If You Build it Will They Come And Other Sports Questions

1
Chapter 40

• If You Build it Will They Come? And Other Sports
  Questions

2
Chapter Outline

• THE PROBLEM FOR CITIES
• THE PROBLEM FOR OWNERS
• THE SPORTS LABOR MARKET
• THE VOCABULARY OF SPORTS LABOR ECONOMICS

3
The Problem for Cities

• If a city wants a team should it
• wait for expansion?
• Cities that succeeded with expansion
• Football
• Jacksonville, Charlotte, Cleveland, Houston
• Baseball
• Miami, Tampa, Denver, Phoenix
• lure a team from another city?
• Cities that succeeded with luring others
• Football
• St. Louis, Memphis, Oakland-LA-Oakland, Baltimore

4
The Economic Impact of a Sports Teams

• Are lures to sports franchises the same as lures
  to other business?
  
• Most economists, argue that sports teams do not
  offer much economic impact. The reasons are
  
• Few home games (8 in football up to 81 in
  baseball)
  
• Local substitution the effect of the
  substitution of one economic activity for another
  within a community, so the net effect is zero.
  Money spent at the stadium is mostly money that
  would have been spent in the city anyway.

5
Why are Stadiums Publicly Funded

• The external benefits to a city that exist
  because a team is in the town. People in a city
  may enjoy following a local team and be willing
  to pay higher taxes to experience that enjoyment.

6
The Problems for Owners

• To Move or to stay
• Owners often threaten to move to get better
  stadiums or luxury boxes added to existing
  stadiums.
  
• To Win or to Profit
• Small market teams rarely succeed in baseball
  because the bulk of revenue is locally derived
  (local TV deals) whereas this is not a factor in
  football because the revenue is generally shared.

7
The Sports Labor Market

• To economists all firms compare the revenue they
  gain by having an employee, their marginal
  revenue product, with what that employee gets in
  wages and benefits.
• Sports is no different except there are often
  limits on what players can do. They can not
  
• pick the team they want to play for.
• agree to a lower salary than league minimums
• make so much that their team violates a salary
  cap.

8
The Negotiation

• The wage for any player will be between the most
  they are worth (their marginal revenue product)
  and the least they will accept, their Reservation
  Wage ( the least amount that a player will accept
  because it is the next best offer)
• Where the negotiation ends up depends greatly on
  the institutional framework of the sport.

9
Necessary Vocabulary

• Free Agent A player that is able to offer
  services to the highest bidder
  
• Draft The process by which new talent is
  assigned to teams
  
• Salary Cap the maximum in total payroll that a
  team can pay its players
  
• Revenue Sharing the process by which some
  revenues are distributed to all teams rather than
  simply the teams that generate them
  
• Reserve Clause a clause that requires that
  players resign with the team to which they
  belonged the previous year
  
• Strike an action by labor to deny employers the
  services of the employees
  
• Lockout an action by employers to deny employees
  access to their jobs
  

10
The Various Sports

• Team Sports
• Football
• League minimum salaries
• Limited free agency after several years of
  service
  
• Salary cap
• Baseball
• League minimum salaries
• Binding arbitration after 3 years
• Free agency after 6 years
• No salary cap
• Basketball
• League minimum salaries
• Free agency after several years
• Salary cap

11
The Various Sports

• Individual Sports
• In golf, tennis etc. talent is paid appearance
  fees and winnings.
  
• In motor sports (NASCAR, CART, IRL, F1) talent is
  paid a salary and a share of winnings.
  

12
Strikes and Lockouts

• There have been repeated strikes and lockouts in
  the team sports and none in the individual
  sports.
  
• The fundamental economic reason for this is that
  there is a direct relationship between pay and
  performance in individual sports and no such
  relationship in team sports.

13
Safety in Motor Sports

• In 2000 and 2001 NASCAR lost four drivers in
  accidents on the track.
  
• In 2001 CART cancelled a race two hours before it
  was to start because of safety concerns.
  
• Safety-speed trade-offs
• Everyone is made better off when safety is
  improved for everyone but if drivers must choose
  between being safe and winning a race, many
  choose to try to win.