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Sports Economics 330 > Exam 2 Material > Flashcards

Exam 2 Material Flashcards

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Sports Trivia flashcards
1
Q

What are fixed costs in the short run?

A

Coaches salary, player salary, facility size

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2
Q

Limitations to spending money to improve team quality

A

revenue structure, profit mentality of the owner, gate revenue and sharing

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3
Q

Advantages of large market teams

A
  • larger revenue pool

- can buy more talent

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4
Q

What is gate revenue? How much does each league share?

A 
-Revenue from ticket sales
NFL: 40%
MLB: 31%
NHL: 35%
NBA: 50%
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5
Q

How does NFL divide broadcasting rights revenue? How much does each team receive?

A

Shared evenly by each team

Each team receives $226million

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6
Q

What is an RSN?

A

Regional Sports Network;

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7
Q

Explain “TV broadcasts are a two-edge sword”

A

ADV: fans watch live = attracts advertisers = large revenue,
DIS: Watching TV at home substitutes attending games

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8
Q

Explain “ Network demand for broadcasts is a derived demand”

A

It is driven by sponsors’ demand for commercial time, advertisers are the deriver

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9
Q

Why would a network pay for broadcast rights even if it lost money in doing so?

A
  • credibility; to establish themselves

- can attract affiliates

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10
Q

5 main sources of revenue for a sports franchise:

A
  1. Ticket revenue (gate revenue)
  2. Broadcasting revenue (broadcasting rights)
  3. Licensing Income
  4. Venue Revenue (concessions, luxury seats)
  5. Transfer Revenue (trades)
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11
Q

Detroit Lions sell 20 seat luxury suit for $350,000. Each ticket valued at $150. During a season with 8 home games, how much revenue will the lions have to share?

A

20 seats * $150 * 8 home games = $24,000
NFL only shares 40% of that therefore only has to share
$24,000 *.40 = $9600

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12
Q

Why do some critics consider revenue sharing a tax on quality?

A

relative quality is in question because there is no motivation to make a quality team

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13
Q

How does the NFL revenue sharing result in ‘tragedy of commons’

A

When something is shared, it is often abused

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14
Q

Why does ESPN pay so much more than other networks?

A
  • Sunday football so was already taken, therefore HAD to get some NFL games so Monday night was all that was left
  • clash with negotiator
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15
Q

What role did HULU and Netflix play in the growth for sports programming?

A

They took out the value of commercials in all tv programs that did not need to be viewed live, therefore increasing the value of commercials during live sports programming

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16
Q

Was the growth in sports programming good for players?

A

Yes because there was more money to pay players

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17
Q

“The effects of lower attendance will bleed into other aspects of the business” What does this mean?

A
  • Less people attending games means less concession and merchandise revenue
  • Less people at the games means less energy in the stadium resulting in a less entertaining game
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18
Q

Why are teams not seeing financial gains despite their winning success? (4)

A
  1. Most teams lack emotional connection w/fans
  2. In-person consumption doesn’t match fan consumption habits
  3. Teams fail to engage fans continuously
  4. Fans don’t feel heard/understood
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19
Q

Why would a corporation buy a luxury suite?

A
  • to entertain and build relationships with clients
  • families to spend time together
  • can deduct up to 50% in taxes
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20
Q

What are some pitfalls to selling luxury suites to corporations?

A
  • $ evaporates in financial down times

- traditional tickets decrease in number but increase in price

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21
Q

In a monopoly, consumer surplus shrink, where does this surplus go?

A

To the producer surplus and some to deadweight loss

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22
Q

What is the difference between dynamic ticket pricing and variable ticket pricing?

A

Dynamic: As season unfolds, prices change
Variable: Prices are known before season begins

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23
Q

Why would a team offer bundle ticket pricing?

A

To sell least popular game tickets with most popular game tickets

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24
Q

What is 1st degree price discrimination?

A

Know what will pay and charge that

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25
Q

What is 2nd degree price discrimination?

A

Certain criteria (BOGO)

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26
Q

What is 3rd degree price discrimination?

A

Belong to certain group (students, seniors, etc)

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27
Q

Explain “ The dynamic ticket prices make no assumptions about price elasticity”

A

Prices adjusting based on the season unfolding, purely demand driven at that point, price elasticity out the window

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28
Q

Why does baseball have a greater opportunity for dynamic ticket pricing than hockey (or other sports?)

A
  • larger stadiums don’t necessarily sell out

- weather is a factor

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29
Q

Name the four major input categories on why tickets change as season unfolds

A
  1. seasonal time factors
  2. opponent factors
  3. stadium factors
  4. social factors
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30
Q

What were the top four drivers for dynamic ticket pricing?

A

a. Days until the game
b. Time of the game
c. Daily home team tweet count
d. Opponent previous season playoff status
e. Opponent franchise value
f. Current month/week

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31
Q

What financial impact occurred when Federal league declared itself a major league and started to compete against the American and National league?

A

-substantial legal fees, elevated player salaries, on-field competition

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32
Q

How did the AL and NL monopolize pool of talent?

A

By tying up players to team for their entire career (Reverse clause), ultimately making it difficult for federal league to from competitive teams

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33
Q

How was the situation resolved between AL, NL, and Federal league?

A

Through peace negotiations that FL would end operations in exchange of $450,000 from major leagues

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34
Q

What did Baltimore object to and what were the results?

A

Baltimore did not receive anything under deal, results were establishing baseball’s antitrust exemption

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35
Q

Why would it be difficult for a rival league to bring a monopolization lawsuit against the MLB?

A
  1. confrontation of baseball’s antitrust exemption
  2. Monopolizing an industry does not violate Sherman Act, major leagues must engage in some exclusionary conduct that unfairly prevents rivals from entering industry in order to be found to be monopolizing
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36
Q

Why have some fighters filed antitrust lawsuit against UFC?

A

Fighters have no bargaining leverage with MMA leagues therefore they get paid low wages with strict restrictions
-players believe they have been denied free agency and name, image, and likeness rights

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37
Q

What is the ‘Champions Clause’

A

Fighters cannot negotiate contract when they win a championship, instead it extends their current contract

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38
Q

What is the ‘Exclusivity Clause’?

A

Allows UFC to match offers received by fighters from other MMA leagues even after the fighter’s UFC contract has expired

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39
Q

What is the ‘Ancillary Rights Clause’?

A

Grants UFC exclusive name, image, and likeness rights for merchandise, video games, and broadcasts

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40
Q

What is a monoposony?

A

Those selling a service are stuck selling those services to one main buyer; the buyer can set low prices and impose other restrictions on the sellers who know that other buyers aren’t significant enough to offer better prices

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41
Q

What is the ‘non-statutory labor exemption’?

A

Employment restrictions created through collective bargaining are exempt from Section 1 of Sherman Act which prohibits competitions from conspiring to impose unreasonable restrictions on players earning power

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42
Q

What are 4 defense UFC is likely to use?

A
  1. Contracts are voluntary
  2. Practices are promoted by capitalism
  3. Found nothing unlawful in 2011-2012 investigation
  4. Forcing change would harm elite professional fighting
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43
Q

Explain the two ways MLB violated Sherman Act:

A
  1. Cable packages don’t allow fans ability to choose teams/games they’d liked to purchase
  2. Cable packages blackout games on locally broadcast stations
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44
Q

In what three ways have lower courts interpreted the ruling in Flood v. Kuhn?

A

Shields:

  1. entire business of baseball
  2. only reserve clause
  3. baseball’s unique characteristics/needs
45
Q

What are three primary sources of disagreement in regards to the impact of market size on competitive balance?

A
  1. how we measure success
  2. how to define market size
  3. how to measure impacts of policies
46
Q

Why does winning have a bigger impact in a larger market?

A

More people in larger market which results in more revenue of all kinds

47
Q

How does diminishing marginal returns promote competitive balance?

A

Prevents teams from stock piling players. After a certain amount of starters, outputs will start to decline because i you add another player they will have less of an impact on wins but still cost as though they have a large impact

48
Q

What formula is used to measure competitive balance over a span of time?

A

HHI

49
Q

What four methods have the Big-4 leagues developed to promote competitive balance?

A
  1. Free Agency
  2. Revenue Sharing
  3. Salary Cap and Luxury Taxes
  4. Reverse Order Draft
50
Q

Explain the binomial distribution and how it applies to competitive balance

A

More games played, more likely to gravitate towards mean, so we find ideal standard deviation.

51
Q

Why do many economist believe that free agency has not reduced competitive balance?

A

invariance principle, player is going to go to the team in which they are valued most

52
Q

What is the goal of revenue sharing and when does it break down?

A
  • the goal is to mitigate market size

- breaks down when revenue goes into owners pockets instead of spending it on buying talent

53
Q

What is a salary cap?

A

Range of upper and lower payrolls, applies to the entire league in which x amount of money must be spent but can’t go over a certain amount

54
Q

How does a luxury tax differ from a salary cap?

A

It doesn’t prohibit big payrolls

55
Q

How does a luxury tax work?

A

Penalizes team whose total payroll exceeds a previously established amount

56
Q

How easy is it for a team to reset their tax rate?

A

Avoiding the luxury tax for just one year resets the team’s tax rate

57
Q

How is the tax money spent?

A 
50% = player benefits
25% = baseball development in countries without HS baseball 
25% = industry growth fund
58
Q

What teams qualify for the CBL?

A

10 smallest market teams, 10 lowest revenue teams

59
Q

How are the lottery odds determined?

A

Based on each teams previous season’s winning percentage

60
Q

When does the CBL take place?

A

End of first and second round

61
Q

What are some conditions/limitations to trading lottery picks?

A
  • Can’t be sold for cash
  • Can only be traded once, only team that wins a pick can trade it
  • Only dealt during season
62
Q

What three brackets is ‘all revenue’ divided into and what precent do players receive from that bracket?

A
  • League Media
  • NFL ventures/Post Season
  • Local
63
Q

What percent of the Salary Cap must the NFL spend/ each team?

A

Each team = 90%

64
Q

What is the Top 51 Rule?

A

Only the top 51 player salaries for a team count against the salary cap during the off season

65
Q

What does it mean to ‘back-load’ a contract and how does the 30% rule help mitigate back-loading?

A
  • To back load a contract means to push all the heavy money towards the end of the contract
  • The rules says that contracts cannot have an annual increase of more than 30% each year
66
Q

What are drawbacks to backloading contracts for players?

A

Player may be released before reaching big money part of contract

67
Q

What are incentives to for players to sign a backloaded contract?

A

Signing bonuses

68
Q

How do signing bonuses impact the salary cap?

A

Signing bonuses are part of the salary cap, the signing bonus will be prorated over the length of the contract

69
Q

What are voidable years?

A

If meet certain goals, may be able to be free agent before contract is up

70
Q

What’s the difference between ‘likely to be earned’ and ‘not likely to be earned’ cash incentives and how to each impact the salary cap?

A

likely to be earned is in the salary cap because there is a high probability of being earned, most likely earned last season

71
Q

What is the Barry Sanders rule?

A
  • if player quits there is cap relief

- player pays back signing bonus

72
Q

What is the competitive balance ratio?

A

actual standard deviation/ ideal standard deviation

73
Q

What is accounting profit?

A

Revenue - expenses

74
Q

What is economic profit?

A

Accounting profit - opportunity costs

75
Q

ERA #1 1900-1923

A

Stadium Names: Park, Field, reflect team owner
Shape: Unique, design to fit in city grid
* NFL rented space because not popular enough for own

76
Q

ERA #2 1960-1991

A 
Names: "Stadium"
City begins to pay for them 
Stadiums become multipurpose
Can't fit in city block
SHAPE : cookie cutter, too big for baseball too small for football
77
Q

ERA #3 1992-PRESENT

A

Stadium Names on who bought naming rights (companies)
SHAPE: single use facilities
SHAPE: Return to unique shape

78
Q

What are external benefits from funding a stadium?

A

-puts the city on the map (stories/news)

79
Q

What are problems with funding a stadium?

A

-it’s hard to profit from

80
Q

What are sports subsidies?

A
  • infrastructure (water, electricity, trash collections)
  • operating (attendance targets, operations subsidized)
  • construction (demolition)
81
Q

What is the difference between direct and indirect economic benefits?

A

direct: happens at the stadium
indirect: happens as a result of stadium spending

82
Q

What are arguments against public finance?

A

Money could be spent in better areas,

*think FLINT and HOCKEY STADIUM

83
Q

How do teams benefit from new facilities?

A
  • attract new people
  • MLB sees largest increase
  • avg increase is 33%
84
Q

What is the honeymoon effect?

A
  • new attendance only last 10 max years
  • NEW STADIUM CANNOT MASK THE QUALITY OF PLAY
  • people will go there once to see new facility
85
Q

Why build a new stadium?

A
  • attract talent

- luxury boxes (premium seating)

86
Q

When does a new facility increase wins?

A
  • teams have greater incentive to win
  • no incentive to reinvest additional revenues to increase wins
  • new venues are not associated with more wins
87
Q

When are teams considered a public good?

A

When teams become integrated into the community,

non-excludable, good that is not rivalrous

88
Q

What are negative externalities of sports?

A

pollution, cops at intersections for bike races ($), social cost *think Stella’s and Griffins

89
Q

What are the two forms of spending?

A
  1. New spending

2. Exporting

90
Q

_________ is not new spending

A

Substitute spending

91
Q

Conduits

A

destination but money goes, athletes rent living areas but send money to home city,
items in concessions is generally made elsewhere therefore that money is going out

92
Q

Why are athletes high savers?

A

Their career is short lived

93
Q

How do we identify win maximizing teams?

A

-go after wins right away, operating income will be super negative but will shine later

94
Q

Who profits more? Win-maximizers or profit maximizer?

A

Profit

95
Q

Who does not have a salary cap?

A

MLB

96
Q

Free Agency:

A

assigns property rights to the players, can se talent to those who value them most

97
Q

What is the goal of revenue sharing?

A

To prevent teams from buying talent

98
Q

Teams must spend ___ of hard cap?

A

90%

99
Q

NBA Cap MIN/MAX salaries?

A

6yr= 25% or 9 mill
7-9 yrs = 30% or 11 mil
10+ years = 35% of cap or 14 mill

100
Q

What is the Derek Rose rule?

A

Allow you to go to the next tier but must hit some criteria

101
Q

Does NBA have hard or soft cap?

A

Soft

102
Q

What are the three categories to the MLE of the NBA?

A
  • non tax player
  • tax player
  • room level
103
Q

What is the Larry bird exception?

A

Allow team to exceed their cap on their own free agent,

basically shouldn’t be punished for signing veteran plaeyr

104
Q

What is the early bird exception?

A

2 years with team and have to be free agent (LEBRON)

105
Q

What is the non-bird exception?

A

Would qualify for bird exception but was used for another player

106
Q

What makes up for the MLB not having a salary cap?

A

Luxury tax, 22.5% for first time offenders

107
Q

The _____ the standard deviation, the more competitively balance it is

A

smaller

108
Q

What is more competitively balanced . 067 or .054?

A

.054

Sports Economics 330 (2 decks)

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