Chapter 1- Warm-up: The Business of Sports

1
Chapter 1- Warm-up The Business of Sports

• To Accompany
• Sports Economics, 2ED
• Rodney Fort
• (PrenticeHall, 2006)

• If we do everything right this year and win
  again, we probably will be able to break even.
  And Ill tell you this much I didnt buy this
  team to break even.
• -Minnesota Twins Owner Carl Pohlad, 1992.

2
Overview

• There is more to sports than their revenues.
• Standard economic tools can enhance
  understanding.
• Some befuddling things for fans.
• Skepticism over owner poverty claims.
• The owners points of view.

3
Business Statements

• Were doing what every responsible corporation
  in America does-- look for ways to improve the
  bottom line unfortunately, this is a business,
  and revenues from season ticket sales and
  corporate sponsorship in Long Beach have fallen
  short of expectations frankly, the financial
  losses of the team were just too great to justify
  playing another season there.

-Gary Cavalli, ABL Co-founder on shutting down a
franchise (AP, NY, 8/26/98)
4
Big Business Sports

• TSN 100- only 10 of the most powerful people in
  sports are players.
• Teams that spend the most win the most- why?
• Owner behavior- stadiums, admission prices, TV
  rights, player negotiations.

5
Big Business Continued

• The price tag on the new York Yankees has
  increased from 460,000 to 650 million (bona
  fide offer) over the period 1915-1998.
• Return 460,000(1r)83650,000,000.
• r 9.1 NOMINAL
• Real (2004) 7,800,000(1r)83734,000,000
• r 5.6 REAL
• The real growth rate, economy-wide has been
  between 2 and 3.5.

6
Expansion Fees (2004 Millions)

• NFL Houston 94--795 million
• NBA Charlotte 03--304 million.
• MLB AZ/TB 98--151 million.
• NHL Atl/Colum/Min/Nash 97--94 mil.

7
A Little Perspective?

• MLB is about a 4 billion industry NFL close to
  7 billion.
• U.S. envelope production 3 billion.
• U.S. cardboard boxes 8 billion.
• 1993 Brewers (45.3 million,1993) were about
  0.2 of local economic activity.
• Lets keep it in perspective!

(Economist Henry Aaron, Congressional Testimony
on C-SPAN, 1994.)
8
But Remember. . . .

• There is no envelope or cardboard box section in
  the newspaper every day!
• Measuring actual economic activity will not
  capture everything about the values and costs of
  sports.

9
Approach- Economics, Tried and True

• Demand- The source of revenue.
• Costs- The decisions behind supply.
• Market Outcomes- Especially when firms have
  market power.
• The Input Market- Player pay and labor relations.
• Business and Government- Subsidies, tax treatment
  and antitrust.

10
Summary

• There is more to sports than their revenues.
• Standard economic tools can enhance
  understanding.
• Some befuddling things for fans.
• Skepticism over owner poverty claims.
• The owners points of view.