Why consumers wear sports gear - Elgaronline
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
1. Why consumers wear sports gear
“Sport has the power to change the world. It has the power to inspire.”
This quote is significant in that it is not from a noted athlete, sports owner,
league commissioner, or city council person vying for the public to pay for
a new sports stadium. It is from Nelson Mandela – the acclaimed South
African advocate of human rights and statesman, who, seemingly, would
have had a much bigger view of the world than sports. Nonetheless, he
made this statement in the context of South Africa hosting the 1995 Rugby
World Cup and its importance to his country. The same idea is expressed
more succinctly by the tag line, “sports matters,” for ESPN’s E:60 program,
which highlights inspirational and moving sports stories.
Yet, there is a deep irony embedded in these references to the power of
sports. Its influence does not readily stand out using common measures of
economic performance. Yes, there are several billions of dollars in revenue
generated by the National Football League (NFL), Major League Baseball
(MLB), the National Basketball Association, and the National Hockey
League (NHL) along with college sports and other pro sports. Yet, in
comparing revenues generated by all sports leagues and college sports pro-
grams in the US to other kinds of businesses, the sports industry appears
to be of minor importance. Figure 1.1 presents an example of this kind of
comparison, showing revenue for the top professional sports leagues in the
US along with the top 125 schools from the National Collegiate Athletic
Association (NCAA) and three of the four top retailers. The sports
revenue ranges from $13 billion per year for the NFL down to $3.7 billion
for the NHL with a sum of about $39 billion. In contrast, the revenue for
CVS, Costco, and Kroger all exceed $100 billion per year and amount to
nearly $400 billion, and this excludes the nation’s top retailer – WalMart.
With it included, the top four retailers account for nearly $900 billion per
year in sales.
Even with the revenue from every sporting league lumped together with
these from the top five sports producers, it amounts to less than half of
a single large retailer like Costco. Going beyond retailers, the sum of the
revenues of the top five US-based companies exceeds $1.2 trillion dollars.
The next five add up to nearly $700 billion. The revenue from these top five
sports producers roughly equals that of individual companies like Merck
1
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 1 12/07/2018 11:132 Sports economics uncut
160 CVS
140
Costco
120 Kroger
100
80
60
40
20 NFL MLB NCAA NBA NHL
0
1 2 3 4 5 6 7 8
Note: The sports revenue data are from various sources. The retailer figures are most
recent reports from Yahoo Finance.
Figure 1.1 Comparing revenues of top US sports and selected retailers
or Best Buy. This is not trivial, but it is not a major industry. Adding in the
$13 billion per year generated by the world’s top five soccer leagues –
Premier League, German Bundesliga, Spanish La Liga, Italian Serie A,
and French Ligue 1 – does not change the story by much.
Going beyond direct revenues and considering indirect, tangible impacts
on communities offers a similar story. Most detailed and careful studies
of the impact of sporting events or sports stadiums on local economic
activity or tax revenues indicate that these impacts are relatively small and
rarely justify subsidies directed toward them. These results are not really
surprising given the modest size of the revenue figures.1
Yet, there is another side to the ironic twist about the importance of
sports. It attracts an enormous amount of attention among consumers – way
of out of line with the revenue that it produces. Longtime sports economist
Gerald Scully put it this way, “Sports, in general, and professional sports, in
particular, play a larger than life role in the United States.” When the rest
of the world is pulled in, the point is even clearer. Over one billion people
watched the 2014 FIFA World Cup final between Germany and Argentina
with an estimated 12 million Germans watching in public spaces.
Figure 1.2 demonstrates one of the more novel ways in which this
attention has been measured and illustrates how far the influence of
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 2 12/07/2018 11:13Why consumers wear sports gear 3
28,000
Halftime Match Ends
24,000
Cubic Meters per Hour
20,000
16,000
12,000
8000 Match Begins
4000
16 17 18 19 20 21 22 23 24 25 26
TIME
Note: Data are from http://m.fifa.com/worldcup/news/y=2014/m=6/news=tv
viewingbreaks-records-in-first-fifa-world-cup-matches-2378078.html and http://www
iptvnews. com/2014/07/world-cup-final-breaks-records-worldwide-for-tv-broadcasters/.
Figure 1.2 Berlin water usage during 2014 World Cup Final, Germany v
Brazil
major sport events like the World Cup final can extend into everyday life.
It displays Berlin water usage data in the hours during and surrounding
Germany’s 2014 World Cup match with Brazil. Usage dropped by 60
percent during the first half, jumped above the pre-game baseline during
halftime, fell again by 60 percent during the second half, and then recov-
ered briefly after the match before falling after midnight. Short of war, it
is hard to imagine other events that could bring about this kind of impact.
Similarly, the Olympic Games generate worldwide attention. Figure 1.3
illustrates this by showing the number of countries to which the summer
Olympic games have been telecast since 1956. As television was emerging
in the 1950s, coverage was sparse. Now the games beam to over 200 coun-
tries. For the Beijing and London Olympics, there were about 3.5 billion
viewers. At modest viewing amounts such as 100 minutes, these figures
translate into roughly 40 billion viewer hours devoted to the games. If the
value of time for these viewers were valued at $10 per hour, then this leisure
time spent watching the game amounts to $400 billion.
The degree of media attention and time devoted to sports by consumers
swamps that of industries and companies with much higher revenues.
WalMart may generate $500 billion per year in revenue, but few people
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 3 12/07/2018 11:134 Sports economics uncut
240
200
160
120
80
40
0
56 60 64 68 72 76 80 84 88 92 96 00 04 08 12 16
Note: Data are from Olympic Marketing Fact File, 2015.
Figure 1.3 Countries televising Summer Olympic Games
walk around wearing hats or shirts emblazoned with the companies name
or logo. Stanford University scientists have won over 20 Nobel Prizes and
Northwestern University scientists have many notable achievements, yet
trips to the Rose Bowl by their football teams create much more public
awareness. There are no trading cards for executives at ExxonMobil or
Google as there are for high profile athletes. Consumers do not continue
talking about their enjoyment of a gallon of gasoline for days or weeks
after purchase like they will “Music City Miracle.” There are no fantasy
leagues for cough syrup sales.
These are all visible indications of the large, intangible value of sports,
and they appear in other ways that are even more obvious. Every major
newspaper in the country has a sports section – even the Wall Street
Journal now has a page devoted to sports. Neither Costco nor the entire
discount superstore industry or very large industries claim stand-alone
sections devoted to them. Sports have spawned dedicated television chan-
nels. ESPN started in 1979 as the first 24-hour, seven-day-a-week television
coverage of sporting events and news. Now, there are multiple ESPN
channels along with one or more sports-dedicated channels for NBC, CBS,
and Fox along with stand-alone single sport channels such as the NFL
Network, MLB network, NHL, the Golf Channel, the Tennis Channel,
and others. Fans still converse about Michael Jordan’s shot against
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 4 12/07/2018 11:13Why consumers wear sports gear 5
Phoenix in the NBA finals 20 years later, the “immaculate reception” from
the 1972 Pittsburgh-Oakland game or the Dodgers move from Brooklyn to
Los Angeles 60 years after the fact.
Few sports, if any, illustrate the depth of feelings of fans as international
football (soccer). The level of commitment and affection extends well
beyond attending or viewing matches and into more visceral and demon-
strative displays.
For instance, in the days leading up to the match between Russia and
England in the 2016 European Championships, their fans clashed in
Marseille, France. These incidents included verbal and physical combat
with several arrests. In this case, the Russian fans were reported to
be the instigators, but in many infamous incidents in the past in both
international and domestic contests, English fans played the role of soccer
hooligans. Because of past incidents, home and visiting fans in Premier
League matches are often separated by physical barriers during games and
police form human barriers to separate fans as they exit stadiums.
Placing monetary figures on these intangible values is not easy. Typically,
economists have related housing values to characteristics and amenities
in a community to associate a dollar value for these characteristics and
amenities of a location such as proximity to the ocean or the amount of
pollutants in the air.2 These housing price-based methods are problematic
for sports teams because of sample issues and other obstacles. While there
are cities with and without NFL teams, for example, the ones without
are almost all on the lower end of metropolitan area population and do
not give close comparisons for metro areas of five or 10 million people.
Los Angeles went two decades without an NFL team; there has always
been a lingering expectation of the return of a team, which confounds the
interpretation of its housing values as reflecting a city with no NFL team.
In spite of the lack of hard estimates, it is not a stretch to say that the
value of time spent reading, discussing, and reliving sports is large. The
existence and size of fantasy sports provides an emphatic illustration as
well as allowing for back-of-the envelope calculations of time and its value
in this niche. Taking estimates of the amount of time spent on fantasy
sports and multiplying it by a frequently used measure of the value of
time – the average wage rate – yields a figure around $70 billion dollars.
These values are derivative from the athletic contests. Yet, the time spent
on fantasy sports captures only a small part of the overall time spent by
fans reading about, discussing, or thinking about sports. Again, using the
average wage rate as a gauge of the value of time, for every one million
NFL fans of each team who average one hour per week for the entire year
thinking about or discussing the team beyond time spent watching actual
telecasts, the value is near $40 billion.
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 5 12/07/2018 11:136 Sports economics uncut
Most of this value goes uncaptured by teams. Traces of it show up in
here and there as teams or advertisers attempt to turn fan value into a
monetized revenue stream. One such example is in the merchandising rev-
enues for teams, which range from $12 to $14 billion per year since 2009 for
North American sports teams.3 Of course, sports teams receive only a por-
tion of these billions paid out to them as royalties from licenses granted.
The point is not that teams are capturing all of the intangible value from
consumers through this mechanism, but that the very existence of these
kinds of sales highlights the existence of these underlying intangible values.
There are fans out there who are willing to express some of the value that
they get from watching the New England Patriots by wearing a Tom Brady
jersey. In addition to team merchandise, individual players in collaboration
with sellers of various products are also able to cash in. Michael Jordan
receives $60 million per year from his longstanding Nike shoe deal. LeBron
James and Kevin Durant both have deals in the region of $30 million per
year. At his performance and earning peak, Tiger Wood’s income from his
Nike endorsement hovered around $90 million per year.
DURABILITY OF SPORTS CONSUMPTION
What gives sports this unusual power to grab attention in spite of relatively
modest revenues? A suggestion for a starting point into an answer lies in
the fact that along with athletes, celebrities from film and television also
share in lucrative endorsements. George Clooney appears in Nespresso ads,
Charlize Theron for Dior, and Beyonce for Pepsi with each receiving about
$5 million per year. It is easy to forget that sports are part of the larger
entertainment industry. Like sports, other forms of entertainment create
unusual connections to the public. Seemingly, when Meryl Streep referred
contemptuously to people who would rather watch a football game than a
film during her speech at the 2017 Golden Globe Awards, she overlooked
the parallels between sports and its cousins in other areas of entertainment.
Not only is sport like film or theater in creating drama and imitating
aspects of life, but like these other forms of entertainment, consumers
recall and discuss great movies long after the initial viewing. Highly suc-
cessful adventure or fantasy films like the Star Wars or Harry Potter series
spawn a variety of merchandise sales, a method of monetizing some of the
intangible value created among consumers. Outside of entertainment, such
merchandising revenues are rare.
With entertainment, what are considered consumption items actually
possess a durable value similar to physical assets such as houses or
automobiles. The value of a gallon of gas disappears as soon as the engine
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 6 12/07/2018 11:13Why consumers wear sports gear 7
uses the last drop, but the value of the game or movie lives on past the
narrow time span of the event itself. Beyond commercial entertainment,
other forms of enjoyment and recreation like romantic evenings, family
vacations, or hiking and fishing trips also have this quality. Yet, the degree
of this kind of post-performance enjoyment and conversation in sports
entertainment far outstrips most of these others, particularly other forms
of entertainment. People relive games and seasons 50 years on. Green Bay
Packer fans alive during the famous 1967 “Ice Bowl” NFL Championship
game against Dallas can envision Bart Starr crossing the goal line as if it
happened recently. The phrase “Miracle on Ice” – team USA’s unlikely
defeat of the Soviet Union in the 1980 Olympics hockey tournament –
immediately conjures up the memory to millions of individuals.
Observing this long-lasting consumption quality of sports raises a ques-
tion on the next level. Why does entertainment, and sports entertainment
in particular, possess this durable quality? This question digs into the
psychology of consumers. At its root, sports is life, or, at least, life lived out
on a stage. It mirrors life with its celebrations, disappointments, tensions,
tradeoffs, furious activity, tedium, and subtleties. In this way, it taps into
and appeals to emotions and deep-seated psychological underpinnings
across a wide array of individuals, who emotionally invest in sports in the
same way that they do in great movies or plays and, possibly, more so. The
cooking pot from Costco or the gasoline from the convenience store does
not create a similar emotional or deep-seated psychological attachment.
Recognizing sports as life is not a novel insight. Many times, commenta-
tors have noted that “baseball is life.” This close association between base-
ball and everyday life has spawned over 100 baseball-related films. Because
baseball first secured the position of “America’s pastime,” it has been cited
most often in regard to mirroring life, but the point can be expanded to all
of sports. Soccer has been called the “theater of dreams.”
In this role, sports becomes more than mere entertainment. Because of
sports’ deeply embedded and durable connection with society, it serves
as an important institutional and cultural mechanism for social change.
Jackie Robinson did far more than simply reflect societal changes – he
shaped them. Similarly, the players of Texas Western forged new roads in
winning the 1966 NCAA championship with an all-black starting lineup,
as documented in the film Glory Road.
MORE THAN CONSUMERS
Most of this book is devoted to examining the overlap between sporting
issues and other areas of life. In many ways sports consumers are like any
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 7 12/07/2018 11:138 Sports economics uncut
other consumers. They express their preferences with their expenditures,
and these expenditures are limited by their incomes. When examined in
more detail, however, the preferences and behavior of sports consumers
exhibit features that are not seen in most other settings. They have a pas-
sion for the product that rarely, if ever, emerges in relation to other goods
or services. Few fights or shouting matches break out between the buyers
of Grape Nuts and the buyers of Cheerios. Sports fans will travel far and
wide to follow their favorite team. They will endure rain and snow to sit
through games or queue for tickets. They will celebrate championships in
the streets and lament losses for years. Sixty years after the Dodgers left
Brooklyn, there are people who talk about it with sadness and conviction.
Over 30 years after his death, some Alabama fans still wear hounds tooth
hats in either homage to Bear Bryant or as a symbol of his enduring legacy
in the program.
In England and other places in Europe, soccer is like a tribal identity
even beyond what is seen among American sports fans. The teams have
been around for a long time and fans have close geographic attachment
to a team – in many cases, the proximity is, literally, on a neighborhood
level. Among Premier League teams, Tottenham Hotspur and Arsenal
divide up consumers in north London with stadiums only about four
miles apart. Chelsea draws from west London and West Ham from the
east side. Alongside these clubs, even smaller neighborhood affiliations
around London exist for clubs that have hopped in and out of the Premier
League including Charlton, Crystal Palace, Fulham, Queens Park Rangers,
Watford, and others. Manchester hosts two of the most financially success-
ful clubs in the world in Manchester United and Manchester City, but a
bevy of other clubs and their fans are scattered in and near the metro area.
Birmingham splits supporters among Birmingham City, Aston Villa, and
West Bromwich Albion. Liverpool is divided between Liverpool FC and
Everton with their stadiums separated by less than a mile. These clubs are
among the more recognizable, but England is dotted with teams that divide
cities and neighborhoods. Nottingham holds Nottingham Forest as well as
Notts County. Bristol contains Bristol City and Bristol Rovers.
In the framework and terminology of economics, the identification of
local residents with these teams and the tribalism means that the consum-
ers are not merely consumers. These fans become members of a club. As
club members, they are part consumers of team services but are also part
producers. The club membership has evolved into formal and explicit
relationships such as when fans purchase “memberships” into Premier
League teams or college fans purchase membership in some level of a
booster club or organization by making donations. The language of fans
also gives explicit expression to these ties that bind them to the club. They
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 8 12/07/2018 11:13Why consumers wear sports gear 9
refer to “we” rather than “them” when discussing team performance and
outcomes.
The club-like features between sporting teams and fans run much
deeper than these explicit mechanisms and indications. There is a branch
of economics about clubs.4 At its root, the economics of clubs focuses on
shared aspects of a good or service, whether the shared elements arise in the
production or consumption of the good. Concepts drawn from club eco-
nomics have been applied to a diverse set of settings, ranging from activities
of religious groups to the workings of the European Union. In the case of
sports, the fans share both in consumption and production. As consumers
they attend games in person or watch the game as a shared experience.
However, while attending or watching, fans yell and scream not merely to
get something out of the game, but to put something in. Their efforts impact
both the team as well as the experience of other fans. Even the mere pres-
ence of other fans at the game produces a more enjoyable experience than
watching at home or sitting in a stadium that is nearly empty. The shared
experiences revolving around the team go beyond the time spent watching
games. Conversations among fans about past or future performances of the
team become part of the consumer-producer experience.
The club aspect to sport spawns fan affiliation and loyalty that extends
far beyond what is typically seen for goods and services. Not all English
citizens care about soccer and not all residents of Alabama follow Crimson
Tide football. For many who do care, their interest far surpasses a recrea-
tional diversion. It becomes a deep-seated, common cultural experience,
more akin to highly committed religious or political association and fervor
than the purchase of an item from the grocery store or even other forms of
entertainment such as a night out at the movies. Moods for the day or week
can be determined by the latest performance of the favored team.
At its extreme among diehard fans, team loyalty becomes a defining
characteristic of people’s lives and connections. Phrases like “Red Sox
Nation,” “Big Blue Nation,” “Leeds Forever,” and similar are indicative
of the strength of these bonds. The reasons that fan affiliation and club
loyalty develop to a stronger extent in some places than others seems tied
to geographic connectedness. Where a large percentage of fans live near
the team their entire lives, a stable, long-run connection between teams and
fans develops. After all, for the tribalism to develop, fans need to be in close
contact with each other and near enough the team to receive regular media
coverage. Another factor has been the competition from other sporting
and recreational outlets.
Advances in technology and changes in television programming are
reducing the need for geographic proximity among fans for them to build
strong connections to the team and between each other. College and
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 9 12/07/2018 11:1310 Sports economics uncut
professional football games are now accessible to fans spread across the
country. The internet allows fans to access media coverage of their favorite
team regardless of location and to interact with other fans through blogs
and discussion boards. While this may never replace daily, face-to-face
interactions, it does diminish the reliance on it to a degree.
THE WIDE WORLD OF SPORTS ECONOMICS
With the expansive interest in sports, the “economics of sports” attracts
a number of followers among professional economists and beyond. In a
narrow sense the “economics of sports” centers on revenues, costs, indus-
try structure, compensation practices, and related topics. It is the study of
sports in and of itself.
Yet, sports intimates connection to life and the importance that consum-
ers vest in sports allow for a bridge beyond sports economics for the sake
of sports alone and to broader socio-economic topics that overlap with
sports. That is the focus in this volume. What are lessons learned on play-
ing fields and in sports institutions that provide insights into other areas?
Such inquiries are not without critics inside and outside of academic
economists. To them, sports amounts to only a small industry of little
importance involving mere games. The outcomes do not really “matter.”
To these critics, there tends to be far too much focus on sports already.
These criticisms overlook the points that we have just discussed and
related ones considered below. In spite of modest revenues and impacts in
terms of typical economic metrics like revenue, the outcomes matter deeply
both to participants and consumers. The enormous attention devoted
to sports, even inordinate to those critical of sports, is itself prima facie
evidence that sports outcomes really do “matter” – not because life and
death hinge on them but because people invest importance in them. There
is more to the study of sports than merely the comparison of batting aver-
ages, passing efficiencies, or player salaries. There are connections to much
more general questions in life.
Whether looking narrowly at sports economics topics or more broadly,
sports offer rich environments for data analytic studies of all sorts. The
observability of these environments has sometimes led to comparisons to
laboratory settings.5 It is not exactly a laboratory setting in that researchers
cannot manipulate outcomes and hold certain factors constant, although
it frequently provides “natural experiments” where a rule or institutional
change occurs while most other influences are constant. For example, the
elimination of the 2-line offsides pass in the NHL creates a switch in incen-
tives and optimal strategy.
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 10 12/07/2018 11:13Why consumers wear sports gear 11
Beyond these natural experiments, sports affords countless opportun
ities for “field research.” The variety of settings, observability of outcomes,
and tradition of detailed statistical measurement allows for empirical
investigation of a wide array of topics that can hardly be rivaled by any
other setting. The behavior of labor, management, ownership, leagues,
officials, and consumers can all be observed and monitored in measurable
ways so much so that economics journals of all sorts regularly publish
sports economists’ articles; and an entire journal, the Journal of Sports
Economics, is now devoted to the subject along with economics-oriented
articles in related journals such as the Journal of Sport Management and
the Journal of Quantitative Analysis in Sports. The tentacles of economics-
based sports research have grown wider with the explosion of the analytics
and “big data” era. In fact, sports research has led the way into the sports
analytics era as evidenced by books like Moneyball and the MIT Sloan
Sports Analytics annual conference.
Of course, sports do not incorporate every aspect of everyday life,
particularly at the extremes. There are no murders, assaults, child abuse,
or similar extremes on sporting fields. Short of these extremes, however,
most aspects of life are reflected in sports to some extent. There may be
no divorces, per se, but there are break-ups with strong emotional content.
There may be no births, but fans and players celebrate victories and cham-
pionships with as much vigor. After Team Canada secured the gold medal
in the 2010 Winter Olympics in Vancouver, Canadians poured out into the
streets in celebration by the hundreds of thousands.
Simon Rottenberg (1956) kicked off the use of economic research using
sports markets with his study of baseball labor markets and the alloca-
tion of players among teams.6 He explained a simple but powerful and
somewhat controversial thesis at the time: the allocation of players among
teams would not be very different in a free agency setting versus a world
where a single club reserved exclusive rights over a player. The essence of
his reasoning was that the Yankees could obtain higher quality players
either in a free-agent world by paying them directly or in a restricted labor
world by paying lower revenue teams.
His insight expresses the fundamental logic behind the famous Coase
Theorem in economics – the idea that with low costs of reaching an agree-
ment (low transactions costs), the assignment of rights will not impact the
allocation of resources. Yet, Rottenberg’s article predates Coase’s by five
years and vividly illustrates important connections between the world of
sports and broader economic and social issues in the world beyond. Ronald
Coase won the Nobel Prize for economics in 1991, in large part, for this idea.
In another seminal contribution with regard to sports labor markets,
Gerald Scully (1973) showed that MLB’s Reserve Clause, which allocated
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 11 12/07/2018 11:1312 Sports economics uncut
negotiating rights to a single team, lowered the pay of major league
baseball players below what they could have earned in an open market
setting. The problem Scully addressed was how the open market value of
an MLB player could be determined when MLB markets were not open.
He developed a simple but ingenious solution by using statistics to link
player performance statistics like slugging percentages for hitters and
strikeout to walk ratios for pitcher to team performance, and then linking
these player performances to their contribution to revenues by way of the
impact of team performance on revenue. His approach became a template
for estimating market values in restricted markets. Methods derived from
this have been employed to generate market values for college athletes
and used as a template to examine whether workers in broader contexts
receive payments in line with their contribution to firm revenues outside
of sports settings.7 It also served as a precursor to the “Bosman ruling”
in soccer that switched exclusive rights from players to teams. The ruling
has not only impacted player compensation but has had a major impact
on migration of players and growth of revenues of leagues like the English
Premier League.8
An area of longstanding connections between sports economics and
broader research in economics is the structure of industries and how firms
compete and cooperate within them. The earliest premise presented by
Neale (1964) in the Quarterly Journal of Economics were that sports leagues
emerged as collusive arrangements between producers that restrict output
or price with the ultimate aim of increasing profits above a competitive
level – cartels.9 This cartel view of sporting leagues and associations was
long dominant among economists and captured many essential elements
of league structure and decision making. Extension and expansion of the
view focused on game-theoretic dilemmas faced by such arrangements in
terms of potential gains from restrictive agreements but, simultaneously,
set up ongoing incentives for behavior that undermines the agreement.10
The suit brought against the NCAA cartel by the University of Georgia
and the University of Oklahoma that, ultimately, found its way to the
US Supreme Court and ended some of the cartel practices continues to
reverberate in conference shifting to the present time.
Over time, a more nuanced understanding of industry structure and
firm relationships emerged in economics, in general, with sports analysis
also evolving.11 Sports leagues are now seen as joint ventures that may
integrate some cartel functions but continue to compete as separate entities
and cooperate in some ways that are benign with regard to consumer or
labor interests.12 For example, schools in the NCAA may continue to act as
a cartel with respect to player restrictions at an association level; however,
teams in conferences behave more like participants in a joint venture. In
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 12 12/07/2018 11:13Why consumers wear sports gear 13
other cases, rather than joint ventures among independent firms, a sport
like National Association for Stock Car Auto Racing (NASCAR) is organ-
ized with a centralized structure operating as a single firm. The PGA Tour
operates with this kind of structure with individual players rather than
teams as the key operational unit and excels at extracting rewards from
local tournament sponsors.13 Ross and Szymanski (2005) have considered
whether this structure might also be more efficient for other sports.
This brief summary and sampling of references provides a guide to
many of the starting points of the interface between economics and
sports. For many years, sports economics focused primarily on labor
markets and industry or firm structure. Over the past few decades, as
economics widened its scope, many more topics related to sports came
under examination by economists. These include race and discrimination,
law enforcement and corruption, managerial decisions, strategic behavior,
inequality, market efficiency, and many more. These topics comprise the
subject matter for the remainder of this volume. Of course, not every topic
related to sports and economics is covered in the following chapters. One
example is the relative efficiency of market mechanisms and participants
in their decisions. Economists have used the extensive data available in
sports betting markets with a view toward evaluating the degree to which
markets are efficient in eliminating systematic profit opportunities and
whether these betting values reflect valuable information. By and large,
participants, at least as a group, are highly skilled in utilizing existing
information, but some interesting exceptions crop up. One exception found
with regularity is the over-betting of longshots while under-betting of
favorites in terms of expected returns. Recent evidence suggests that this
error by market bettors grows out of misperceptions of the probabilities;
however, the size of the error is small, not allowing for systematic profits
above transactions costs.14
PUSHING THE BOUNDARIES
My intent in this volume is not to provide a comprehensive review of
existing contributions to sports economics or take on every topic. There
are a number of existing economics-oriented books that push into various
corners of sports topics.15 I select a few topics deserving of additional
attention such as the idea that sports really matters, topics on race, inequal-
ity, the balance between traditional economic views of managers and
behavioral views, and a few others. The “uncut” part of this book comes
from my effort to push these topics, highlight dilemmas, probe for insights,
and ask questions that are unanswered or avoided. I have not tried to be
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 13 12/07/2018 11:1314 Sports economics uncut
bombastic or provocative for its own sake. While being sensitive to the
delicate nature of some of these issues, I have tried to push outside the box
of politically approved explanations.
Even though sports fans share some common attributes and behave
like club members, all sports fans are not created equal. In Chapter 2 the
discussion centers on how it took MLB more than a decade to realize that
its fans differed from NFL fans. In fact, the rethink occurred, largely, as a
result of the entrepreneurship of the Braves and Cubs against the wishes of
other teams. Also, college sports represents an anomaly in not only sports
but entertainment more broadly in that a lower-skill production, college
football and basketball, can rival the consumer interest at a higher-level
of production, professional football and basketball, at least among top
programs. I examine the factors behind this along with consumer interest
in women’s sports and the long-run threats to the fan bases of the most
popular sports like football and baseball.
In Chapter 3 I ask what the race-related studies in sports indicate about
trends in terms of bias and discrimination and current degree of such
biases. Studies in sports economics have long found substantive evidence
of discrimination. Over time, however, the nature of the evidence has been
changing in terms of the magnitude of bias and discrimination. It is one
thing to say that bias and discrimination still exists, but it is a different
thing to show that it matters in substantive ways. In fact, the evidence now
indicates that to the extent that discrimination lingers in sports, it is on a
scattered, random basis or in very microscopic quantities. The discussion
goes on to ask more provocative questions: is a zero-bias world the goal
or is bias all bad? At first glance, the answer seems obvious, but when bias
is considered as a different label for affinity, it seems both unrealistic and
undesirable to work toward an affinity-free world.
Bias and bigotry persist in the world, yet one of the ongoing stories in
sports economics is that markets penalize these attitudes. Beyond the bias
and discrimination, there is a story of racial integration and the factors
behind it. These are the subject matter of Chapter 4. The Jackie Robison
story has been widely told and dramatized in movies, along with the Texas
Western story. The wider story of how process of integration as a type of
innovation and competition worked out on a wider scale in MLB and col-
lege basketball is less well known but informative about the way and time
in which markets root out bias.
A related and also controversial question is addressed in Chapter 5,
coauthored with Dennis Wilson, as to whether segregation should always
be taken as a sign of discrimination. The study of “positional discrimina-
tion,” as the label implies, attributes observed differences in catchers versus
pitchers or quarterbacks versus wide receivers to discrimination and bias.
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 14 12/07/2018 11:13Why consumers wear sports gear 15
Likely, such discrimination in positions existed at one time, but continued
differences in usage of blacks and whites at different positions may be
due to alternative explanations that are innocuous and reflect economic
motives.
Chapter 6 draws on the studies of sports, law enforcement, and corrup-
tion to raise a question regarding the longstanding antagonism that seems
to exist between the public and the police. Many people, who are not seri-
ous criminals, go through life suspicious of police in spite of their “public
servant” role. In sports, such antagonism arises, in part, because officials
help one team when punishing their opponent. Beyond this element,
however, there are interesting issues that arise with regard to incentives to
and evaluation of officials. Different sports leagues employ different evalu-
ation and incentive mechanisms. On a related twist, I consider the ongoing
antagonism toward NFL Commissioner Roger Goodell and what is at the
heart of the push for more independent arbitrators to decide punishments.
In business settings and in personal settings, decision makers often come
relatively close to the optimizing behavior expressed in fundamental eco-
nomic models. However, there are well documented departures from such
models as studied in the sports betting literature as well as sports manage-
ment literature, which lend themselves to more of a “behavioral” view of
decision making. For example, NFL teams punt more frequently on 4th
down than is implied by expected point difference maximization. While
these decisions may be less than optimal from a team standpoint, there
are underlying incentives on managers that may contribute to this kind
of outcome. This is the focus of Chapter 7. Beyond small departures from
simple models of optimal decision making, managers sometimes engage
in egregiously bad behavior. New Orleans Saints head coach Sean Payton
blatantly ignored explicit instructions from the NFL Commissioner and
his owner to stop the payment of “bounties.” In a scandalous and sad case,
the revered longtime coach at Penn State, Joe Paterno, enabled the contin-
ued behavior of a child molester. We use these sports examples to explain
how unconstrained, poorly monitored behavior leads to bad decisions in
and out of sports settings.
In Chapter 8, I consider some of the complexities that arise regarding
competitive balance and equality among sports teams. One of the ongoing
themes of competitive balance in sports leagues that have limited revenue
sharing or soft salary caps is the ability of well-endowed teams to establish
longstanding dominance. College football fits this world where teams like
Alabama, USC, and Texas have advantages that help establish winning
records, albeit with some bumps. At the same time, smaller schools like
Western Kentucky University can compete better in football against major
programs in a way they could not 25 years ago. Why is this? Likewise,
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 15 12/07/2018 11:1316 Sports economics uncut
it is natural to think that a team boosting its financial resources with a
generous owner will make life harder for lower teams. However, the entry
of Chelsea and Manchester City into the upper echelon of the English
Premier League seemed to make life more difficult for Manchester United
and Arsenal as much as or more than lower-placed teams.
College athletics is a world of cognitive dissonance. On the one hand,
it is easy to observe the large and growing revenues generated by major
football and basketball programs. On the other hand, many programs
show little or no surpluses, leading analysts and reporters to conclude
that schools subsidize college sports to a large extent. Chapter 9 explains
how the world of college sports provides instructive lessons on the world
of not-for-profit firms and how valuations of the contributions of college
athletes can be made in relatively simple ways.
Chapter 10 shows how the power of sports can make a difference on a
national scale in addressing problems or expressing common sentiments.
The quote from Nelson Mandela at the beginning of this chapter is part
of his use of the 1995 World Cup as a means to attempt to unite South
Africans and heal some of the longstanding wounds of apartheid. Besides
South Africa in 1995, many other sporting events illustrate the political
overtones embedded in sports. Some of the most famous incidents include
the 1956 “Blood in the Water” water polo match between Hungary and
the USSR or the 1980 “Miracle on Ice” victory of the US over the USSR
in Olympic ice hockey. While sports can have a positive impact on a large
scale, this kind of power and overlap with politics also creates dilemmas
on an international level by giving rise and power to super-national organi-
zations like FIFA as well as on a local level with debates about public
subsidies to sports stadiums.
NOTES
1. Some examples across different stadium settings include Noll and Zimbalist (1997),
Coates and Humphreys (2003), Dehring et al (2007).
2. Carlino and Coulson (2004) estimate the net benefits to a city of hosting an NFL team,
finding sizable effects in total. Coates et al (2006) express criticisms of their methods,
prompting a reply by Carlino and Coulson (2006). Atkinson et al (2008) consider the
intangible impacts of the London Olympics, while Humphreys et al (2011) estimate the
value of medals for Canadian athletes in the 2010 Winter Games in Vancouver.
3. The merchandising revenue figures are from https://www.statista.com/statistics.
4. The seminal contributions to the economics of clubs are Buchanan (1965) and Olson
(1965). An extensive discussion is available in Sandler and Tschirhart (1980). There are
more recent articles in both sports economics and sports marketing focusing on fan
affiliation and loyalty.
5. Goff and Tollison (1990, Ch 1) first raise the comparisons between laboratory experi-
ments and sports settings. They are explored in greater detail by Kahn (2000).
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 16 12/07/2018 11:13Why consumers wear sports gear 17
6. An overview of connections between sports labor markets and broader issues in labor
economics are provided by Rosen and Sanderson (2001) and Kahn (2000).
7. Brown (1993, 1994) uses it as a basis to consider the value of college athletes, a topic we
take up in a later chapter.
8. See Simmons (1997) and Goddard et al (2012) for examinations of the impact of the
Bosman ruling.
9. Fort and Quirk (1995) offered a wide-ranging review of the economics of sports leagues
in the Journal of Economic Literature and then authored a comprehensive study of
professional sports (Quirk and Fort, 1997) and abuses in pro sports (Quirk and Fort,
1999). Noll and Zimbalist (1997) is another wide-ranging examination of sports leagues.
Zimbalist (1994) focuses on baseball.
10. Fleisher et al (1992) present a detailed study of the NCAA as a cartel. Fleisher et al
(1988) and DeSchriver and Stotlar (1996) are studies that explore the NCAA’s cartel-like
arrangements.
11. Abere et al (2012) provide detailed discussions of the economic structure of NASCAR.
12. The joint venture perspective on sports leagues appears in Tollison (1999) and Flynn
and Gilbert (2001).
13. Cottle (1981) is responsible for this insight into the PGA Tour’s activities.
14. Sauer (1998) provides a review of many of the early studies of the efficiency of sports
betting markets. He explains that the evidence generally supports market efficiency, but
with some interesting exceptions. Brown and Sauer (1993) show that betting markets
respond to team abilities and special factors rather than just fluctuating due to random
noise.
15. Bradbury (2007) looks at baseball with an economist’s eye.
Brian Goff - 9781788118736
Downloaded from Elgar Online at 07/13/2021 06:13:07AM
via free access
GOFF_9781788118729_t.indd 17 12/07/2018 11:13You can also read
