Garrett Durig Kelly Glitzos David Laden Aram Tramblian Richard Qin Sports Economics

Garrett DurigKelly GlitzosDavid LadenAram TramblianRichard Qin

Sports Economics

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:• Olympics

Advertisements

• http://www.youtube.com/watch?v=XxFYYP8040A

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 Discrimination1. First Degree•Scalping2. 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•Price by Home Location (PGA Tour)

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 TV network“You don’t buy 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)

Demand for Broadcasting Rights

• Increase in technology and policy leads to an increase in demand for rights.

• Broadcasting rights became more competitiveo increase in feeso increase in sports

coverage Broadcasting Rights

Pric

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Competition For Broadcasting Rights

• Networks began as monopolists • Newer Technology:

• More Channels• New media

• Greater competition• Perfect competition

U.S. Network-Affiliate model

Supplier Distributer Manufacturer Consumer

-NFL-NBA-MLB

NetworkLocal stations

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 milliono Hard cap

•Salary floor of 89%•Most “fair” pay distribution

NFL Salary Cap

•2010 owners opted out of CBAo Uncapped year

•Redskins and Cowboys given penalties for spending during uncapped yearo Currently in arbitration

NBA Salary Cap

•2012 Salary Cap: $58 million•“Soft” Cap

o Exceptions allow teams to exceed cap•Luxury Tax

o $1.50 per dollar for up to $5 milliono $1.75 for 5-10 milliono $2.50 for 10-15 milliono $3.25 for 15-20 million

NBA Soft Cap Exceptions

•Mid Level Exception (MLE)•Biannual Exception•Larry Bird Exception

o Early Birdo 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 First Time Offenders: 22.5%o Second Time Offenders: 30%o Third Time Offenders: 40%

•Four teams have paid tax: NYY, BOS, LAA, DETo 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’so 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 Playerso Draft Picko “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 salaryo “Front loading” and “Back loading”

(Redskins ex.)•Signing Bonus• Incentive•Clauses

o Opt-outo Retiremento Trade restrictions

NFL Jersey Sales

•Top-selling Datao insidenfl.nflshop.com

• Jersey Advertisingo "Authenticity"

Assumptions for Analysis

•Population is consistent between years•Temporary Changes vs Permanent

Changeso Reversion to past

•Perception affects changes

Yearly Data

http://www.admsports.biz/PDF/sb.pdf

http://www.ist-ipmedianet.org/Broadcast_econom http://www.ehow.com/info_8075875_average-salary-sports-commentator.html#ixzz1s7jkiXhHics.pd

http://re5qy4sb7x.search.serialssolutions.com/?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&ctx_tim=2012-04-01T17%3A36%3A44IST&url_ver=Z39.88-2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primo3-Article-gale_ofa&rft_val_fmt=info:ofi/fmt:kev:mtx:&rft.genre=article&rft.atitle=Sports%20Economics.&rft.jtitle=Australian%20Economic%20Review&rft.btitle=&rft.aulast=&rft.auinit=&rft.auinit1=&rft.auinitm=&rft.ausuffix=&rft.au=Booth%2C%20Ross&rft.aucorp=&rft.date=20090901&rft.volume=42&rft.issue=3&rft.part=&rft.quarter=&rft.ssn=&rft.spage=377&rft.epage=&rft.pages=&rft.artnum=&rft.issn=0004-9018&rft.eissn=&rft.isbn=&rft.sici=&rft.coden=&rft_id=info:doi/&rft.object_id=&svc_val_fmt=info:ofi/fmt:kev:mtx:sch_svc&svc.fulltext=yes&rft_dat=%3Cgale_ofa%3E215470871%3C/gale_ofa%3E&rft.eisbn=&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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Sources