Economics of Professional Sports

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The assignment article is now posted in Resources. You are to discuss and analyze this article, with reference to the course material. If you reference other books, articles or websites, you must cite them in your references. Your assignment should be written in sentences and have 1000 words. It is due on Nov. 29 by 4pm in the Economics drop box outside of PL451.

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1 Brock University Department of Economics ECON 2P42 Economics of Professional Sports Fall 2018 Instructor: Office location: Phone: Lecture: Course Contact: R. Koehn (no email) PL436 905-688-5550, ext. 3104 Monday & Thursday – 2:00 to 3:30 pm – STH204 Indra Hardeen – ihardeen@brocku.ca Office location – PL454 Office hours – TBD General Information about the Course: Economic analysis is applied to selected aspects of professional sports. The emphasis is on the economics so we will not be watching or playing any sports. But all of the analysis is applied to sports so some institutional detail on sports teams, leagues, players etc. is covered. Further, almost all of the examples and applications are taken from professional sports. The field of Sports Economics is very new and growing rapidly. Consequently, there is no consensus about what should be taught in a sports economics course, it is a learning experience for the instructor as well as the students, and the course changes from year to year. The topics covered and their sources will almost surely be modified as the course evolves through the term. ECON 1P91, Principles of Microeconomics, is a prerequisite for the course so knowledge of first year level principles of microeconomics is assumed. Use any intro level microeconomics text to fill in any gaps you may have. Wikipedia http://en.wikipedia.org/wiki/Economics can also be helpful. Knowledge of the basic rules of the major professional sports (baseball, American football, and basketball especially; but also hockey, European football or soccer, tennis, and golf) is also assumed. For American football and baseball, sources are http://en.wikipedia.org/wiki/American_football#Rules and http://en.wikipedia.org/wiki/Baseball. Sources for other sports are also available on the internet. References: There is no assigned textbook. Course content is taken mainly from the following sources which are available in the Library. Other sources are cited on the lecture notes. Blair, Roger D. Sports Economics NY: Cambridge University Press, 2012 GV 716 B53 2012 Fort, Rodney. Sports Economics, Second edition. N.J.: Pearson Prentice Hall, 2006 GV716F68 Késenne, Stefan. The Economic Theory Of Professional Team Sports : An Analytical Treatment Cheltenham, UK, Northampton, MA : Edward Elgar, 2007. GV 716 K47 2007 2 Leeds, Michael and Peter von Allmen. The Economics of Sports, Fourth edition, Addison Wesley, Boston, 2010. GV 716 L44 2011. (L&vA) Some supporting materials are at: http://wps.aw.com/aw_leedsvonal_econsports_4/ including a nice collection of links. Winston, Wayne. Mathletics: how gamblers, managers, and sports enthusiasts use mathematics in baseball, basketball, and football, Princeton, NJ : Princeton University Press, GV 706.8 W56 updated edition, 2012 Zimbalist, Andrew. The bottom line : observations and arguments on the sports business. Philadelphia, PA : Temple University Press, 2006. GV 716 Z56 2006 Course Content: Topic 1: Some economics basics • The cost of something is what you have to give up to get it: opportunity cost • Thinking at the margin, including opportunity costs, to best allocate scarce resources • But you should ignore sunk costs when making decisions • People/teams respond to incentives • Willingness to pay, demand, consumer surplus, supply • Scalping tickets Topic 2: Public money for teams, stadiums, and events • Subsidy of, and Extortion by, sports teams and events (e.g. the Olympics) • Why subsidize professional sports (including the Olympics)? Market failure: public goods, externalities, economic development • Skydome, Rogers Centre case study Topic 3: Objectives of teams: Profit or Wins? • Effects of market size, • Effects of salary caps, salary minimums, and the MLB luxury tax Topic 4: Demand and the basic profit maximizing, monopoly model of ticket pricing • Revenues, costs, basic monopoly model of ticket pricing, consumer surplus • Effects of capacity constraints • Players’ salaries and ticket prices Topic 5: Competition (or not): models, legal framework, recent history • Profits and entry: Closed league versus open league with promotion and relegation • Competition law and anti-trust (or not) in professional sports • Natural monopoly Topic 6: Determinants of revenue and demand, Revenue Sharing • Basic Economics 101 determinants of demand • Promotions, quality of the team and opposition, dynamic pricing • Revenue sharing in the major sports • Effects of revenue sharing: good and bad, intentional and unintentional Topic 7: Labour markets and players’ salaries 3 • • Marginal product and the value of wins Salaries and the reserve clause again Topic 8: What do leagues do? • Competition versus cooperation, “peculiar economics” allocating profits or losses • Advertising externalities and public goods • When to admit a new team into the league. Case Study: the NFL in Toronto Topic 9: Competitive Balance (or not) • Costs and benefits • Polices to promote competitive balance Topic 10: More complex models of pricing and profits I: Vertical Integration and Transfer Pricing Topic 11: More complex models of pricing and profits II: Price discrimination Topic 12: • • • • Baseball analytics States, probabilities, expected runs and the probability of scoring Analyzing sacrifice bunts, stolen bases, taking the extra base Basic baseball statistics and their relation to scoring runs (or not) Measuring batter’s productivity: OPS, variations on OPS, James’ Runs Created and batting order, park effects, OPS+ Topic 13: Analysis and optimal strategies: American Football Analytics • States and expected points • Analyzing the true value of touchdowns and field goals, the value/cost of turnovers, and going for it on fourth down Topic 14: Prisoner’s dilemma and the use of performance enhancing drugs (doping) Evaluation: Mid-term test* – October 25 Assignment – due date: November 29 Final exam 35% 15% 50% * If for whatever valid reason the midterm examination is missed, the corresponding weight will be transferred to the final examination. It is your responsibility to inform Indra Hardeen of your absence prior to the midterm examination taking place. Last day to withdraw without academic penalty: Nov. 6, 2018 Classroom Protocol: No talking during lectures. Students’ most common complaint about large courses is other students talking. If you are talking, you ARE bothering the other students around you. They are just being too polite to tell you. The instructor knows this because students thank him in the course evaluations for telling students to shut up. Same for watching videos during class. The 4 instructor doesn’t care as long as you are quiet, but it is very distracting to the students behind you. Academic Integrity: Statement for undergraduate courses Academic misconduct is a serious offence. The principle of academic integrity, particularly of doing one’s own work, documenting properly (including use of quotation marks, appropriate paraphrasing and referencing/citation), collaborating appropriately, and avoiding misrepresentation, is a core principle in university study. Students should consult Section VII, “Academic Misconduct”, in the “Academic Regulations and University Policies” entry in the Undergraduate Calendar, available athttp://brocku.ca/webcal to view a fuller description of prohibited actions, and the procedures and penalties. Plagiarism software: If plagiarism software is used (Turnitin.com), a statement to that effect must be included on the outline including an option to opt out. Sample statement regarding Turnitin.com This course may use Turnitin.com, phrase-matching software. If you object to uploading your assignments to Turnitin.com for any reason, please notify the instructor to discuss alternative submissions. Intellectual Property Notice: All slides, presentations, handouts, tests, exams, and other course materials created by the instructor in this course are the intellectual property of the instructor. A student who publicly posts or sells an instructor’s work, without the instructor’s express consent, may be charged with misconduct under Brock’s Academic Integrity Policy and/or Code of Conduct, and may also face adverse legal consequences for infringement of intellectual property rights. Special Accommodation: The University is committed to fostering an inclusive and supportive environment for all students and will adhere to the Human Rights principles that ensure respect for dignity, individualized accommodation, inclusion and full participation. The University provides a wide range of resources to assist students, as follows: a) If you require academic accommodation because of a disability or an ongoing health or mental health condition, please contact Student Accessibility Services ataskSAS@brocku.ca or 905 688 5550 ext. 3240. b) If you require academic accommodation because of an incapacitating medical condition, you must, as soon as practicable, inform your instructor(s) of your inability to complete your academic work. You must also submit a Brock University Student Medical Certificate (found at https://brocku.ca/registrar/toolkit/forms). The University may, at its discretion, request more detailed documentation in certain cases. If you are unable to write a scheduled examination due to an incapacitating medical condition, you must follow the process set out in the Faculty Handbook III:9.4.1. c) If you are experiencing mental health concerns, contact the Student Wellness and Accessibility Centre. Good2Talk is a service specifically for post-secondary students, available 24/7, 365 days a year, and provides anonymous assistance:http://www.good2talk.ca/ or call 1-866-925-5454. For information on wellness, coping and resiliency, visit: http://brockmentalhealth.ca/mental-wellbeing/. d) If you require academic accommodation on religious grounds, you should make a formal, written request to your instructor(s) for alternative dates and/or means of satisfying requirements. Such requests should be made during the first two weeks of any given academic term, or as soon as possible after a need for accommodation is known to exist. e) If you have been affected by sexual violence, the Human Rights & Equity Office offers support, 5 information, reasonable accommodations, and resources through the Sexual Violence Support & Education Coordinator. 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Economics of Professional Sports
In the recent past, global sports economics has significantly increased. This is esteemed to have
resulted from the increase in the demand for sports for both the participants and the fans. As a
result, the incomes of professional athletes have significantly risen to higher heights. As at
current status we witness professional athletes being offered long-term contracts that cost lots of
monies up to $100 million on the other side, many cities are bidding against each other to host
international sporting events and acquire professional sporting facilities are some offering to
spend up to $2.5 billion in preparations. On the other hand, spectators are ready to spend funds as
high as $10,000 to attend sporting events. It is evident that sports have become a big booming
business. As a result, over the years, major sporting leagues around the world have implemented
several cross- subsidization policies to preserve the competitive balance in sports. The major aim
of the policy has been to regulate the sporting labor market directly affecting their salaries and
others aiming to regulate the transfer markets. The essay aims to discuss the inclusivity of
principles microeconomics and the effects on the competitive balance in sports.
For some time, the sports market has been characterized by a bilateral monopoly, a
situation where one buyer faces one seller directly. In this kind of market structure, the club or

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