1. Chapter 9 The Economics of Professional Sports: What Is the Real Score? Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2. 9-2 The Professional Sports Business Organizational Structure  Privately owned teams  Professional sports leagues  League franchises Teams and Players  Productivity is visible and easily measured  Salary issues  Contract issues

3. 9-3 The Product Market Cooperation among teams  Professional sports leagues as cartels Baseball’s antitrust exemption

4. 9-4 Characteristics of Successful Cartels Cartel members responsible for most of output generated by market Cartel members produce fairly homogeneous outputs Cartel must be able to divide market into territories controlled by each member and to establish production quotas Cartel must be able to prevent cheating by members

5. 9-5 Coordinated Behavior Revenue sharing Joint marketing

6. 9-6 Pricing and Output for Broadcast Rights 1234567 Units of Output Total Cost ($000) Marginal Cost ($000) Price ($000) Total Revenue ($000) Marginal Revenue ($000) Profits ($000) 001000 140 100 60 285459519090105 3135509027080135 4190558534070150 5250608040060150 6315657545050135 738570 49040105 846075655203060 95408060540200 10625855555010275

7. 9-7 Pricing and Output for a Cartel Quantity per unit of time Price ($000) 12345678 10 20 30 40 50 60 70 80 90 100 MC D MR D C A B

8. 9-8 The Number and Location of Teams Baseball’s attempt to close “small- market” teams Incentive to relocate teams

9. 9-9 The Stadium Controversy Public financing of stadium construction and renovation Justification for public financing  Satisfy local public’s demand for sports entertainment  Status for community  jobs and tax revenue  Evidence on impact of sports franchises

10. Teams, Players, and Salaries in Professional Sports, 2008 9-10 NFLMLBNBANHL Number of Teams3230 Number of Players per Team53251223 Average Team Revenue (millions)$221.56$182.96$125.50$91.56 Average Player Salary (millions)$1.74$3.15$5.36$1.91 Source: www.rodneyfort.comwww.rodneyfort.com

11. 9-11 The Employment of Players Annual draft of new players Exclusive rights to player services for a period of time No “tampering” rules

12. 9-12 Monopsony Monopsony – market with only one employer Why are sports leagues monopsonies?  Immobility of new players who have been drafted  Highly specialized skills of players

13. 9-13 Wages and Employment in a Monopsony 12345 Number of Players Wage ($000) Total Cost of Labor ($000) Marginal Cost of Labor ($000) Marginal Revenue Product ($000) 000 1300 1500 24008005001300 350015007001100 46002400900 570035001100700 680048001300500

14. 9-14 Wage and Employment Determination for a Monopsonist Labor hired per unit of time Wage $000 12345678 100 200 300 400 500 600 700 800 900 1000S MRP = D C A B MC L Monopsonistic Profit

15. 9-15 Free Agency Reserve clause Limited reserve clause and free agency

16. Mean MLB Salaries Since Free Agency 9-16 Source: Major League Baseball

17. 9-17 Labor Disputes Labor unions Strikes and lockouts Salary caps Revenue sharing

18. 9-18 Do Professional Athletes Earn Their Pay? How does player performance contribute to team revenue? Fans and willingness to pay Does anybody deserve such high pay?

19. 9-19 Illicit Drugs and Professional Sports Each sports league has a substance abuse problem  Bans on “recreational” drugs  Bans in performance-enhancing drugs Economic analysis of why players use performance- enhancing drugs  Expected benefits versus expected costs How to reduce the use of performance-enhancing drugs  Forfeiture of salary  Increase probability of detection

20. 9-20 The Case of Major League Soccer MLS a single-entity leagueMLS  All teams owned by a single corporation  Investor-operators  Broadcast rights, licensing, merchandizing centrally controlled  Employment contracts between player and league  League allocates players to teams Is MLS a monopsony? WNBA