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Chapter 1- Warm-up: The Business of Sports

unfortunately, this is a business, and revenues from season ticket sales and corporate sponsorship in Long Beach have fallen short of expectations...

Renfred
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Chapter 1- Warm-up: The Business of Sports

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    Slide 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 I’ll tell you this much: I didn’t buy this team to break even. -Minnesota Twins Owner Carl Pohlad, 1992.

    Slide 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.

    Slide 3:Business Statements

    “We’re 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)

    Slide 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.

    Slide 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(1+r)83=650,000,000. r = 9.1% NOMINAL Real (2004): 7,800,000(1+r)83=734,000,000 r = 5.6% REAL The real growth rate, economy-wide has been between 2% and 3.5%.

    Slide 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.

    Slide 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: Brewer’s ($45.3 million,1993) were about 0.2% of local economic activity. Let’s keep it in perspective! (Economist Henry Aaron, Congressional Testimony on C-SPAN, 1994.)

    Slide 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.

    Slide 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.

    Slide 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.

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