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1 Volume 2, Chapter 1 The allocation of rewards in athletic contests -individual sports.

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Presentation on theme: "1 Volume 2, Chapter 1 The allocation of rewards in athletic contests -individual sports."— Presentation transcript:

1 1 Volume 2, Chapter 1 The allocation of rewards in athletic contests -individual sports

2 2 Individual sports Individual athletes operate outside league structure Organized around professional tour of events, matches, races in disparate geographic locations Usually include governing bodies, event owners/operators, athletes, agents Governing body establish playing and eligibility rules, sanction events, administration similar to league office in team sports Generate revenue from media rights, sponsorships, tickets, athlete fees PGA Tour, LPGA Tour, ATP Tour, WTA Tour, NASCAR… Require strong leader to improve sport, maximize profit

3 3 Individual athletes Independent contractors Income from prize money, endorsements, appearance fee Not unionized, do not deal with owners and governing bodies in singular fashion Average individual athletes earn less money than average team sport athletes Responsible for many of their own expenses Travel, lodging, coaching, equipment, training facilities…

4 4 Event owners Gate receipts significant revenue for event owners Important to secure commitment from marquee athletes In Tennis, IMG and Octagon agencies control ~80% events, represent ~75% athletes

5 5 PGA Tour – history/membership Professional Golfers Association of America Formed in 1968 as nonprofit organization Regulate, promote, improve business of professional tournament golf Players must satisfy reasonable performance criteria, 258 members in 2004 Organize PGA Tour, Champions Tour (age > 50 years), Nationwide Tour

6 6 PGA Tour purses Tournament purses: ~3.5 M -9 M 4 major championships purses: ~8 M Champions Tour: purses 1.6 M -2.6 M Nationwide Tour: purses 450 K – 775 K

7 7 Typical PGA Tour tournament set up PGA Tour contract with a local sponsor, usually nonprofit organization that donate net receipts to charity Local sponsor arrange golf course, staffing (may up to 1000-1500 people for 80000-160000 spectators) Local sponsor responsible for paying tournament prize money (tournament purse) PGA Tours major responsibility: arrange and receive right fee for broadcast deal

8 8 PGA Tour – media contract Networks unwilling to broadcast PGA Tour unless local sponsors/PGA ensure substantial portion of TV advertising in late 70s to early 80s Strategies by former Commissioner Deane Beman PGA Tour and local sponsor sold advertisers and network package of tournaments, rather than single Reduce risk for advertisers and networks Networks often are asked by advertisers to compensate if programming fail to reach anticipated audiences Use title sponsors to purchase large portion of network advertising, underwrite most/all tournament purse Conflicting Events Rule, Media Rights Rule

9 9 Conflicting Events Rule Media Rights Rule Conflicting Events Rule: Limit but not prohibit members from competing at non-PGA tournament No member shall participate any other golf event on a date when PGA Tour co-sponsored regular event is scheduled Media Rights Rule: Players assign their media rights to PGA Tour In return for benefits of membership in PGA tour, including TV coverage Players agree to limit their appearance on other live or recorded TV golf programs without prior approval of PGA Tour commissioner. Wholly instructional golf program and personal appearance are exempted

10 10 PGA Tour not involved PGA Tour does not run any of the four major championships (the Masters Tournament, the U.S. Open, The Open Championship and the PGA Championship), or the Ryder Cup The PGA of America, runs the PGA Championship also co-organizes the Ryder Cup with the PGA European Tour The R&A runs The Open Championship, The Open, British Open) the governing body of golf outside the USA and Mexico only "major" held outside the USA Augusta National Golf Club runs the Masters Tournament

11 11 Association of Tennis Professionals Association of Tennis Professionals (ATP) Tournaments with considerable variation in prize purses: 332 K to 3.7 M in 2007 ATP 1000, ATP 500, ATP 250 ATP World Tour Finals (changed from Masters Cup since 2009) : 8 highest-ranked players from preceding year, singles and doubles, purse 5.07 M in 2011 ATP Champions Tour (older players) ATP Challenger Tour 1951 ranked players in 2011 4 Grand Slams, organized by International Tennis Federation Purse ~ 8 M

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13 13 NASCAR National Association for Stock Car Auto Racing (NASCAR) a family-owned and -operated business venture sanctions and governs > 1500 races at >100 tracks in 39 states founded by Bill France Sr. in 1947–48. Current CEO, Brian France, his grandson 2nd highest TV ratings in professional sports in US Sprint Cup (highest level), 36 races in 10 months Nationwide Series, Camping World Truck Series, Series, several regional series

14 14 WTA – a troubled model Womens tennis has story lines and name recognition In 2003, no title sponsor, not own its tournaments, not control TV rights World Tennis Association officially disappeared several years ago Title sponsor: Corel Sanex none No title sponsor renewed deal since Virginal Slims pulled out in 1994 Players stronger affiliation to country, agents, coaches than governing body Poor media relations staff IMG and Octagon control flow of information

15 15 WTA – a troubled model WTA hired IMG to find title sponsor Find Sanex, a European personal products company, not even distribute its brands in US, as title sponsor for 2000 suggestion in 2003: sell a series of regional sponsorships in ATP model Most tournaments owned by same agencies that represent players IMG and Octagon control 75% players, 80% tournaments, control several seats on WTA board Conflict of interest between agencies and tennis Individual tournaments sell TV rights No consistent network appearance

16 16 WTA - now Sony Ericsson WTA Tour, administered and governed by WTA Tour, Inc. Members: players, recognized Tour Tournaments worldwide, International Tennis Federation (ITF) Tournament categories: Grand Slam Events, Sony Ericsson Championships, Tier Tournaments Sony Ericsson Championships: Season-ending championships in November, prize money 3M 1 mandatory play Tier I Tournament: Sony Ericsson Open - Miami, Florida, USA, prize money 3.45M Tier I tournaments, minimum prize money 1.34M Tier II tournaments, minimum prize money 0.6M Tier III tournaments, minimum prize money 175K Tier IV tournaments, minimum prize money 145K

17 17 WTA - now Use Player Commitment Formula to regulate good players of the minimum number of participation in tournaments If a Tournaments Player Commitment Formula is not met, the affected Tournament shall be compensated (by a percentage of forfeiture to the player) Apply for a new Tournament to WTA Tours by the owner Geographical practicality and balance Television exposure and whether there exists a finalized television commitment or a substantial prospect for same Facilities Marketing consideration

18 18 WTA - now Tournament ownership rights: a week on the Calendar Level of player participation determined by the WTA Tour (Player Commitment) exclusive right to organize, promote and exploit the Tournament, to retain any and all proceeds negotiated benefits package, which may preclude Title Sponsorship of any Tournament in one product category for the Tour Sponsor advertise and promote the Tournaments association with the Tour, advertise and promote the participants entered in the Tournament

19 19 WTA - now Tournaments pay WTA Tour fees funding Tour Operations and Player Services deducted from each Tournaments minimum prize money WTA Tour pay Tournaments from commercial benefits, from 68.7K to 3.5K website Results, players, schedule Live games/videos, App, ringtone, wallpaper, screen saver

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21 21 Order of prize in individual sports Prize money: difference (1st-2nd) >> difference (57th-58th) Difference in performance may be same (e.g. 1 stroke) PGA: Usually ~18% total prize money to 1st place, 10.8% to 2nd, 6.8% to 3rd Difference between 22nd and 23rd: ~0.1% total prize Similar in tennis

22 22 Road races Participation usually open Unlike restricted entry in tennis, golf Prize distribution: 1st: 1; 2nd: 0.5, 3rd: ~0.38 Only top finishers will be paid Usually top 5-16 Performance-related bonuses

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28 28 Economic point of view: rank-order tournaments Prizes are fixed in advance, independent of absolute performance Except road races Winner receives first prize not for being good, but for being better than 2nd 1st prize money not affected by the difference between 1st and 2nd Level of effort depends on size of prize The larger the prize spread, the higher the effort exerted Prize structure designed to induce maximal effect Increase interest of sports fans Average prize money must be high enough to attract athlete participation

29 29 Economic point of view: rank-order tournaments Athletes adjust behavior/effort in response to his ranking in the tournament Small or large lead/behind Risky or safe strategies Supported in the literature: golf, tennis, bowling, distance running, football… Sorting function: a pyramidal structure of events Equivalent to multi-round elimination tournament Ensure only most able competitors make it to final round/contest Function of minor tournaments: identify able athletes, avoid contamination of the elite Prize to 1st round loser in GS > champ in minor tournament

30 30 Economic point of view: rank-order tournaments Top events limit number of entries Effort the largest effect on changing probability of winning when contestants of similar ability If ability differs, both contestants restricted their efforts In road races: organizers support traveling/hotel for seletected top runners Super contest that links together each tournaments PGA Championship, ATP World Tour Finals, World Marathon Majors Addition motivation to perform well in individual tournaments over a season Very high prize

31 31 Exception in order of prize: NASCAR Difference in prize money smaller than that in PGA Drivers may prevent competitors from succeeding If incentive for winning is too high, drives may take risk Tragedy, accident Give drivers incentive to remain on track for entire race, rather than risk crashing in order to achieve more prize money

32 32 NASCAR ranking, 2011

33 33 World Wrestling Entertainment Formerly World Wrestling Federation Entertainment, established in 1987 Initial public offering (IPO) in 1999 Began trade stock on New York Stock Exchange in 2000 Integrated media and entertainment company, engaged in development, production, marketing of TV programming, pay-per-view programming, live events, licensing and sale of branded consumer products featuring WWE brand Key economic drivers: live event attendance, pay-per- view buys, TV ratings

34 34 Creative development/production Create 2 separate and distinct brands: Raw, SmackDown! Distinct storylines, separate live event tours Acquisition of assets/wrestlers from World Championship Wrestling and other competing companies Creative team, headed by Vincent McMahon, develop soap opera-like storylines Same techniques used by many successful TV series Compelling and complex characters, combine social satire, action adventure, drama, athleticism, humor Exaggerated version of real life situations, good vs evil, settling the score Storyline played in ring, weekly/monthly TV show/event

35 35 Creative development/production Develop character for each performer Define and emphasize through various accessories: costumes, entrance music… Success lies in continuing popularity of performers Exclusive contracts with ~150 performers in 2002 Long-term contracts with established performers Continue to recruit talent, participate in extensive developmental training program Promising candidates often loaned to regional promoters to hone skills by working in front of live audience and appearing on local TV programs Popular performers incorporated into TV/pay-per-view to fully develop their characters

36 36 WWE – live events and programming Each event highly theatrical production Involve significant degree of audience participation, special effects including lighting, powerful entrance music, pyrotechnics ( ) 327 live events in 193 north American cities in 2003, ~30 international events planned $39 per ticket Promote live events on TV, radio, print, internet Independent producer of TV programming 7 shows, 9 hrs/week for 52 weeks/year, broadcast in >130 countries and 12 different languages 12 domestic pay-per-view, some also international Audience aged 12-34

37 37 WWE - revenue 2003 Live events, TV/pay-per-view 295.4M 72.2M from live events, domestic TV rights fee 38.8M, international TV rights fee 19.7M, advertising 72.9M, pay-per-view 91.1M Sold advertising time to food/beverage, video game, toy, movie, telecommunication Package sponsorships: TV, internet, print, arena signage, on-air announcements, special appearance by performers, produce commercial featuring performers Branded merchandise 78.9M Toys, video games, apparel Use internet to promote brand, create community experience, market/distribute products

38 38 WWE - analysis Softening in key drivers in 2002, continue in 2003 Net revenue 438.2M in 2001, 409.6M in 2002, 374.3M in 2003 2002 vs 2001: 7%, 12.2M in live/TV, 18.8 M in branded merchandise 2003 vs 2002: 9%, 28.1M in live/TV, 7.2 M in branded merchandise TV ratings, attendance at live events, pay-per-view buys all decreased Audience for sports entertainment contracted and/or moved to other forms of entertainment

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40 40 Professional boxing Many parties influence/direnct boxers career Manager: represent boxer in all business negotiations, including selection and negotiation contract of promoter, selecting trainer, approving opponents; in exchange for percentage of boxers purse for each bout (usually 1/3 for manager and trainer) Manager usually pay training expenses and rent in boxers early career Promoter: agree to provide certain number of bouts and compensation, in exchange for exclusive promotional rights to the boxer Boxing commission of the state: regulate each bout held in the state, health/safety procedure, select judges Boxers goal: rank as contender, fight/win world champ

41 41 Professional boxing - promoter Assume financial risk for promotion of each match Guarantee each fighter a certain purse Pay all expenses of promotion Earn the difference between total revenues and total expenses for promotion of a bout Direct conflict of interest with boxers Revenue sources Live gate receipt, or site fee paid to promoter (usually major fights take place in casino, casino responsible for ticket sale) Domestic/foreign TV rights: most important Sale of advertising rights, video, fight programs

42 42 Professional boxing – sanctioning organizations Only involved with championship and title- elimination matches International Boxing Federation, World Boxing Association, World Boxing Council Each designate a world champ in each weight division, and top 10-20 contenders per division Sanction championship bout, attract TV and live attendance Sanction fee usually 3% each boxers purse No matter how talented a boxer may be, can only be guaranteed a fair opportunity at success if all parties fulfill their roles in honest and faithful manner

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