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February 26, 2014

February 26, 2014. Prices of Other Goods. Substitute Used in place of another product or service Red Wings & Tigers games Compliment Used with another product or service Football helmets & shoulder pads Pricing implications?. Short run Costs are fixed NFL season Ticket prices

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February 26, 2014

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  1. February 26, 2014

  2. Prices of Other Goods • Substitute • Used in place of another product or service • Red Wings & Tigers games • Compliment • Used with another product or service • Football helmets & shoulder pads • Pricing implications?

  3. Short run • Costs are fixed • NFL season • Ticket prices • Salary cap • Coaches salaries • Long run • Costs are variable

  4. Revenue Sharing • Each MLB team will receive at least $45 million in shared TV revenue this year • Teams share 34% of their local TV money • For every million dollars a team makes from its local TV deal, the other 29 teams make $11,133

  5. TV and MLB

  6. Current Trend • Local TV money is changing the landscape • Allowing more teams to be financially competitive • Examples • Detroit Tigers • $400million over 10 years • Fox Sports Detroit • San Diego Padres • $75 million per year for 20 years, up from $14 million per year

  7. As a Points of Reference • Milwaukee Brewers • $600,000 for local TV rights in 1970 • Texas Rangers • Bankrupt in 2010 • Player payroll of $125 million in 2012 • Received $160 million upfront and an equity stake in Fox Sports Southwest “Harness the opportunity the market provides”

  8. Teams that Own Networks • New York Yankees • 30% of YES • Earns in excess of $450 million/year • Boston Red Sox • 80% of New England Sports Network

  9. Revenue Sharing and TV $$$ • Major league franchises received $28.4 billion from cable TV networks • Total market capitalization of Time Warner is $27.9 billion • Net worth of Michael Bloomberg (12th richest man in the world) is $27 billion • Where does this $$$ come from? • Your cable bill

  10. 2014 Customer Rates(Per Month) • ESPN  $5.40 • Fox Sports 1  $0.90 • TNT & TBS  $1.80

  11. Regional Networks(Per Month Fees Per Subscriber) • New York Yankees (YES Network)  $3 • New York Mets (SportsNet NY)  $2.55 • Boston red Sox (New England Sports Net)  $3.50 • Baltimore Orioles & Washington Nationals  split $2.28

  12. Public Finance • Teams and networks get paid whether or not anyone watches these games • People who get cable to watch the Oprah & Soap networks and never watch a game subsidize MLB through their monthly cable bills

  13. Are “sports games” on cable TV a public good? • What is “good” to one person may be viewed as bad as others

  14. Noteworthy Aspects of Public Goods • Even though everyone consumes the same quantity of the good, it need not be valued equally by all • Classification as a public good is not absolute; it depends on market conditions and the state of technology • impure public good: some rivalry and/or excludable to some extent • Example: TV Broadcasts, Movies, City Streets, Seashore, Restaurant Ratings

  15. Private goods are not always provided only by the private sector • publicly provided private goods (rival & excludable) Ex: Medical care • (Public provision of a good does not necessarily mean that it is also produced by the public sector, nor that it is a public good) • Example: Garbage Collection; park maintenance • Other examples of goods in which the government hires private companies to do work? • Other reasons why government might offer good or service such as education? Commodity egalitarianism – notion that some commodities ought to be made available to everyone

  16. Free Rider Problem • Attempting to avoid bearing the cost of financing a public good. • Results from the non-exclusion aspect of public good • Failing to reveal true preferences. • The larger the group • the more severe is the free rider problem • more likely a public good will not be financed by voluntary contributions. • Choosing not to contribute is rational behavior.

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