Market Power

A Little Econ Lesson for Mr. Franken

From the STrib:

With Minnesotans squeezed at every turn by high fuel prices, DFL U.S. Senate candidate Al Franken pumped his own energy proposals on Monday while taking another swipe at rival U.S. Sen. Norm Coleman.

Franken said the United States should sell 50 million barrels of crude oil from its Strategic Petroleum Reserve between now and Election Day -- a move that he said would lower gas prices, generate revenue and deflate the speculator bubble that has helped send oil prices skyward.

Coleman, he said, refused last week to back legislation that would have lowered speculation and instead supports offshore oil drilling that Franken said would take 20 years to affect gas prices.

Kudos to Coleman for not backing the fight against speculation, but "booo" to Franken for saying future drilling would take so long to affect prices.  Speculation, by definition, is the action of making decisions based upon future expectations.  Allowing more drilling offshore (or in the ANWR for that matter) increases the expected supply of oil which, in turn, decreases the expected price of oil.  Speculators would sell off their futures, leading to a lower current price and it would not take 20 years to affect gas prices.  20 days, maybe.  But not 20 years.

Sydney's Olympics in Retrospect

From the London Times:

Eight years on, it is the morning after the night before. From the heights of hindsight, participants and observers say that the sober reality is that Sydney set no records for legacy planning. Nor are there any medals to be handed out for economic benefits. The Olympics was touted as the flame that would cast fresh light on the city and lure planeload after planeload of curious foreigners Down Under. Sydney's recognition soared and the tourists flocked, but the effect was a one-off.

In the three years after the Games foreign tourism to New South Wales rose less than for Australia as a whole, the Centre of Policy Studies at Monash University in Melbourne said. There was no debt legacy, but neither was there a multibillion-dollar windfall forecast by its political cheerleaders. The state's auditor-general says that the financial result was a net cost to the public finances of at least A$1.5billion (about £720million).

That reminds me of the 2008 Super Bowl.  From the "unintended consequences" department.

...But in terms of mass participation - a big justification for public funding of sport - it appears that the Olympic rings did little to encourage Australians to jump through hoops.

Professor Kristine Toohey, a sports academic at Griffith University in Queensland, said that there was no proof of increased participation and one study demonstrated that the Olympics encouraged more people only to watch sport on television.

HT Skip

Why is Marvin Miller not in the HOF?

Speaking of being admitted into a club:

That tally for Miller was obviously too close for comfort for baseball's establishment, concerned that he would probably reach the three-quarters threshold in the next vote. Later that year, the Hall of Fame board carried out a coup. They changed the rules and transformed a democratic voting process into a conspiracy of cronies. They created a twelve-member committee, responsible solely for considering baseball executives, with nine votes required for selection. The much smaller group included seven former executives, two Hall of Fame players, and three writers. When that group met last December, the ballot they considered included ten people, eight of them former team owners or executives as well as Kuhn and Miller. Miller only got three votes. Three people received enough votes to gain entry into the exclusive club. Walter O'Malley, who owned the Brooklyn and Los Angeles Dodgers from 1950 to 1979, received nine votes. Barney Dreyfuss, who owned the Pittsburgh Pirates from 1900 to 1932, earned ten votes. Kuhn, baseball commissioner from 1969 to 1984, also received ten votes.

...Although the sixteen-member Hall of Fame board is dominated by owners and team executives, the five former players on the board--Seaver, Frank Robinson, Joe Morgan, Robin Roberts and Brooks Robinson--could use their collective voice to raise a stink. Brooks Robinson, a longtime MLBPA leader during his outstanding career, is also president of the players Alumni Association

Miller now says he doesn't want to be considered for the Hall of Fame again. He even wrote a letter to the Baseball Writers Association of America in May, observing, "The anti-union bias of the powers who control the hall has consistently prevented recognition of the historic significance of the changes to baseball brought about by collective bargaining." He criticized the "rigged veterans committee whose members are handpicked to reach a particular outcome while offering the pretense of a democratic vote." He added: "It is an insult to baseball fans, historians, sports writers and especially to those baseball players who sacrificed and brought the game into the twenty-first century. At the age of 91, I can do without farce."

Starting theoretically with Rottenberg and empirically with Scully, economists have shown the effect of baseball's reserve clause and the effect of its dismantling.  Consistent with Rottenberg's Invariance Hypothesis, competitive balance has not been tilted to the "big market" teams because of the existence of free agency and the game of baseball has not been hurt.  But the pocketbooks of the clubs, and their public relations, have been affected, and it is for that reason why Marvin Miller may have a difficult time getting into the Club Hall of Fame.

American Sports Leagues are Clubs

Baseball, like the other 4 major sports leagues in the US, is not an open league.  It's not like English soccer where any owner who wants to start a club only has to get the right resources together.  Prospective occer owners do not have to get permission from the owners. 

No.  In the US, each sports league is a club and gaining membership into the club is by election of the current members:  3/4ths to be exact.  Sure, you have to have the cash and the business acumen, but even if you have the financial might to afford a club and the entrepreneurial ability to take your team to great heights, that's not enough to get you into the club. 

Mark Cuban wants to buy the Cubs and he's reportedly made an offer.  But if there is enough political sway from within the "Lords of Baseball" to get 9 owners to vote for Cuban ownership embargo, then Mark Cuban will go the way of the Cuban cigar.

It's tough for Cuban to go on the record these days, particularly with me, a frequent critic of the lords. But a source close to the situation reminded me of the underlying story: ``MLB can't be involved until after the Cubs pick someone.'' Meaning, Zell and Cuban could bond like long lost brothers, and Cuban's group could bid a trillion zillion dollars for the Cubs -- and it still wouldn't matter if Bud (Selig) and Jerry (Reinsdorf) drive the political wedge and opt for their kind of peeps. There is a precedent, by the way. It happened in 2002, when the lords rejected the highest bid for the Boston Red Sox and went with the lower, $660-million bid of Selig's dude, John Henry.

This might explain why Zell, in an impressive pre-emptive strike, rejected the bid of a big-clout group presumably supported by the lords. John Canning is a Selig guy, an 11 percent owner of the Milwaukee Brewers. He's a Chicago guy, chairman of private equity firm Madison Dearborn Partners LLC. He had men influential in Reinsdorf's world -- Aon Corp. chairman and Chicago 2016 chief Patrick Ryan, Chicago sports mogul Andrew McKenna and restaurant=2 0legends Rich Melman and Larry Levy. It's hard to believe their bid was so low that Zell buried it. But then, given the Red Sox case, can you blame him? This could have been his message to the lords -- you can't politically favor Canning if he isn't part of the process.

In the end, though, not even Zell can circumvent the reality: Selig and his boys have the hammer.

Those who care about baseball should be alarmed that the owners have so much power. Way back in September 1992, for all you kids out there, Bud and Jerry led a coup at a O'Hare hotel to rub out the last middleman commissioner, Fay Vincent. With the owners firmly in control, baseball endured a crippling labor mess and a steroids scandal enabled by, yes, a see-no-evil commissioner and complicit owners who allowed bulked-up creatures to revive the sport with inflated power numbers. In this vein, Selig and the owners can choose who they as new partners. The situation hasn't worked out well in Washington, where Reinsdorf helped maneuver the Montreal franchise to the nation's capital and magically watched son Michael and his International Facilities Group attempt to win a $3.7 million consulting fee for the new ballpark. Remember when D.C. councilman Adrian M. Fenty, an opponent of the stadium deal, raised hell about a conflict of interest? ``Jerry Reinsdorf is an extremely wealthy businessperson only interested in making money," Fenty told the Washington Post in 2004. ``The fact that we som ehow are preparing to possibly hire one of his family members makes the deal that much more bothersome and troubling." End result: The Nationals stink, attendance is only 17th in the majors, and Washington baseball remains a trial in progress.

Like they say, read the whole thing.

Why Are Ballparks Becoming Smaller

Skip at TSE:

At Baseball Prospectus, Nate Silver provides a thorough analysis of the downsizing of Major League Baseball stadiums in recent years. (Silver's piece is free until 7/27, gated thereafter). I'm struck by two things. New stadia have almost 10,00 fewer seats, a considerable decline. Yet the trend in the English Premier League is the reverse - the top clubs adding a significant number of seats to their stadia. Second, Silver mentions an problem at Wrigley Field which strikes me as moderately serious: "Wrigley Field’s bathrooms can require an inning-long trip once everyone has had their fill of Old Style, and it can take 15-20 minutes to exit the ballpark from the upper deck." In light of yesterday's post on unitized ownership of the Cubs and Wrigley, if this issue is as serious as Silver makes it sound, why hasn't ownership addressed it? (On second thought, I suppose waiting for the subsidy solution applies here too.)

Here the reasons offered by Silver [numbered by me] for why downsizing makes sense in MLB: 

1) Firstly, although the number of seats has few theoretical constraints—there are soccer stadiums in Latin America and college football stadiums in the United States whose capacities exceed 100,000—the number of desirable seats is limited. Baseball, more so than football or soccer, is a game that loses a lot when viewed at a significant distance, and particularly when the pitcher-batter confrontation cannot be watched adequately. Dodger Stadium is probably fairly close to the theoretical maximum of "good" baseball seats at 56,000, and more modern facilities will eat into that number by using space on luxury boxes and the like.

2) The availability of cheaply-priced seats might cannibalize one’s market for premium seats, as fans may purchase the cheapest seats available and attempt to 'upgrade' them later. Although such strategies can be combated by hiring ushers or creating firewalls between different parts of the stadium, this may make the ballpark experience less pleasant for fans going to and from their legitimately-purchased seats.

3) Teams are increasingly able to reap the benefits of price discrimination by introducing tiered pricing schemes, and by participating in the resale market through partners like StubHub. Therefore, they can recoup some of the loss stemming from excess demand by charging higher effective ticket prices, without having to bear the negative public relations impact of higher face values.

4) There are some marginal costs associated with each additional fan that attends the game, such as security and janitorial services. The price of such services is trivial in comparison to premium seats that are booked at $50 or $100 each, but become more tangible as compared to the cheap seats.

5) In addition, higher seating capacities can create additional congestion both in and around the ballpark, making the experience less pleasurable for all those that attend. Indeed, some existing stadiums are not especially well equipped to handle a capacity crowd. Wrigley Field’s bathrooms can require an inning-long trip once everyone has had their fill of Old Style, and it can take 15-20 minutes to exit the ballpark from the upper deck.

6)  Larger seating capacities may require a larger ballpark footprint, and therefore higher rents or land-purchase prices.

7) The easiest place to add seats is usually in the outfield, but this may impair aesthetics by blocking views of city skylines or natural landmarks.

8) Stadiums with empty seats look less attractive on television—the importance of which should not be understated.

9) In addition, stadiums with empty seats may create a less intimate experience for people at the ballpark, thereby potentially reducing demand. Baseball tickets may be what is known as a "mob good", in which there are mutually-reinforcing, positive externalities conveyed by crowd behavior. To limit the number of seats is arguably to select out the most intense and passionate fans, who are (within certain boundaries) good fans to have sitting around you.

10) Limiting the supply of tickets may create a greater endowment effect (basically, a sense of ownership) for those fans who do hold seats, thereby increasing the amount of repeat business and encouraging fans to purchase season tickets.

...Reasons 4,5, and 6 make the most sense to me, particularly in light of the move back towards the inner city, where land prices are higher. I'd not thought about the issue of spending resources to serve and monitor $5 seats, when more lavish attention to the $50 seats might pay higher dividends. I'm with Silver on the future costs of high current prices though. There is so much televised sport now, that I'm not confident that baseball (or basketball, for that matter) on television will generate the fan base like it did when there were only three channels on the dial.

I'd add 8 and 9 to the list as well, and 7 may have a small impact.  On #8:  telly broadcasts not only are ways for fans to watch games, but they also act as advertisements for the ballpark experience... sending signals to fans about what they can experience if they come to the ballpark.  Which looks better:  the view of a fans at Wrigley Field wrestling for home run balls or Dolphin Stadium seats fighting for the right to let balls come to rest in them?

On #9, it feels a lot different to watch a game with 20,000 other fans in a 60,000 seat stadium than it does in a 21,000 seat stadium.  Not only is there the network externality (what Silver calls the "mob good"), but the din and noise produced by the fans is much louder when the stadium is near capacity.  That too is part of the experience, and something fans are willing to pay for.

Lastly on a related note, I recently spoke with a reporter who asked me how much I expected HD TV's would into attendance.  My sense is that they might cause a small drop, but they still are imperfect substitutes for the ballpark experience.

Get Back in there, Kid!

When getting hurt or making a mistake in playing sports, it's important to get back into the action ASAP if at all possible (third item). 

Seven-year-old Dominic DiAngi, whose skull was fractured by a foul ball off Ted Lilly's bat at Wrigley Field, will throw out the ceremonial first pitch before Saturday's game against the Marlins.

DiAngi spent nearly a week in the hospital but has returned to normal life after a bad experience at his first major-league game.

Now *that's* shaking it of, eh?

Eldest played baseball again this summer.  Last summer in the 7 year-old league, every home run mostly consisted of croquet-style hits: grounders that made it through several sets of wickets.  The fouls were just as dramatic. 

This year in the 8 year-old league the kids hit much better, with several kids, including Eldest, punching the ball over the heads of the outfielders.  But with harder hit in-play balls come harder-hit foul balls.  In the last game alone, there were at least three sharply-hit fouls hit by the kids that whizzed by where my family and I were sitting (and many others with eyes towards hitting other families).  One even went so far as to whiz between the heads of my 78 year-old mother and the PowerWife. 

I can only say one thing:  keep your eye on the game!

Happy Birthday, Pine Tar Incident

Just in case you missed it.

When Non-Profits Face Competition from For-Profits

Like any business, non-profits can face competition too. 

People with extra clothing win by having an easy, no-frills bin to drop it off for what appears to be a good cause. The good cause, the U’SAgain company, wins by lessening the amount of textiles dumped in the state’s landfills.

Area thrift store managers say this win-win should actually be labeled win-win-lose, and possibly worse.

Those red bins, which have popped up around Mankato, Waseca, Faribault and other towns in the last few months, provide a convenient way for people to take their old clothing and put it somewhere it can be put to use.

The clothing stuffed in those red bins, however, does not go to local families. And that’s why local thrift store managers are a little miffed.

What if the clothing is more valuable to, say, a homeless person in Minneapolis, a single parent in Sioux Falls, a refugee in Madison, or an immigrant in Los Angeles?  Is it really the mission of the non-profits to keep stuff local when it is more valuable elsewhere? 

Trulie Bolton of the Salvation Army Thrift Store agreed. She said the thrift stores in Mankato can take care of all the donations in this area, and they don’t need help from an outsider, especially one that profits from its collections.

Why are the motives of providers so important?  Do the non-profits really think that, say, a homeless person cares about the motives of the people from whom he gets his clothes?  Of course he doesn't.  What matters to him are twofold:  the benefits and the costs.  If he feels the for-profits can maximize his net benefits, why shouldn't he have the opportunity to obtain clothing  from it?

Or is it that the non-profits just don't like the competition?

Condon said she’s heard U’SAgain representatives say they don’t want to take business away from communities.

“But by having them across the street from us, that’s what they’re doing,” she said. “When the local organizations could be making money on those items, that’s the biggest thing.”

Get Well Norm!

From the COU Daily Trib:

Former Missouri basketball Coach Norm Stewart underwent heart surgery Friday and is recovering at Boone Hospital Center.

Virginia Stewart said today that her husband had aortic valve replacement.

"They originally thought he might be able to go home by this weekend, but things are going a little slower than expected," she said. "The operation went very successfully. If you’ve ever had surgery, a lot of times the recovery is worse than the surgery."

She said there wasn’t a definitive target date for the 73-year-old former coach’s release. The couple had to cancel a previously scheduled trip to Europe.

Last year, Stewart had a pacemaker implanted. Friday’s surgery was prompted when Stewart suffered from shortness of breath.

Stewart was inducted into the National Collegiate Basketball Hall of Fame in November. He won 731 games in his career, including 634 in 32 years at Missouri.

Sentences of the Day

Fraters Libertas on new fast food restaurant ban proposals:

It's your prerogative to ban legal private businesses and restrict the freedom of your constituents to decide for themselves what they should eat because you think they're getting too fat? Exactly what part of your job desription as "public servant" grants you that power anyway?

Touche'.