 30 cities 1958-87

Dyit-Dyit-1 = b0 + b1*NTit + b2*NSit+…+ eit

  • Neither coefficient statistically significant

Growth in per capita income

Number of

Teams

Number of

Stadiums

other studies
Other Studies
  • Rappoport and Wilkerson (2001) looks at Quality of Life
    • Direct approach: survey residents
    • Indirect approach: examine housing values
  • Coates and Humphreys (2003) look within cities
    • Find higher property values in immediate neighborhood, but falls off rapidly

$

Johnson, Groothuis, and Whitehead (2001):

“What is the most you would be willing to pay out of your own household budget each year in higher city taxes to keep the Penguins in Pittsburgh?”

CS

P

D

Answer: $1.56  $50m over 30 years

Q

Games

stadium financing
Stadium Financing
  • Taxes
    • Sales
    • Property
    • Income
    • User fees
  • Debt
    • Delayed taxes?
  • Lotteries
    • Voluntary tax?

Issues:

Revenue potential

Efficiency

Fairness

impact of taxes
Impact of Taxes
  • Before Tax: P1, Q1
  • Government imposes tax: supply shifts to St
  • After Tax: P2, Q2
    • Revenue =
    • DWL =
  • Burden of tax
    • Buyers pay part
    • Sellers pay part

$

St

S

P2

Per unit tax

P1

P2-t

D

Hotel Rooms

Q2

Q1

tax examples
Tax Examples
  • Miami
    • Proposed sales tax on cruise ship passengers
  • Cleveland
    • 15-year sin tax on residents of Cuyahoga County
  • Milwaukee (Miller Park)
    • 5 county sales tax
    • Regressive tax
  • Seattle
    • Sales tax on restaurants and bars in King County
    • Tax on tickets to games
    • Tax on rental cars
public choice perspective
Public Choice Perspective
  • Politicians pursue their own self-interest
  • Special interest groups have their agenda
    • Highly organized groups have advantage
    • Concentrated benefits and dispersed costs promote rent seeking

A

B

C, D

E

No Stadium

Old Stadium

New, No Frills

Stadium

New, Elaborate

Stadium

Simple majority vote would lead to New, No Frills Stadium

All or nothing choice would lead to New, Elaborate Stadium

baseball has not been convicted of violating the sherman antitrust act because
Baseball has not been convicted of violating the Sherman Antitrust Act because
  • Baseball is the national pastime
  • Baseball was the first sport to institute the reserve clause
  • The Sherman Act does not apply to sports
  • Baseball has been exempt from the antitrust laws
the monopoly power that the ncaa held over tv networks fell apart due to
The monopoly power that the NCAA held over TV networks fell apart due to
  • The prisoner’s dilemma
  • The winner’s curse
  • The outlawing of the reserve clause
  • The entry of new schools into the NCAA
slide86

Suppose the demand for tickets to see a soccer game is given by Q = 40,000 – 400P and the marginal cost is $10 per seat. How many tickets would a profit-maximizing monopolist sell and what price would it charge? (Hint: The marginal revenue curve is given by MR = 100 - .005Q)

  • Q = 40,000; P = $10
  • Q = 20,000; P = $45
  • Q = 36,000; P = $10
  • Q = 18,000; P = $55
slide87

The standard deviation of win percentage for the 32 teams in the NBA in 2005–06 was 0.134. The NBA plays an 82-game season. The standard deviation of win percentage for the 20 teams in the English Premier League in 2005–06 was 0.158. The EPL plays a 38-game season. The idealized standard deviation of win percentages for the NBA and EPL are

  • 1.672 (NBA) and 1.580 (EPL).
  • 0.078 (NBA) and 0.115 (EPL).
  • 0.055 (NBA) and 0.081 (EPL).
  • 2.427 (NBA) and 1.948 (EPL).
based on the information in the previous question which league exhibits more competitive balance
Based on the information in the previous question, which league exhibits more competitive balance?
  • The NBA exhibits more within-season competitive balance, but between-season competitive balance cannot be determined from the information given.
  • The EPL exhibits more within-season competitive balance, but between-season competitive balance cannot be determined from the information given.
  • The NBA exhibits more between-season competitive balance, but within-season competitive balance cannot be determined from the information given.
  • The EPL exhibits more between-season competitive balance, but within-season competitive balance cannot be determined from the information given.
  • Because the leagues have a different number of teams and/or play a different number of games each season, neither between-season nor within-season competitive balance can be determined from the information given.
slide89

Over the past 12 years in Patriot League Women’s Volleyball, American has won 5 titles, Colgate has won 3 league titles, Bucknell has won 2 titles, and Lehigh and Army have each won 1 title. In the NBA over the past 12 years, the L.A. Lakers, San Antonio Spurs, and Chicago Bulls have each won 3 titles, the Houston Rockets, Detroit Pistons, and Miami Heat have each won 1 title. The HHI for championships in Patriot League Volleyball and the NBA are

  • 2.5 (NBA) and 3.3 (PL).
  • 12.0 (NBA) and 12.0 (PL).
  • 30 (NBA) and 40 (PL).
  • 7.0 (NBA) and 4.0 (PL).

HHIPL = 52 + 32 + 22 + 12 + 12)/12 = 40/12 = 3.33.

HHINBA = (32 + 32 + 32 + 12 + 12 + 12)/12 = 30/12 = 2.5

based on the information in the previous question which league exhibits more competitive balance90
Based on the information in the previous question, which league exhibits more competitive balance?
  • The NBA exhibits more between-season competitive balance, but within-season competitive balance cannot be determined from the information given.
  • The PL exhibits more between-season competitive balance, but within-season competitive balance cannot be determined from the information given.
  • The NBA exhibits more within-season competitive balance, but between-season competitive balance cannot be determined from the information given.
  • The PL exhibits more within-season competitive balance, but between-season competitive balance cannot be determined from the information given.
  • Because the leagues have a different number of teams and/or play a different number of games each season, neither within-season nor between-season competitive balance can be determined from the information given.
slide91

Given the following winning percentages of the teams in a league (for a single year) compute the within-season standard deviation for the league.

  • w = 0.063
  • w = 0.251
  • w = 0.281
  • w = 0.315
because of the rent gradient most stadiums are built
Because of the rent gradient most stadiums are built
  • for multiple purposes.
  • on the outskirts of town.
  • larger than they used to be.
  • in the center of town.
the winner s curse suggests that
The Winner’s Curse suggests that
  • teams that do well one season will do less well the next season.
  • teams that win will be a burden to the team that hosts them.
  • cities often lose teams with winning records.
  • cities that attract a franchise typically pay too much
the all or nothing demand curve allows
The all-or-nothing demand curve allows
  • colleges to under-compensate athletes
  • the IOC to overcharge host cities
  • football teams to move from city to city
  • baseball to avoid the antitrust laws
studies of the benefits of a team often overstate the multiplier because
Studies of the benefits of a team often overstate the multiplier because
  • they do not account for inflation
  • they do not consider leakages into surrounding communities
  • they do not count only new expenditures
  • they count expenditures by visitors from outside the region
most economists view tax revenues raised through state lotteries as
Most economists view tax revenues raised through state lotteries as
  • progressive since rich people can afford to buy more tickets
  • the best way to raise funds because no one has to buy tickets
  • a poor idea since lottery tickets are inferior goods
  • regressive since poor people spend a greater fraction of their income on tickets
slide97

You are conducting an economic impact analysis of bringing the Division III World Series back to Marietta. The direct spending impact is expected to be $60,000. The marginal propensity to consume is 0.80 and the people who receive the initial $60,000 live in the area only 9 months out of the year. What is the total impact of the World Series on Marietta?

  • $48,000
  • $60,000
  • $150,000
  • $300,000
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