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Sports Economics

Sports Economics. Garrett Durig Kelly Glitzos David Laden Aram Tramblian Richard Qin. Types Of Sports Marketing. Advertising of Sports Organizations and Associations Promoting the sport itself Using sporting Events, Teams, or Players to promote products.

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Sports Economics

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  1. Sports Economics Garrett Durig Kelly Glitzos David Laden Aram Tramblian Richard Qin

  2. Types Of Sports Marketing • Advertising of Sports Organizations and Associations • Promoting the sport itself • Using sporting Events, Teams, or Players to promote products

  3. Promotion of Products using Sports • Sponsors: Individuals or Corporations that finance a sporting event or individual in return for advertising time or endorsements. • Endorsements: Promotions of a product or service. A celebrity (or in our case, athlete) endorsement is almost always a paid endorsement of the company or a certain product. • Advertisements:  Paid announcements in the print, broadcast, or electronic media, designed to attract public attention or patronage.

  4. Sponsors • Venues: • Heinz Field • Naming Rights: Financial transaction whereby a corporation or other entity purchases the right to name a facility • Teams: • NASCAR • United States Men's National Soccer Team • Athletes: • Mickelson (Professional Golfer) • http://www.philmickelson.com/ • Events: • Olympics

  5. Advertisements • http://www.youtube.com/watch?v=XxFYYP8040A

  6. Super Bowl Commercials • Estimated Cost of Commercial Space for Previous Video: $7 Million per Showing! • Does not include production costs • Supply of available commercial time for sporting events is inelastic • Demand varies with predicted viewership levels

  7. Concentrated Market • $31 Billion Spent nationally on TV Sports Advertisements in 2011 • Over 25% of Market Share controlled by the top 10 firms

  8. Variance of Advertising in Sports • Commercials only shown during breaks in the actual game • Baseball, Soccer, Tennis • Game paused for sports advertisements • Football, College Basketball • Advertisements shown while sport is in progress • NASCAR

  9. Ticket Sales • Price Ceiling • Quantity Shortage – 2011 Superbowl • Combination → Dead-Weight Loss • Attempts to maximize surplus: • - Random Ballots • - Queuing

  10. Dynamic Ticket Pricing • Changing the price of tickets between sporting events • Solves DWL Problems by varying ticket prices with ticket demands • Why do ticket demands vary? • Impact – 15% Increase full price attendance • - 30% Increase total ticket revenue • Problems – Doesn’t Work in all Sports • - Difficult to dynamically change prices

  11. Ticket Scalping • Attributes - Maximizes economic welfare - Considered unethical • Form of Secondary Market - Ticket Quantity Demanded > Ticket Quantity Supplied - Due to quantity ceiling from seating limit

  12. Ticket Sales • Price Discrimination • 1. First Degree • Scalping • 2. Second Degree • Price by Seat Location (Box Seats vs. Bench Seats) • Price by Quantity (Season Tickets vs. Individual Ones) • 3. Third Degree • Price by Age • Price by Home Location (PGA Tour)

  13. Share of Revenue • Prior to 1960s: • NFL: larger teams • MLB: more media coverage • NBA: largest city • After the 1960s: • NFL • MLB • NBA Equal Sharing

  14. Sports Broadcasting Rights • ABC,CBS, and NBC lost millions of dollars without broadcasting rights • Fox upgraded to an NFL contract • Increased profits • Greater local ad revenue • Built TV network “You don’t buy major sports packages now to make money on the deal. You buy them to build the value of your TV network.” (Badenhausen & Nikolov, 1997, Financial World, June 17. p.52)

  15. Cost of Sports Broadcasting Rights • The Maximum fee a broadcaster will pay: • F =  (Rs – Cs)-(Rc – Cc)

  16. Demand for Broadcasting Rights • Increase in technology and policy leads to an increase in demand for rights. • Broadcasting rights became more competitive • increase in fees • increase in sports coverage Price Broadcasting Rights

  17. Competition For Broadcasting Rights • Networks began as monopolists • Newer Technology: • More Channels • New media • Greater competition • Perfect competition

  18. U.S. Network-Affiliate model Supplier Distributer Manufacturer Consumer -NFL -NBA -MLB Local stations Network Viewers

  19. Audience • Revenues are determined by the size of the audience • Broadcasters target young adult males • The demand for an audience is inelastic

  20. Broadcaster salaries • $24,707 to $91,563 • What affects a broadcaster’s salary: • Experience • Location • Industry

  21. NFL Salary Cap • 2011 Salary Cap: 120 million • Hard cap • Salary floor of 89% • Most “fair” pay distribution

  22. NFL Salary Cap • 2010 owners opted out of CBA • Uncapped year • Redskins and Cowboys given penalties for spending during uncapped year • Currently in arbitration

  23. NBA Salary Cap • 2012 Salary Cap: $58 million • “Soft” Cap • Exceptions allow teams to exceed cap • Luxury Tax • $1.50 per dollar for up to $5 million • $1.75 for 5-10 million • $2.50 for 10-15 million • $3.25 for 15-20 million

  24. NBA Soft Cap Exceptions • Mid Level Exception (MLE) • Biannual Exception • Larry Bird Exception • Early Bird • Non Bird • Minumum Salary Exception • Traded Player Exception • Disabled Player Exception

  25. MLB Salary Cap • 2011 Luxury Tax Cap: $178 million • Luxury Tax: pay tax on overspending • First Time Offenders: 22.5% • Second Time Offenders: 30% • Third Time Offenders: 40% • Four teams have paid tax: NYY, BOS, LAA, DET • Yankees have paid 95% of tax

  26. MLB Salary Cap $197,962,289 $173,186,617 $81,428,999 $75,489,200 $64,173,500

  27. Collective Bargaining Agreements • Organized Player Union and Owner’s • Must agree on terms of season • 2011 NBA Shortened Season • Possible 2011 NFL Lockout • 2004-05 NHL Lockout • Game Theory

  28. Free Agency And Trades • Restricted Free Agents • Non-Restricted Free Agents • Trade • Players • Draft Pick • “Salary Dump” • Collusion

  29. How salaries are determined • Minimum salary (price floor) • Maximum salary (price ceiling) • Age/Experience • Prior statistics • Position • Team’s need at position • Depth of position during free agency • Injury history • Basic Supply and Demand

  30. How Contracts are structured • Yearly salary • “Front loading” and “Back loading” (Redskins ex.) • Signing Bonus • Incentive • Clauses • Opt-out • Retirement • Trade restrictions

  31. NFL Jersey Sales • Top-selling Data • insidenfl.nflshop.com • Jersey Advertising • "Authenticity"

  32. Assumptions for Analysis • Population is consistent between years • Temporary Changes vs Permanent Changes • Reversion to past • Perception affects changes

  33. Yearly Data

  34. Sources http://www.admsports.biz/PDF/sb.pdf http://www.ist-ipmedianet.org/Broadcast_economhttp://www.ehow.com/info_8075875_average-salary-sports-commentator.html#ixzz1s7jkiXhHics.pd http://re5qy4sb7x.search.serialssolutions.com/?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&ctx_tim=2012-04-01T17%3A36%3A44IST&url_ver=Z39.88-2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primo3-Article-gale_ofa&rft_val_fmt=info:ofi/fmt:kev:mtx:&rft.genre=article&rft.atitle=Sports%20Economics.&rft.jtitle=Australian%20Economic%20Review&rft.btitle=&rft.aulast=&rft.auinit=&rft.auinit1=&rft.auinitm=&rft.ausuffix=&rft.au=Booth%2C%20Ross&rft.aucorp=&rft.date=20090901&rft.volume=42&rft.issue=3&rft.part=&rft.quarter=&rft.ssn=&rft.spage=377&rft.epage=&rft.pages=&rft.artnum=&rft.issn=0004-9018&rft.eissn=&rft.isbn=&rft.sici=&rft.coden=&rft_id=info:doi/&rft.object_id=&svc_val_fmt=info:ofi/fmt:kev:mtx:sch_svc&svc.fulltext=yes&rft_dat=%3Cgale_ofa%3E215470871%3C/gale_ofa%3E&rft.eisbn=&rft_id=info:oai/%3E http://www.economist.com/comment/1199599 http://thesportseconomist.com/labels/Elasticity%20of%20demand.htm http://mjperry.blogspot.com/2011/02/economics-and-logic-of-ticket-scalping.html f

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