1. Warming Up 1

2. Sports in the economy The US economy in 2010 generated about $14 Trillion in goods and services. The author of our book tells us that in a recent year the envelope industry generated $2.6 billion in revenue and the cardboard box industry had $7.6 billion in sales. From Hoover’s I found the following sales figures for a recent year: NFL $8 billion MLB$6.5 billion NBA$3.8 billion NHL$2.9 billion. So, any one sports league is relatively small. 2

3. Even though the revenues of any one sports league is relatively small, many people buy newspapers, magazines, and cable TV subscriptions to follow sports. Even city governments spend large dollar amounts to attract and keep sports teams. Many folks across the country make big dollars as business owners, lawyers and investment bankers, among other professions. Most go unnoticed, unless they break the law or do something extraordinary. Sports owners and players, though, have there financial dealings revealed all the time. The author of our text points out that in surveys both owners and players are perceived to be overpaid. Plus, many are criticized for the way they do things. 3

4. Let’s consider the Seattle Seahawks. The owner is billionaire Paul Allen, one of key people involved in Microsoft from the beginning. So, he made all his money way before he became a team owner. He said the only way he would buy the team is if the local government would build a new stadium. They did build it! But, some say this is part of what is wrong with sports. The author points out a situation where in general owners are unfairly criticized. The general idea is fans think ticket prices are raised only to pay the salary of a star player. The fans think the owner is ripping them off. But the real economic story is as follows: the star player generated greater fan interest, the greater fan interest means the demand for tickets rises, the higher demand means the price of ticket rises, and the star player says to the owner it is the star player that should get the additional money from the higher prices. The owner pays! 4

5. Fans probably do not care about misunderstanding the logic spelled out here. They just see they pay more for tickets. To me this raises a larger set of questions. What should the price of tickets be? How much revenue should owners keep and how much should go to players and coaches? Should cities that pay for the stadiums get some of the money? Cities probably are willing to pay for stadiums because on game day fans flock to the town and get hotel rooms, eat at restaurants, and spend dollars for parking and other items. 5

6. Let’s consider one more story here. Say you have a sports franchise owned by one family or group for a while. Overtime, whether or not the team wins often or not, the value of the franchise grows because the value of the league has grown. Any one player can not claim that they are the cause of the popularity of the league (although some have claimed Magic Johnson and Larry Bird really got the NBA going after a down period, and Tiger Woods may have raised the pay for all in pro golf). Now say the franchise is sold. The value of the sale is in part inflated because of the success of the league. The new owner has had to pay a premium just to get the team. So, the owner then claims, and perhaps rightly so, that they are deserving of a greater share of revenue because they paid so much to get the team. Well, are you warmed up? Let’s play Sports Economics! 6