Market Power

The History of the American Football League

Sports Illustrated has an interesting article in its current "Where Are They Now" issue on the American Football League.   It's a great example of how entrepreneurs, seeing that an industry's customers are not being fully served by an incumbent monopolist, enter the market and change it for the best.

Of course, it would seem that sports leagues are something of a natural monopoly.  The AFL proved to be a successful competitor to the NFL, but eventually merged with the NFL to make the league we know today.  But that's a topic for another day.

Someone Needs a Lesson on What it Means to be Overpaid

Just because a baseball player is paid waaaay above average with stats that don't seem to match the pay does not mean that the player is overpaid.  What matters is a comparison of his pay to what he produces in terms of revenue for his teams.  In other words, the benchmark is how much the hometown fans value the player's productivity.  But that's lost on this writer.

To measure this year’s most overpaid players at the All-Star break, we compared the major offensive stats – batting average, home runs, runs batted in and OPS (on-base percentage plus slugging percentage, now a major metric of production) of each player to the league average for starters at his position. Then we did the same with salaries. Hunter’s number at the break (17 HR, 63 RBI, .304 batting average and .946 OPS) certainly outpace the American League’s other 13 starting center fielders, who average eight homers, 31 RBI, .265 batting average and .754 OPS. But Hunter’s $18 million salary this year is almost six times what the league’s other center fielders make, on average.

But I do agree with this assessment:

When it comes to fighting a salary cap, the union is all for free markets. But constraints that benefit players – such as minimum salaries and limited free agency that controls the supply of players each year – are just fine. The owners pretty much have to live with what they created. And Jeter, Hunter and Beltran can laugh all the way to the bank.

This is what unions are supposed to do:  they are supposed to raise the pay of the people they represent.  But keep in mind the labor market in MLB is defined by the collective bargaining agreement between the union and the league.  These agreements come about through collective bargaining - a series of gives and takes arrived at through negotiation.  In other words, there are trade-offs built into the agreement - some benefit the league, others benefit the union. 

HT to JC Bradbury

A Quick Note on Tournaments

The Williams sisters, Venus and Serena, competed in the Wimbledon championship match again and Serena came out victorious. You already knew that.  It was the third Wimbledon championship match between the two sisters  Combined, they have appeared in the Wimbledon finals 11 times since the 2000.  This year, going into the final, they were a combined 100-13 career at Wimbledon.  Together they have appeared in 7 grand-slam title matches (all data gleaned here).  Like Tiger Woods has been in golf, the Williams Sisters have been a dominant duo in tennis over the years.

In a winner-takes-all tournament, there is less overall effort put forth by all entrants when there is one dominant entrant in the tournament, ceteris paribus.  To get more overall effort, a simple solution is to add a second prize.  If there are two dominant entrants, then to get more overall effort, a third prize is needed.  The bigger the second and third-place prizes, the more effort that gets put forth overall.

A New Way to Measure Defensive Ability in Baseball

A new camera and software system in its final testing phases will record the exact speed and location of the ball and every player on the field, allowing the most digitized of sports to be overrun anew by hundreds of innovative statistics that will rate players more accurately, almost certainly affect their compensation and perhaps alter how the game itself is played.

Story here.  HT JC Bradbury.

 I think that defensive ability matters at the margin for players when it comes to valuing them.  But when I used to analyze MLB player salaries, it was common for researchers to find that defensive statistics did not explain variation in player salaries.  Of course back then (10+ years ago) the statistics we had to work with were things like fielding percentage and errors, variables that don't vary much from player to player at given positions. 

Iowa Chops Cease Operations for the Short Term, At Least

Here is a Des Moines Register article on the Iowa Chops, an American Hockey League team that, despite the construction of a publicly-supported arena, are ceasing operations (at least temporarily) because of mounting losses.

Understanding Marginal Product in Team Sports

Marginal product is the additional "output," however measured, when some input is added to the production process, holding all other inputs constant in their usage. "Uncle John" at Tigerboard has a post that indicates he understands the meaning of marginal product in team sports:

I have to say this about the Bird and Lebron posts. If you had a team with 4 players and added Bird and had those same 4 players and added Lebron. Birds team would win more games. I'm not talking about Larry and Lebron playing 1 on 1. I think the same about Magic and Michael. Lebron has a lot to prove.

I will not add anything to that, except to say that I have no opinion on the subject of who's better: Bird or Lebron.

NCAA Violation Gamble

Ironman comments on Mizzou's ranking regarding potential NCAA busts.

Phil Miller is happy that Mizzou ranks low in a new poll based on the likelihood of the school's athletic programs being sanctioned for NCAA rule violations, which is based on odds set by online gambling site BetUS.com. We wonder if the NCAA itself is behind the poll, given that it would provide an financial incentive for members of a cheating athletic department to bet that their schools would get caught cheating, which they could then ensure happens. Phil thinks they'll just continue pursuing the traditional approach of jumping ship to another ethically-challenged athletic program before their old school officially gets caught....

Just to clarify:  I'd rather not see Mizzou ranked anywhere the top 25 of those most likely to violate NCAA rules.  But given the expanse of its rulebook, I doubt that no violation is even possible.

Teaching Pro Football Players About the Economics of the NFL

DeMaurice Smith, the new head of the NFLPA, is educating NFL players about the business side of the game.  I'll take a stab at a few questions without doing going to Google or any other source. 

“How many people here know the National Football League is a non-profit?” DeMaurice Smith, the longtime Washington, D.C., lawyer asks 75 members of the Seattle Seahawks. No hands rise.

The NFL is a governing entity consists of the 32 teams.  The league governing body per-se may be non-profit, but the teams themselves are very much for-profit entitities.

“How many people here know that the NFL has a special antitrust exemption granted to them by Congress?” Again, no hands.

Here I believe he is referring to the Sports Broadcasting Act of 1961 that allows the league as a whole to act as one in negotiating broadcasting rights.  In other words, congress allows the NFL to act as a monopoly in negotiating these rights.  Otherwise, the individual teams would negotiate their own broadcasting rights, as happens in the three other major US sports.  In the absence of the restriction, teams would compete against one-another for the relatively scarce amount of broadcast time,.  Media providers would pay lower rights fees and fans would also get access to more games. 

OK, I said I would use any other source.  But allow me this:  as a comparison point, see the SCOTUS decision that said the NCAA could not act as a monopoly seller of college football media rights.

“We all understand the difference between a strike and a lockout?” Silence and blank stares.

Both are threat points used when labor negotiations have reached an impasse.  The main difference is that strikes are imposed by the union and lockouts are imposed by the employer.  Both are designed to impose costs on the other party even though they also impose costs on those who use them.

PSL's at Berkeley

So no, Berkeley hasn't exactly been a football factory the last half-century. But that hasn't hurt the self-esteem at Cal, where the university is asking fans to pay $225,000 -- yes, $225,000! -- for personal seat licenses.

...Across the bay, Stanford ticket director Rich Muschell couldn't help but take a shot at his school's archrival. "They're asking $225,000?" he told the Chronicle. "And they give us crap for being elitists."

LOL.  Story here (via Newmark's Door).

USA Wrestling to Pay More for Medal Winners

As we economists often say:  "people respond to incentives."

In an effort to keep the sport’s top athletes from jumping to potentially lucrative MMA (mixed martial arts - Phil) careers after a disappointing three-medal haul in Beijing, wrestlers in 2012 will receive $250,000 for gold, $50,000 for silver and $25,000 for bronze. The payout also increased for world championships medals, with prizes of $50,000, $25,000 and $15,000.