Econ 323 (5-10) Flashcards
Why do fans/leagues/teams want competitive balance?
-If competitive balance is upset demand for sports may fall
-Ex: salary caps, draft policies
What are the ways to measure competitive balance? How do we interpret our calculations?
Look at balance between the season
Look at balance across multiple seasons
We measure by looking ar standard deviation
-if a league is competitive, teams should have equal opportunities
How balanced are the American sports leagues?
NFL: R=1.61
MLB: R=1.71
NBA(most unbalanced)= 2.82
As R increases competitive balance decreases…
Why do teams build new stadiums?
Builds excitement around the teams
Boost stagnant economies
Cities willing to help teams pay for new facilities because it draws attention
Allows teams to increase ticket prices
Honeymoon effect
teams who move to new stadiums gets an immediate attendance boost
multiplier effect
A small increase of income can have a larger effect on the economy
Ex: I own a restaurant next to the ballpark that gets revenue, as a result I get a boost in business and make $30k. I saved some and spent $25k upgrading my kitchen equipment. Now the equipment company saves some of that and buys a new truck for 20k.
closed economy calculations
1/mps or 1/1-mpc
Open econom calculations
M= 1/(MPS+MPI) or 1/(1-MPC+MPI)
Positive externalities- Externalities of sports stadium
Attracts tourists
Makes cities look better
Brings business to local area
Negative externalities
Construction
Air pollution
Traffic
Increased taxes
Different eras of stadium financing
1890=1930: entrepreneurial era
Owners build and operated their own ballparks
Most places had “field” or “park” in their game instead of “stadium”
Build to force fans to pay to watch games
Most parks had the name of the owners who built it
1980-now: Public private partnerships
Teams pay about half the construction costs and the cities/government pay for the rest of it
- Different ways to fund stadiums
Tax( you want tax to satisfy horizontal equity)
private/ public funding
Raising “sin taxes” (example can be cigarettes)
User fees
Winner’s Curse
The winner of an auction overpays for what she/he has won
Tax Increment Funding
New stadium means increased revenue in the area which means increased tax revenue from existing taxes(sales taxes) which means cities dedicate this to additional revenue to pay back loans/ bonds issued to construct the stadium.
Labor supply and demand
Athletes are supplier of labor
Teams demand labor
The marginal revenue product of workers
Factors affecting demand
Existence of superstars
Popularity among sports
Number of teams in the league
Rule changes/roster limits
Factors that affect supply
Taxes, Technology and Input Prices
Attribution-
when two or more parties are in a dispute sumit proposals to be an independent, 3rd party proposes a solution or compromise
Marginal revenue product
a player’s salary will be set to (approximately) equal his expected contribution to the team’s revenues over the season
equation for MRP
Price of good x (Change in quantity produced/Change in L)
or
Marginal revenue of wines x number of wins
Human capital investment
How can we model a player who invests resources in his/her skills
Set of skills contributing to a person’s productivity
General- increases productivity regardless of the setting
Specific- increases a workers MRP in a specific context
Tournament incentives for effort and cheating
The large discrepancy between 1st and 2nd place rewards can have an effect on support staff
Parents of olympians have been documented for abusing child athletes and forcing kids to practice figure skating and gymnastics
This incentivizes sports medicine staff to seek/provide performance enhancing drugs
Performance enhancing drugs and the Prisoner’s Dilemma
The risk seems crazy to take enhancing drugs: heart problems, liver damage, roid rage
Athletes compete with each other, and none can be sure the other’s aren’t taking PEDs.
This leads to increase in PED’s
Bilateral monopoly
When a monopoly and a monopsony is in the same market
Reserve clause
held players hostage
Restricted free agent
players can solicit offers from other teams, but if player accepts an offer, his current team gets rights
Unrestricted free agent-
player can sign with any team that makes him an offer no strings attached
pros of unions
Important outlet for workers
Reducing workplace conflict
Counter monopsony power
Cons of unions
Limit employment which harms economy
Puts domestic producers at a disadvantage(outsourcing)
Binding attribution
parties involved have a mutual agreement suggested by an arbitrator. (don’t get legalities involves)
Final offer arbitration-
The arbitrator can only select one of the two proposals, not institute their own.(MLB does this in hopes of avoiding constant arbitration cases)
Economic concerns regarding discrimination
Equal access to work- players with equal skill should have equa opportunity no matter their race
ex:if two player(one white and black) of equal skill compete for a job and the job systematically goes with the white player
Equal pay for equal work- equal productive workers in identical positions should receive the same amount of pay
Becker’s model of discrimination
How much someone is willing to pay to discriminate allows us to think of discrimination
Ex: an owner pays a white player $1 million more than an identical hispanic player, the owner values discrimination at $1 million.
This values someone’s Taste for discrimination
Statistical discrimination-
the use of group averages to judge an individual’s productivity level
Has to do with lack of informations, rather than other types of discrimination that has nothing to do with information
Ex: assuming a black player is better at basketball because he’s black
Discrimination vs prejudice
Prejudice is A feeling or emotion while discrimination is an action
Equation for discrimination
wage(1+di)
di=coefficient for discrimination of owner
Employees who discriminate
view their actual wage as being lowered when the player is added.
Consumer discrimination-
(not eliminated by market forces over time) harms target groups but does not affect those doing the discrimination.
Positional discrimination-
when players are underrepresented or overrepresented at certain positions due to their race. Leads to role discrimination
role discrimination-
steering minority players towards specific positions. If minorities aren’t encouraged to try all positions at a young age, then positional discrimination is reinforced at a professional level.
Regression
a measure of relationship of one variable and corresponding values of other variables
Independent vs dependent variables
dependent variable depends on the independent variable
ordinary least squares(OLS):
Minimizes the sum of squared distances between the line and data points.
