THIS IS SO MISGUIDED I HAD TO POST RIGHT AWAY (SORRY NO MONSTER)

This so flies in the face of even Econ 101 that I had to post it right away.  Sorry no monster, I was in a hurry.

Sportsfans.org is a sports fan movement attempting to right many perceived wrongs.  But that should never get anybody off the hook for using really (really) bad logic that flies in the face of even the most basic economic concept.

Headline Dec. 6, 2011:  "High Costs of Sports on TV Always Passed on to YOU"

Grab Line on the webpage:  "Think your cable/satellite bill is high now?  Wait till the costs of the latest NFL TV rights deal are passed on to you."

Weak Thinking:  NFL charges cable/satellite providers whatever it wants for rights fees.  The media providers then pass it along, with markup, to poor slack-jawed NFL fans.  Which they pay because, well, that's just how badly they need their sports fix (I guess; this part is never really covered by anybody who adopts this view).  The cruel, insensitive, and eminently greedy NFL laughs all the way to the bank.

Econ 101:  Both the NFL and media providers are constrained in what they can charge by the willingness of NFL fans to pay for games, given the other options that fans consider to be substitutes.  It is the job of both the NFL and cable/satellite providers to estimate this willingness to pay.  They set their agreement on the basis of those estimates.  If the NFL and media providers are correct, fans pay as estimated and they make profits.  If they are wrong, they sell less than they had hoped, because they charged too much, and they make less than they planned.  This is true whether the NFL has market power or not.

Possible Motive for Publishing Such Weak Thinking:  Sportsfans.org is trying to build membership and interest in their cause.  They say inflammatory things to fuel that interest.

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Now, perhaps pushing this kind of misinformation serves the needs of sports fans.org, but that can only be in the short run.  In the long run, what will sports fans.org do when it cannot come through on this issue--as long as fans are willing to pay more, the NFL and media providers will gladly charge them for it.  If this is stymied, politically somehow, we are in a regime of price controls that we know will simply reduce the availability of what buyers want most.  Fans will get lower cable/satellite bills because they get less sports programming than they are willing to pay for.

Garbage in, garbage out.

A HARD RAIN'S A-GONNA FALL

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The discussion is already occurring:  "What to do at Penn State?"  I have my opinions as well.

But this blog is a place for sports economics rather than opinion.   It isn't the economist's job to take sides as an economist.  We reserve that to our non-professional side where we are free to have our opinions like everybody else.  The economic contribution I think of goes like this.

The athletic department is part of an organizational hierarchy at the university at large.  As such, there are levels upon levels of principal-agent oversight going on.  For university oversight, at large (we'll get to the athletic department shortly), there is an immense of amount of slack in this oversight.  This produces quite a bit of independent action by all units at the university with the reckoning coming at budgeting time.

By and large, while not without failures here and there, the monitoring works pretty well across campus.  It has its greatest chance for catastrophic failure as follows.  With lots of slack, an ideologically homogeneous unit with strong external clientele will obtain more freedom than other units.  The chance that this type of unit will do something counter to the welfare of the institution, at large, goes up.

And this special set of circumstances describes the oversight relationship between university administrators and the athletic department to a tee.   [This has been known for years by economists, but has been ably presented by Prof. Clotfelter in his current book Big-Time Sports in American Universities.]

Now, as long as this independence is constrained to just hiring multi-million dollar coaches, or putting up multi-million dollar scoreboards when other academic units struggle, no real harm is done.  That money comes from athletic boosters (by donation or paid attendance, etc.) explicitly for an athletic purpose and never would go to academics in the first place.

But this independence (especially the homogeneous ideology part) has a chance to produce unit cover ups of rule breaking and even criminal behavior.

Unfortunately at PSU, university administrators allegedly committed acts of complicity instead of taking decisive, public, counter-action.

The lesson from economics is that the oversight process is flawed.  Indeed, that the probability of a PSU-type episode was non-zero is clearly predicted.  But hindsight is 20/20 and the question now concerns future action.

On the one hand, just don't play the game at all.  This was the choice early on at The University of Chicago when then President Hutchins abolished big-time football after the 1939 season.  If the costs are so high for university administrations, they can follow suit.

Football fans will scream, but the impact will be small.  Most university administrations spend very little on athletics (trivial percentages of their operating budgets), some none at all.  And the returns to the university end up to be quite small as well (again, as a percent of operations).  The primary hit would be on student leisure choice.  Any number of high-quality institutions simply do not have big-time football.

On the other hand, administrators can recognize the holes in the monitoring process and fix them.  This does not drive the chance of a PSU-like occurrence to zero (nothing can).  But it will reduce them, probably dramatically.  This will undoubtedly result in curtailing the independence of athletic directors, with accompanying pain.  But all administrations face this same possible negative outcome and they have collective decision bodies to do the job across all of college football.

Pulling a third hand out of my hat, it could be that the monitoring process is as efficient as it can get.  This makes for the dismal (science) prediction that, on rare occasion, as in the rest of society, bad things will happen in college sports.  What to do about it now becomes a society-wide issue and beyond the college sports arena.  If the small probability of a truly bad outcome is onerous enough, politically, then Congress can act.

As Bob Dylan put it:

And it's a hard, it's a hard, it's a hard, and it's a hard
It's a hard rain's a-gonna fall.

Right now, it's falling on Penn State.  If the same homogeneous ideology of football exists at other places (an empirical question that will be simply stated as true without any investigation, I suspect), the forecast is cloudy with a chance of rain.

Transcontinental College Football--A New Subdivision in the Making?

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WOW!

That's all I can say.  If the Big East successfully woos Boise State, it will be the first transcontinental football conference.  If it had wooed Utah instead, it would be reminiscent of driving the transcontinental railroad "golden spike"; Promontory Summit is about 90 miles from SLC.  On the other hand, Boise is a good 250 miles farther west than SLC!

Whether Boise State accepts or not depends on their expectation of improved chances regarding the BCS National Championship.  This is truly a great case of decision making at the margin for BSU since it isn't clear they can do any better in the Big East than they've done in the Mountain West.

But to me the more interesting response is by The Mountain West Conference and C-USA... their own transcontinental response if you will.  They have a new college football "association" on the drawing board.  Details are completely sketchy at this point but just the two of them span a vast part of the U.S.  It also is important to note that the two stress that this is a football only "association".

An "association" of 22 FBS football programs, none of which really has any hope of making a BCS game, smacks to me of the creation of a new college football subdivision.  The two tout right now that they have terrific TV appeal to go with geographic match ups.  All they need now is the MAC and Sun Belt to buy into it.  Programs in this larger version of the "association" play in 25%-30% of the non-BCS bowl games and could easily create their own version of the BCS.

Which brings us back to BSU.  It's perhaps a little more likely that Boise State's decision at the margin will lead them to refuse the Big East.  Then what?  The Big East could easily leave the BCS (or be forced out by the rules that specify BCS conference size) and join with these other conferences in their "association".

The rise of rival associations is naturally to be expected in the current conference shake out.  After all, it is the FBS that is the novelty, D-IA used to mean that ANY team could contend but FBS means a team can only contend from a BCS game.

So, what do you all think?  What will BSU do?  And what of the Big East?  Informed economic perspectives welcome (as opposed to arguments based on past allegiance and "money crazy" athletic directors).

The University of Texas and the SEC

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So Texas A&M is bound for the SEC.  Two questions arise.

One.  Why does the SEC want A&M?  Two.  Why is (what's left of) the Big 12 just sitting there?

One answer seems to work for both questions.

The University of Texas is moving to the SEC.

["Aha!  Watson, the game is afoot."  Basil Rathbone was the most famous Holmes, but the picture and link here remind us of an earlier monster movie role.]

Logic.  None of the so-called "equity conferences" needs to add anybody unless they bring enough revenue potential with them to raise the conference average (this could happen by increasing conference membership to 12 so there can be a Conference Championship).  A&M alone does not do this for the SEC, but A&M and Texas fits the bill.  And the strategy is enviable--first make sure that A&M wants to go so there is no interference from the Texas legislature.  Not only was there no interference, but the board of regents (all appointed by the governor) has already given its blessing.  For those doubters--who raises the average for the SEC besides Texas?  Somebody from the ACC?  Miami is now a leper and that leaves FSU or Clemson.  Nope.

Logic.  What's left of the Big 12 sits there because there really are only two teams that fit the "raise the average" requirement, BYU and Notre Dame (let's not even get started on the likes of Boise State or Houston, economically weak sisters).  Even if BYU would come (they could have just said so when they went independent, but they didn't), ND has made it clear by passing on the Big Ten that they prefer independence.  So what's left of the Big 12 may not even be able to get back to 10 teams, let alone the 12 that it takes for a believable Conference Championship.  And Texas knows this.  If they stay, it's the annual Texas-Oklahoma game and that's it.  Since the Longhorn Network is only of value to people in the state of Texas, it is completely portable and no threat to the SEC Network.

Prediction Consistent with the Logic.  Oklahoma and ND join the Big Ten (or Oklahoma and Mizzou, if ND stays indie).  That makes two conferences of 14.  The Pac 12 is right behind with BYU and somebody to go to 14 (the Pac has always been the weaker of the Big 4 and will have to settle for "somebody" to round out 14; I think Oklahoma State, but maybe this is Boise State's big chance).

Logic.  This allows the BCS to squeeze more schools out of the "equity conference" distinction.  The BCS would benefit from dumping the Big East and, if both of the premier Texas schools move to the SEC, and Oklahoma moves to the Big Ten, the BCS can dump the remaining Big Rest as well.  That makes 4 equity conferences rather than 6; the money gets preserved for fewer teams.

Slowly but surely, the Big 12 is working its way backward through history.  Originally, the Big 12 was the Big 6 and then the Big 8.  It never would have made it past 8 if it weren't for the wandering Texans-- Texas, Texas A&M, Baylor, and Texas Tech left the SWC to join the Big 8 in 1994.  That move was the final nail in the coffin of the SWC.  The move of A&M to the SEC, soon to be followed by Texas, and ultimately Oklahoma, signals the end of the Big 12 as well.

Gimme that old time Monster

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Went with the wife and friends to see Cowboys and Aliens.  It was an OK popcorn muncher.  But I was disappointed since I had higher expectations of a Jon Favreau film.  Where's the depth of treatment of...THE MONSTER?

So, to console myself, the next day I watched The Thing From Another World (1951).  Back when men were men, women laughed at them all the time, and a monster was really the star of the show.

All the news that's fit to print (and a wacky opinion)

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Talking about wins and losses from the upcoming NFL bargaining settlement, this from Judy Battista at the NYT:


"A new rookie wage system in which even the top picks in the 2011 draft could sign contracts worth about half of what the top pics signed for in 2010, a concession by players."


Wow.  Current players conceding the earnings of rookies yet to enter the league doesn't seem like much of a concession, especially when...(later in the article):


"And in a boon for players, each team will be expected to be required to spend — in cash, not in tricky accounting — a total of 90 percent of the salary cap."


So... rookies get their entering deals cut by half and owner have agreed to spend it all on current players.  For current players, like Eric Cartman always says on South Park, "Pretty sweet."

Observations on San Diego

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Sorry a break in the posts.  I was traveling.  Part of it to the WEAI Meetings where sports economists gather for many reasons--history, academic fellowship, and, well, it was San Diego.

I counted 17 sessions and 68 papers.

Observations:

1. All of the sessions were "sponsored" by the North American Association of Sports Economists (NAASE). 
2. All of the sessions were organized by Dave Berri (Southern Utah University), Brad Humphreys (University of Alberta), and Tony Krautmann (DePaul University).
3. The Gini coefficient on the number of times a colleague's name appears as an author on the 68 papers was 19.5 (Berri, 7; Humphreys 6; one other person with 5, 14 people with 2, and 87 with 1).  This is pretty equal; the Gini on income inequality in the U.S. in 2009 was 46.8 and in the EU in 2005 31.0.
4. The Gini coefficient on the number of times a university name appears for the 68 papers is 35.4 (University of Alberta, 11; Southern Utah, 8; Michigan and Lancaster, 6; 3 others with 4; 5 others with 3; 17 others with 2; and 45 others appear once).  This is pretty unequal; worse than income inequality in the EU but not quite as bad as income inequality in the U.S.
5. I also categorized the papers into 7 groups, Labor/Discrimination/PEDs (23), I-O/Contests/Balance (17), Production (9), Demand/Attendance (8), Policy/Participation (3), Facilities/Development (3), Others (2).  The Gini coefficient on topics indicates decided inequality at 44.1.

On item 1, there are two other associations.  On items 2-4, I leave readers to their own conclusions.  On the last item, while any categorization is subjective, perhaps we need to branch out a bit?

Turning investment in college sports upside down

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Not to pick on a particular purveyor, only to note a clearly stated poor conclusion, I've commented at Kristi Dosh's Business of College Sports.

She shows 22 athletic departments that more than broke even and goes off into the usual, upside down, conclusion that somehow university administrator investment in athletics, unlike anything else they invest in, are made from the perspective of covering overspending by ADs.

Sigh.  So many mis-perceptions, so little time.

Join the fun there, or go ahead and post here.

Expansion versus Relocation

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OK.  So various sources report:


AEG president Tim Leiweke said that Philip Anschutz is prepared to purchase majority interest in a team.  AEG has spoken to the Vikings, Chargers, Rams, Raiders, and Jaguars.  [Some reports include that some of these teams deny it.]


Let's leave aside the interesting question ownership motivation.


We all know that the tradeoff for the current group of team owners that comprise the NFL is in terms of what should be a pretty "monstrous" expansion fee v. what they can extract from allowing an owner to move an existing team (a supermajority must OK the move).


Which will it be Sports Economics Fans?  Expansion or relocation?

While strolling through the lit one day...

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I came upon a piece in the Atlantic Economic Journal by Paul and Weinbach.  It's about minor league hockey demand.

And it cites nothing recent about hockey demand at all.  Like I said in my initial post, Sports Economists appear to have a difficult time acknowledging their heritage.

See (and the cites therein):

Fort and Winfree.  2008.  "Fan Substitution and the 2004-05 NHL Lockout."  JSE, 9, 425-434.

Winfree.  2009.  "Owner Incentives During the 2004-05 NHL Lockout."  Applied Econ, 41, 3275-3285.

All the Hash That's Fit To Re-Hash

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Just saw a post by Kristi Dosh at Forbes Money on paying college athletes.  I guess sports economists will always have a job.

See her blog, too:  The Business of College Sports.

[No Comments.]

A New Blog: Sports and Monsters

So now I have a blog.  It’s not like it was by popular demand, but I felt I could be useful.

I love to analyze the sports business using the economic way of thinking.  I also love the original monster movies.  The way my mind works, Tinkers to Evers to Chance made me think immediately of the monster movie version... Laemmle to Whale to Karloff.

Carl Laemmle and James Whale gave us Frankenstein (1931), The Dark House (1932), The Invisible Man (1933), and The Bride of Frankenstein (1935).  Laemmle also produced Dracula (1931) and my favorite, The Mummy (1932).  My daughter is a terrific artist and created charcoal sketches of my favorite monsters as a gift to me.  Her “Mummy” that hangs in my office is above.

If you don’t know which of these Karloff was in, you might be at the wrong page.

Whale was the subject of the movie Gods and Monsters (“To a new world of gods and monsters.”  Dr. Pretorious in The Bride of Frankenstein (1935)).  And that reminds me of… the sports business. Gods and Monsters, Sports/Monsters.

I also love the “communist terror” “nuclear fear” monster/alien invasion movies, post-WWII.  My list includes The Day the Earth Stood Still (1951), The Thing from Another World (1951), Invasion of the Body Snatchers (1956), and all of the “radiation fear” stuff—especially Them! (1954) and The Beast from 20,000 Fathoms (1954).  And for inter-species evolutionary confusion of King Kong proportions, there’s also The Creature from the Black Lagoon (1954).

There also is some comfort in these oldies; back then, fear was just for fun.  How different today where fear seems so very overriding in the world.

I also can think of the sense of confusion shared by Frankenstein’s monster and The Beast when they find themselves completely out of place, one by unnatural reanimation and the other because that’s where Ray Bradbury put him.  I can hear them both…”What the Fuck?”  I say the same thing to myself after reading things about the sports business sometimes.

I also share a feeling that relates to one portrayed so well in Gods and Monsters by Ian McKellan as Whale.  He spends significant time lamenting that moviemaking  had lost its soul and also had forgotten its pioneers.  Much the same can be said of the writing on sports economics.

Many sports economics researchers forget (or have not investigated) their roots.  The seminal paper on sports economics was Simon Rottenberg’s, “The Baseball Players Labor Market” (Journal of Political Economy, 1956).  Most get that right even though it’s 50 years old.  But everything in between is often forgotten.  In my opinion, nobody seems to remember that the next bit of seminal writing appeared in Government and the Sports Business (Brookings, 1974) edited by Roger Noll.

So, in addition to lending my thoughts to current sports business events, I’ll also be commenting on scholarship in sports economics and business.  Check the Ground Rules link in the right side-bar.  Just like Whale tried to do in Gods and Monsters, I assume complete directorial (dictatorial?) control here.