Sunday, June 14, 2015

The "Upshot" of Portraying Sports Success Incorrectly

TheUpshot is at it again (David Leonhardt, NYT, 6/4/15), tweeted numerous times since).

The object this time is "city success" at pro sports.  The definition:

Success = Championships won, as a percent of possible chances across all of a city's teams, over the last 50 years.

Seems straightforward enough--higher percentage, successful sports city; lowest percentage, unsuccessful sports city.  Only two problems.  First, the measure, itself, gives ambiguous results.  Second, the definition of success, championships only, doesn't look like it coincides with a fan definition of success reflected by their observed behavior.

First, the measure.  Suppose one city has teams that won recently in the 50-year span, while another city has teams with the same percentage, but enjoyed 50 years ago.  Yet another city has teams with the same percentage spread over the entire 50 years.  All of these are equally successful cities by the definition.  But fans do not think so; dated success is just that.  If a city has only one team and another city has two teams, but both cities have the same percentage, both cities are equally successful again.  So two teams, say, half as successful are equivalent to a a possible dynasty.  Finally, and this is just the way the ball bounces, completely equal success in a given league would have 20 teams winning twice and 10 teams once over 50 years.  10 cities are then losers even as the distribution is trying to reveal itself as completely equal over time.  Finally, lumping leagues together in a given city means that a championship is a championship is a championship... say, NHL fans view an NBA championship the same as they would a hockey championship.  But does a championship by any other name really smell as sweet?  Ambiguity abounds.

Moving on to the definition:  Why just championships? [Appearances in semi-finals are charted but not labeled by team and the rest of the article clearly only focuses on winning championships.]  Again, there isn't much room for many to be successful at the championship level.  Instead, let's ask fans for their definition of success since it is their definition that matters.  If Bob Costas is correct, it's a legitimate belief that the post-season is possible.  But there are other indicators of fan preferences as well--the tens of thousands of fans driving hundreds of thousands (NFL) or millions (MLB) in total attendance, even without a championship.   Let alone the TV audience.  I guess this "success" is just irrelevant.  After all, no championships, right?  The alternative, of course, is that the assessment of "success" based on championships alone simply misses the mark.

Really, Mr. Leonhardt just points out championship concentration in major league pro sports that is news only to newcomers.  And they would be better served if Mr. Leonhardt pointed them to all the work already out there on that topic.  But that just doesn't "sell papers".

Monday, June 8, 2015

"Giving Up Raises" = Reallocation from Coaches to Players

In a recently re-worked contract, MTSU's head football coach Rick Stockstill is "foregoing" raises ($100,000 per year, next 4 years) that were in his previous contract (Will Borthick, DNJ 6/4/15).

He and the AD at MTSU claim it was Coach Stockstill's idea. And it's to make sure the MTSU athletic department can catch the wave of offering full cost of attendance (FCOA) to football recruits.   And the coach hopes maybe some of the $400,000 can go toward facilities (unspecified, but presumably football).

The tone of the article is that this is a sacrifice on the part of Coach Stockstill, but the result also has another economic explanation tied to the reallocation away from coaching salaries (and AD salaries, facilities) due to gains by players.  The gains are both real, e.g., the Power 5 move toward FCOA, and more probabilistic, e.g., the pending decision in O'Bannon.

Now, just how would markets reallocate in the face of the Power 5 choice to move to FCOA, and at "Group of 5" departments like MTSU that are not in the Power 5 but choose (and I stress the word) to move to FCOA anyway?

Since all of the money is already being collected by very effective ADs, and taking as given that MTSU has already determined its optimal athletic department size, the answer is: Just what you see happening at MTSU. Whether Coach Stockstill sees the handwriting on the wall, or whether it would have happened a bit later at the AD's insistence, this is the expected outcome across all departments choosing FCOA.  Reallocation away from coaches toward players.

[Should O'Bannon go the players' way, the same thing will happen at departments that choose to pay up to the court's "lid" on image rights payments.  The decision under appeal did not require any department to do so, remember.  But those departments that do choose to pay for image rights will behave the same as MTSU's athletic department.]

I find it simply fabulous that it is happening at MTSU, a "Group of 5" member rather than a Power 5 member, and it is happening as many of us have predicted--with coach's pay, not cutting sports as predicted by doom and gloom forecasters at places like the Knight Commission.

And make no mistake.  If it were truly charity, Coach Stockstill could have taken the raise and given it to the athletic department as a gift.

Instead, revenues being generated by players, being spent elsewhere in the department, will be diverted from those other spending areas to players at those departments moving to FCOA.

Of course, the behavior of one school does not make a data set.  But this is the shape of things to come. And don't be distracted when you see raises and FCOA going hand in hand at some departments. The raises would have been higher in the absence of the new FCOA policy.

Friday, May 15, 2015

Joe Nocera's Dog Just Won't Hunt

Joe Nocera, eminently readable as always, starts from a fundamental premise that powerful college sports-oriented alumni always win against the academic side ("Books vs. Games", NYT, May 12).  Of course there are other elements in the sports constituency than just alumni, but I digress.

Nocera reels off a number of truths that he holds to be self-evident:

"... the athletic department's out-of-control costs..."
"...Rutger's athletic department has consistently run large deficits."
" that might have gone to professors’ salaries or other academic needs."
"...took it out of the hide of the students themselves."

Hammering the point home on books vs. games:

"It [Rutgers] is responsible for educating 65,000 students. Why isn’t that more important that (sic) competing in the Big Ten?"

As the final nail in the coffin:  "Why does the tail always wag the dog?"

But as Jason Winfree and I point out in our 15 Sports Myths (Stanford U. Press, 2013), there is a much more productive explanation of the relationship between university administrators and their athletic departments.  Universities actually do both books and games and carefully weigh value and cost margins in making their spending decisions on each.  The choice by university administrators to put relatively small amounts of money into their athletic departments pays off in relatively small ways, but typically with a believable and legitimate return if you look in the right "spot" (only mild apologies for the doggy pun).

Compared to this alternative economic and policy description, the "tail wags the dog" belief is a dog that won't hunt.

Rather than just spending what it wants with university administrators close at hand with the poop bag, actual budget hearings place the athletic department in the same setting with the rest of the programs at the university.  The allowed spending decision comes first, then the spending.  And that budget is then overseen by the Board of Regents, the Governor, and then on to the legislature.  The athletic department is as controlled in its spending as any other program on campus.  [This may cause chuckles among those dissatisfied with the spending control over universities, generally, but that doesn't distinguish the athletic department on this dimension in any way.]

In an assertion begging justification, Nocera simply names the difference between generated revenues and actual expenditures a "deficit".  But this "deficit" actually represents the administrators' determination of the added amount of money they wish to spend in order to have their athletic program at its desired size and scope.  As it goes, the current level of administrative spending at Rutgers is around 25%  of the total (it has not always been that way, and last year's level is higher, which is why Rutgers is interesting).  However, especially during a conference transition, this is not uncommon and administrators expect to see a return on that investment.  If things go at Rutgers as they have elsewhere, they will, as Winfree and I have documented for all of college sports.

Next up for Nocera:  The administration's portion represented " that might have gone to professors’ salaries or other academic needs."  Having already ignored the budgeting process within the university, might as well ignore the rest of the budgeting process beyond the university!  Administrators decide the right level of spending at their university, tote up research revenues, ask their legislature and other funding sources to cover the rest, and spend the proceeds according to their request.  If $20 million or so for athletics is granted, and then administrators spend it on something else, they will have some explaining to do in the next budget round.  If university administrators tried to spend the allocation to athletics on academics, as Nocera suggests, it is likely that the next go-round would see $20 million or so less in the Rutgers budget.  Budgeted funds are simply not always as fungible across different purposes as many believe (desire?) them to be.

And taking it out of the hides of students is also an assertion outside reality.  Student fees go to fee-backed student activities, and the distribution of that budget is determined by student government.  So, actually, student government spends the money on athletics because that is the (admittedly never perfect) reflection of the self-assessed welfare of student government leaders.  Usually, this is also the source of the lower-price ticket quid pro quo.  Yes, I recognize the imperfect nature of the reflection of the preferences of some students.  But that is hardly unique to this little democracy.

Besides, we're really just not talking about all that much money from the overall Rutgers budgeting perspective.  Nocera reports $183 million through 2022.  Taking that to mean 7 years, that's $26 million on average.  Nocera also reports Rutgers' annual budget is $3.6 billion.  So, that's .026/3.6 = 0.7% on athletics (yes, less than 1%).

As to the faculty response, let's turn to just the 27.6% of budget, or $994 million, that goes to instruction (and ignore all of the other spending on students like housing, dining, aid, services, share of library and plant operations, etc.; see Rutgers budget description).  First, again, that's 26/994 = 2.6% and relatively speaking just not very large.  But, second, $26 million is $26 million and we are a jealous lot.  Any dollar going to anything except what we cherish (usually our own program and our own salary) is mis-spent.  And all of us would like $20 million added to our favorite.  Alas, third, as noted above, that $20 million or so a year isn't really ever going to go to our heart's desire in the first place.  Benefactors agreed to spend it on athletics, not on us.

So, university administrators balance books and games, just as they balance economics books against sports management books against everything else that the university is expected to do.  All of the dogs line up to be fed and they are, each according to their contribution to the goals of university administrators--research, teaching, and service.  They each have also already wagged their tails and their ration is the result of that demonstration.  The academic side does mostly research and teaching, and the sports side does mostly service.  But all are valuable to university administrators which is why they "feed" them all in the first place.

Pitting one against the other misses the point of just what it is that universities are up to in the first place, fomenting conflict along the way.  And to what end?

Saturday, May 9, 2015

Before We Get Too Carried Away with the 8-year Project Royals...

Announcers are not sports economists, so I don't hold this too much against Rex Hudler (guest announcer on the Tigers game the other day).

Hudler went on a bit about how the KC Royals should not be such a surprise.  According to Hudler, the team was eight years in the making with careful strategy/moves etc. by sharp management.

No doubt; Kendrys Morales is really coming through for example, and some low-salary pitchers are going great guns so far.

But let's not forget this:

2011- Royals ranked last (30th) in MLB payroll at $36.1M.  They also received $29M in revenue sharing to take into...

2012 - Royals move up to 27th in MLB payroll at $60.9M.  If the increase of $24.8M all came out of previous revenue sharing, that would still leave $4.2 M.  The Royals received $16M in revenue sharing at the end of 2012, so their revenue sharing account now contained $20.2M.  And we're off to...

2013 - Royals move up to 22nd in MLB payroll at $80.5M.  If the increase of $19.6M all came out of previous revenue sharing, that would still leave $600,000.  The Royals received $36M in revenue sharing at the end of 2013, so their revenue sharing account now contained $36.6M.  And we're off to...

2014 - Royals move up again to 19th in MLB payroll at $92M. If the increase of $11.5M all came out of previous revenue sharing, that would still leave $21.1MM.  I could not find any published report of revenue sharing for 2014 (and a quick check with guru Maury Brown - @BizBallMaury - informed me that even devout followers cannot find the data anymore).  But don't let that us stop us...

2015 - Royals move up to 16th in MLB payroll at $113.6M.  The increase was $21.6M.  Given the $21.1M left last year, and given that net sharing to the Royals was surely positive in 2014, it appears a truly trivial amount came out of the 2014 share to get to this payroll level.

So, net revenue sharing proceeds for the Royals more than covered the 33% per annum nominal growth in payroll observed over the last few seasons.

Indeed, nearly all of 2014 net sharing must have gone into other player development expense, since that is required under the CBA and monitored by the Commissioner's office, and reviewable by the players.  At least in the case of the Royals, it looks like revenue sharing has done its job.  [I haven't looked at any other teams and this need not be true in all cases, as many others have argued in terms of "revenue sharing freeloaders" or some such.]

It takes sharp management to get where the Royals are today with pretty close to the median payroll.  But let's not forget that their payroll has dramatically increased, as tempting as it is to attribute it all to outstanding management on and off the field.

Sunday, March 8, 2015

Sports Econmics: JEL Recognition and a Reminisce

So, sports economics has its own JEL codes.  In addition to other paths I have followed to sports economics publication (e.g., the “L-path” in Industrial Organization), there is now a “Z-path”.

I join the current leadership in sports economics—Peter von Allmen and Dave Berri— hailing the new JEL codes as overdue recognition of the area.  But I’m also sure the codes are a mixed blessing (note that sports economics is under "Specialty Topics" as Z2, that is, the second specialty topic after Cultural Economics, probably with more to come).  The Z-path does, indeed, recognize sports economics and that is nice.  But the codes also duplicate other paths (e.g., the L-path has an industry studies sub-specialty that includes sports).  The Z-path also codifies the “sub-specialty” path many journal editors tell us to take anyway, back to our specialty journals.

Whatever.  The new codes won’t change my approach to sports economics at all and I wonder if they will for anybody else?  For me, the new codes will just make it easier to identify some of my work for the editors at the JSE and IJSF, for example.

The JEL accomplishment does do one thing for me.  It reminds me of the continual progression of sports economics from some pretty humble origins.  My thanks go to Joel Maxcy and Bruce Johnson for their help on the following recollections.

Larry Hadley (I miss him) and Elizabeth Gustafson organized the first WEAI sessions at the San Diego Sheraton on Harbor Island in 1995.  They hosted a cocktail party in a suite at the Sheraton and we remember it being pretty crowded, but joint recollection dredges up only Larry, Elizabeth, Dan Marburger, Bruce Johnson, Bill Kaempfer, and yours truly.

Please let me know if you were there and I will update the recollection.  Thanks in advance.

The 1995 version was successful and Larry and Elizabeth continued on organizing sports economics sessions-- next at the Westerns in San Francisco in 1996 and Seattle in 1997.  By 1998 (Lake Tahoe), the sessions ran most of a day.  I know, pretty small compared to the all day/all conference sessions of today.

And they were very fruitful sessions that followed.  I remember especially the 2001 San Francisco meetings where I first met my long-time collaborator, Young Hoon Lee.  Our first paper was in, of course, EI (2005).  We now have nine pieces together, and a co-edited volume just out (The Sports Business in the Pacific Rim, Springer Verlag, 2015).  Like I said, fruitful indeed.

It is also worth noting the first sports economics professional association which still struggles on today, namely, the International Association of Sports Economists.  I recall completely the IASE founders, Paul Staudohar and Vladimir Andreff.  The early IASE activity brought together those who would later sort themselves out first into NAASE and, most recently, into EASE.

It continues to be an interesting progression.