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

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Presentation on theme: "Garrett Durig Kelly Glitzos David Laden Aram Tramblian Richard Qin Sports Economics."— Presentation transcript:

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

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) Events: Olympics

5 Advertisements P8040A P8040A

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 T ICKET S ALES Price Ceiling Quantity Shortage – 2011 Superbowl Combination Dead-Weight Loss Attempts to maximize surplus: - Random Ballots - Queuing

10 D YNAMIC T ICKET P RICING 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 – Doesnt Work in all Sports - Difficult to dynamically change prices

11 T ICKET S CALPING Attributes - Maximizes economic welfare - Considered unethical Form of Secondary Market - Ticket Quantity Demanded > Ticket Quantity Supplied - Due to quantity ceiling from seating limit

12 T ICKET S ALES 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 dont 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 o increase in fees o increase in sports coverage Broadcasting Rights Price

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 SupplierDistributer Manufacture r Consumer -NFL -NBA -MLB NetworkLocal stations 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 broadcasters salary: Experience Location Industry

21 NFL Salary Cap 2011 Salary Cap: 120 million o Hard cap Salary floor of 89% Most fair pay distribution

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

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

24 NBA Soft Cap Exceptions Mid Level Exception (MLE) Biannual Exception Larry Bird Exception o Early Bird o 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 o First Time Offenders: 22.5% o Second Time Offenders: 30% o Third Time Offenders: 40% Four teams have paid tax: NYY, BOS, LAA, DET o 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 Owners o 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 o Players o Draft Pick o Salary Dump Collusion

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

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

31 NFL Jersey Sales Top-selling Data o Jersey Advertising o "Authenticity"

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

33 Yearly Data

34 salary-sports-commentator.html#ixzz1s7jkiXhHics.pd salary-sports-commentator.html#ixzz1s7jkiXhHics.pd 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/ 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.aus uffix=& =&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 f Sources

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