Purpose of Sports? Baseball vs. Football

1. Purpose of Sports?Baseball vs. Football

2. Economics of Sports Unit 1Warm Up:  The Business of Sports

3. Sports Play an Outsized Role • They have been used for political purposes • “Ping pong diplomacy” led to U.S. relations with China • Boycotts disrupted the Olympics in 1976, 1980, and 1984 • Sports are not a very big business • MLB, NBA, NFL, and NHL combined generated $19.09 Billion in revenue in 2008 • CIGNA Insurance generated $19.10 Billion • But the nightly news doesn’t have a segment devoted to the day in insurance report

4. The Module • Economic / Financial Concepts in Sports • The Industrial Organization of Sports • The Public Finance of Sports • The Labor Economics of Sports • Intercollegiate and Amateur Sports

5. Review of Economic Concepts • Key Concepts • What is comparative advantage, and how does it apply to sports? • Review of • Supply and Demand • Financial Statements • Monopoly • Fixed Costs

6. The Industrial Organization of Sports • Key Questions • How do teams and leagues maximize profit? • What role does monopoly play in sports? • What is competitive balance and why is it important?

7. The Public Finance of Sports • Key Questions • How do teams and leagues benefit from their relationships with municipal, state, and national governments? • How do municipalities benefit from their relationships with sports teams and leagues?

8. The Labor Economics of Sports • Key Concepts • How do labor markets function in professional sports? • What impact do the monopoly (seller) power of unions and the monopsony (buyer) power of leagues have on labor markets in sports?

9. Intercollegiate and Amateur Sports • Key Concepts • How did the concept of amateurism arise? • What role does amateurism play in intercollegiate sports? • How have changes in admission and eligibility standards affected colleges and athletes? • Pay for Play?

10. Babe Ruth’s Odd Career Path • Babe Ruth was originally a star pitcher • From 1916 to 1918 he was the top pitcher on Red Sox • He was one of the best in all of baseball • From 1919 on he pitched in only 22 games • Why did the Red Sox stop using their best pitcher?

11. Babe Ruth and Opportunity Costs • The opportunity cost of using Babe Ruth in the outfield was large • Opportunity cost is the value of the forgone alternative • The Red Sox pitching was not as good without him • BUT: The opportunity cost of using Babe Ruth as a pitcher was greater • Ruth was the best hitter of his age • In 1918 he hit more home runs than the entire Red Sox starting outfield hit in 1917

12. Babe Ruth And Absolute Advantage • Absolute advantage occurs when a person (or nation) is better at doing something than another person (or nation) • Babe Ruth was the best pitcher and the best hitter on the Red Sox • Ruth had absolute advantage as a pitcher and as an outfielder • Despite an absolute advantage as a pitcher, he stopped pitching

13. Babe Ruth and Comparative Advantage • Comparative advantage exists where a person’s (or nation’s) relative advantage is greatest • Babe Ruth had a comparative advantage as a hitter • He had an absolute advantage as a pitcher • He had a much larger absolute advantage as a hitter • The opportunity cost of using him as a pitcher was greater than the opportunity cost of using him as a hitter

14. The Gains from Specialization • The Red Sox were better off with Babe Ruth as a hitter • The opportunity cost of using him as a pitcher was greater than the opportunity cost of using him as a hitter • People, teams, and nations gain from specializing where they have a comparative advantage • That means letting others do an activity that you can do better

15. Table 1-3Highest Expansion Franchise Rights Fees ($millions)