Market Power

Build the Stadium, Create the Jobs?

Sixteen years ago I wrote this post looking at claims that building a new football stadium for the Minnesota Vikings would create beaucoup jobs. At that time the country was mired in the Great Recession, and Vikings ownership claimed building a new stadium would create 5,500 jobs.

The Vikings did eventually build their stadium and the stadium's website claims construction "created over 8,000 construction jobs with as many as roughly 1,500 workers on-site at one time."

I have a chapter in the 2023 book The Economic Impact of Sports Facilities, Franchises, and Events Contributions in Honor of Robert Baade edited by Victor Matheson and Robert Baumann in which I examine whether building sports stadiums in the Twin Cities led to more construction jobs.  One of those stadiums I examined was US Bank Stadium, home of the Vikings.  The long and the short of it is that I found little evidence for any relation between stadium construction and construction employment for any of the facilities I examined. Here's the abstract.

I examine the effect of major sports stadium construction in the Minneapolis-St. Paul-Bloomington-MN/WI MSA on local construction industry employment. I use publicly available quarterly data from the first quarter of 2001 to the fourth quarter of 2019, and I employ ARCH methodology. During the sample period, four major sports stadiums were built in the metro area. I find little evidence that stadium construction correlated with a change in construction industry employment levels. However, the mathematical signs on the significant parameters are not consistent with each other. Moreover, the significance is not robust to alternative model specifications.

I also have another paper "in the pipeline" in which I explore the same question with a dataset covering a longer time period and a different empirical model.  I didn't find any relation between stadium construction and construction employment in this research.

Neale on Professional Sports and Antitrust Law

I've been reading through Walter Neale's 1964 classic "The Peculiar Economics of Professonal Sports." In this paper, he describes various oddities about pro team sports as compared to the economic theory an economics student might learn, particularly those from the early 60's. 

Neale argues that the product in the sports industry is competitions.  If the product is competition, then a team is an input in the production process and not "the firm" as understood in economic theory.  Instead, a league, like the NFL, is the firm in this case.  He argues that the market for competition within a particular sport is a natural monopoly. 

I think he is correct.  Within a team sport played at a particular level, there can only be one "best team".  The history of the past 150 years, at least here in the states, is a tendency towards one league. Leagues have started, some folded, some became dominant.  Rivals have formed.  Some have folded, some have merged with the dominant league, while others have partially merged with the dominant league while the remaining teams folded.

The NFL goes back to the 1920's.  Over the years there have been various rival leagues that have popped up: the All American Football Conference in the 1949's; the American Football League in the 1960's, and the United States Football league in the 1980's, just to name three. 

The AAFC partially merged with the NFL; the rest of the league folded.  The AFL fully merged with the NFL, giving us the NFL we know to this day.  The USFL league folded although some of its players, such as the Buffalo Bills former quarterback Jim Kelly, starred on NFL teams.

These days we are seeing such mergers within college sports, aka "conference realignment."

At the end of the paper, Neale gives some cautionary advice to those who make, practice, and adjudicate antitrust law as it pertains to professional team sports.  He concludes:

... professional leagues have every economic ground to appeal to legislatures, to courts, and to the public that (w)e fall if you divide us; (w)e stand if Johnny Unitas. 

Analysis: true.  Some level of cooperation is required for competition between teams to be commercially viable.  Rules must be developed and enforced.  A championship format must be formed.  Playing schedules must be set, and there needs to be some internal system to deal with the inevitable disputes that will occur between teams. 

In other words, when it comes to making competition happen and to make it commercially viable, some cooperation between teams off the field of play is necessary to make the games happen, and in this particular sense leagues are single entities.

 

Walter Neale's "Fourth Estate"

I've been reading through Walter Neale's 1964 paper "The Peculiar Economics of Professional Sports."  One of the peculiarities he discusses is what he terms "the fourth estate benefit."  The "fourth estate" has historically referred to newspapers, magazines, over-the-air and cable television news channels.  Basically, "the fourth estate benefit" refers to the money the press makes off of sports, even though sports can occur without the press covering it but the press coverage cannot exist without the sports.

Anyways, what about websites such as this humble blog?  Can I be so bold as to claim membership for this blog in the fourth estate? Should I?

Simon Rottenberg is Being Forgotten - Updated

I believe that Rod Fort penned this at The Sports Economist way back in the day a year after Simon Rottenberg, the father of Sports Economics, had passed.

In 1956, the Journal of Political Economy published Simon Rottenberg’s seminal piece in sports economics, “The Baseball Players’ Labor Market.” In researching a commemorative piece on the impact of that paper on all of us that think about sports business and economics, his wife Annette informed me that Professor Rottenberg passed away in January 2004.

I feel awful about this for two reasons. First, it was never my pleasure to make his acquaintance. Second, how could I not know that this giant, whose broad shoulders nearly all of us working on sports stand on, had died over a year ago?

The post is listed as being written by "Guest", but I think it was Rod.  Please correct me if I'm wrong.

I learned about Professor Rottenberg's death from reading that post on TSE.  How weird, I thought, that he would pass in obscurity even to Sports Economists.  But he did. 

Moreover, this Wikipedia page on Sports Economics mentions Professor Rottenberg, but there is no link to his Wiki page, and for good reason; there isn't one. Here is the link to the Wiki search result on his name.

Professor Rottenberg, among other things, gave us the "Invariance Hypothesis." It basically states the distribution of baseball players among teams does not depend on who has the right to determine where a player can play.  That right lies with the player with free agency but lies with his team under the reserve clause. 

MLB said the reserve clause was needed to promote competitive balance.  Rottenberg reasoned that the reserve clause had no effect on competitive balance, but would instead depress player salaries and increase teams' profits.

If a player has the right to choose where he plays, you negotiate with him (through an agent) make it worth his while. If his team has that right, then you negotiate with the team and make it worth its while.

Sound familiar?  The Invariance Hypothesis is very similar to The Coase Theorem, published a few years after Rottenberg's paper.  "Guest" (Rod?) writes at TSE:

The invariance principle essentially says the same thing as the weak form of the Coase Theorem, but it is significant that Rottenberg published it fully four years before Coase. He used it to different purpose than Coase, but the logic is there first nonetheless.

Yup. Coase rightfully won a Nobel for his work.  Professor Rottenberg, whose death we didn't discover for a year and who has no Wikipedia page is being forgotten outside the Sports Econ world.

Update 12/21/2022: I was not wrong.  The Sports Economist post cited above was written by Rod Fort.  Here is a link to the Internet Archive Wayback Machine that has the original post.  Scroll down to the June 19th post that shows it was posted by Rod Fort.  Below is a screen shot.

Are Youth Sports Leagues Natural Monopolies?

Professional sports leagues are thought by many to be natural monopolies.  This makes sense because fans of a sport want to have one overall champion in a sports.  Who's the best?  Since there is one champion, the most efficient number of leagues will be one.

How does this work with youth sports?  In my town, the Mankato Area Youth Baseball Association (MAYBA) is the only amateur summer baseball league in town.  They make their money by selling spots on teams to parents of young players.  They field "in house" teams which play each other within the city and they field travel teams under the moniker of "The Royals" which play games against teams from other cities.  In both types, there are teams for the various age groups, and in Royals there can be multiple teams within an age group, such as 15AAA, 15AA, 15A, and 15/14A.  These are teams for 15-year olds and the more A's means a better overall team quality. 15/14 means the team is a mixture of 15 and 14 year olds.  The AAA's play other AAA's, the AA's play other AA's etc.

In my town MAYBA is the only youth baseball organization,. but that doesn't make youth baseball organizations natural monopolies in general.  To be natural, there needs to be global economies of scale.  Is this the case with youth sports organizations?  I'll just leave this post open ended.

The Impact Of Managerial Change On Performance: The Role Of Team Heterogeneity

“When a key responsibility of a manager is to allocate more or less attractive tasks, subordinates have an incentive to work hard and demonstrate their talents. As a new manager is less well informed, management dismissals reinvigorate this tournament competition—but only in sufficiently homogeneous teams. We investigate this hypothesis using a large dataset on dismissals of soccer coaches, whose main task is indeed the selection of players. We find that dismissals enhance performance (only) in homogeneous teams. Moreover, we show that there is typically a negative selection bias when evaluating succession effects, which reconciles previous contradictory findings. (JEL D22, J44, J63)”

That is from a newly-published article in the April 2016 issue of Economic Inquiry. The title of the article is “The Impact Of Managerial Change On Performance: The Role Of Team Heterogeneity” and it’s authored by Gerd Muehlheusser, Sandra Schneemann and Dirk Sliwka.

Cross posted at The Sports Economist.

CFP NAASE Sessions at the Southern Economic Association Conference

Brad Humphreys sent along a call for papers for North America Association of Sports Economists sessions at this year's SEA meetings in Atlanta Nov. 22-24.  Note that a session on the teaching of sports econ is of particular interest.  Here's the CFP

The North American Association of Sports Economists (NAASE) is again organizing sports economics sessions at the Southern Economic Association (SEA) conference.  The conference will be held November 22-24, 2014 in Atlanta, Georgia.  The basic format of the NAASE sessions will be the same as in the past.  I hope to have several complete sessions to take to the SEA organizers to assure us of a good room and good session times.

*Deadline for submissions is April 1.*

We are trying to put together a session on teaching sports economics.  Anyone with a paper idea that would fit a session on teaching sports economics is especially encouraged to submit their paper.

If you have a sports economics paper you would like to present in Atlanta, please email Dennis Coates (see below for contact information) a title and full contact information including post and email addresses. Your submission must contain full contact information for all co-authors.

Here is the contact information for the session organizer:

Dennis Coates
410-455-3243
[email protected]

Cross-posted at TSE

Incompatible Uses at Wrigley Field

If you aren't already aware, there is an interesting legal battle going on at Wrigley Field.  The Cubs ownership wants to install a video board, but this board would block the view from the neighboring rooftops.  The interesting economic question to me involves both externalities.  As it is right now, the Cubs generate a positive externality in the form of games being viewable from neighboring rooftops.  Putting a large video board along the outfield wall would block this view to some extent.  

Paul Sullivan has an article in the current Chicago Tribune that gives some information on what's going on currently.

Australian Rules Football and Perverse Incentives

Do sports league policies sometimes result in perverse incentives?  In a 2002 Journal of Labor Economics paper, Beck Taylor and Justin Trogdon examined if changes in the draft sturcutre in the NBA generated the incentive to intentionally lose games.  They collected data on three different seasons with different draft structures and examined what factors determine whether a particular team wins a game.  Not surprisingly, playing at home or on a neutral court improves the odds of winning, as does having a higher win percent coming into the game.  Playing a better opponent, also not surprisingly, hurts.  

Interestingly, though, they found that when there was either a strict reverse-order draft or a weighted lottery system, non-playoff teams were more likely to lose than playoff teams.  However, when the NBA had a lottery system to determine draft position, playoff status had no impact on winning.  

So there is some evidence out there in the academic Econ literature that league policies can lead to perverse incentives.

All that being said, allegations of intentionally playing to lose had been levied against an Australia Rules Football League team, the Melbourne Demons.  An "independent report" cleared the Demons of these charges, but what surprises me is that the AFL itself and some of its member teams have a financial interest in sports gambling.  For example, the Demons owns the Bentleigh Club and the Leighoak Hotel which, together, own 172 gaming machines.  From the operations of these machines, the Demons recieve about $5 million in revenue (source).

That's unusual to me since American sports leagues have gone through great pains over their histories to keep gambling at bay, lest it threatens the integrity of competition.

NBA Salary Cap, Minimum Payroll, and Luxury Tax Set for the 2013-14 Season

 The NBA's salary cap for next year has been set at $58,679,000.  The minimum payroll is 90% of the cap, meaning it will be $52,811,000 (rounded).  The luxury tax for next season was also set and will be $71,748,000.  See here and here for details.

The luxury tax this year will be a graduated tax, meaning the penalty for payrolls over the tax level will increases as a payroll increases beyond various step levels.  Previously, a team that exceeded the tax level paid a $1 tax for each $1 payroll exceeded the tax level.  Here are the details (source).

• Portion of team salary $0-$4.99 million over tax level:          $1.50 for $1
• Portion of team salary $5-$9.99 million over tax level:          $1.75 for $1
• Portion of team salary $10-$14.99 million over tax level:      $2.50 for $1
• Portion of team salary $15-$19.99 million over tax level:      $3.25 for $1
• Rates increase by $0.50 for each additional $5 million of team salary above the tax level.