Rodney Fort's Sports Economics Chapter 6  Sports Market Outcomes II

Figure 6-1 Small and Large Revenue Market Teams in a Two-Team League Legend: The smaller market team has lower marginal revenue for all levels of winning percent than the larger market team. MRL(W) > MRS(W) for all W. An example is shown at W = 0.250.

Sports Economy Average Table 6-1 Gini Coefficients for Revenue Imbalance in Pro Sports Leagues (slide 1 of 3) Year MLB AL NL NBA NFL NHL Sports Economy Average 1930s average 0.242 0.241 0.224 1940s average 0.182 0.170 1950s average 0.210 0.217 0.180 0.214 0.151 0.155 0.190 1980s average 0.184 0.176 1990s average 0.172 0.185 0.150 0.153 0.061 0.168 0.146 Pre-strike/lockout average 0.159 0.131

Table 6-1 Gini Coefficients for Revenue Imbalance in Pro Sports Leagues (slide 2 of 3) Post-strike/lockout average 0.201 0.221 0.171 0.153 2000 0.176 0.172 0.130 0.075 0.142   2001 0.166 0.136 0.119 0.070 0.160 2002 0.158 0.165 0.148 0.125 0.072 0.146 2003 0.126 0.145 0.102 2004 0.133 0.151 0.109 0.132 0.069 2005 0.107 0.131 0.081 0.098 2006 0.110 0.128 0.090 0.055 0.117 2007 0.114 0.134 0.092 0.054 2008 0.113 2000s average 0.068 0.115 Pre-lockout average 0.149 Post-lockout average

Table 6-1 Gini Coefficients for Revenue Imbalance in Pro Sports Leagues (slide 3 of 3) Notes: Pre-strike/lockout and post-strike/lockout are calculated according to the following: 1990s: MLB 1994–1995; (NBA excluded since 1998-99 lockout only leaves one post-year); NHL 1994; 2000s: NHL 2004–2005.

Figure 6-2 Two-Team League Revised Legend: This depiction of the two-team league is a useful adaptation. The larger market team is portrayed from left to right and the smaller market team is portrayed from right to left. Since the sum of winning percents in a two-team league equals one, . But at that winning percent outcome, so it cannot be an equilibrium since the large market team wishes to buy more talent and the smaller market team will sell it.

Sports Economy Average Table 6-2 Gini Coefficients for Payroll Imbalance in Pro Sports Leagues (slide 1 of 2) Year MLB OD MLB EOS AL EOS NL EOS NBA NFL NHL Sports Economy Average 1950s average 0.133 0.144 0.112 0.116 0.062 0.103 1980s average 0.153 0.158 0.119 0.078 1990s average 0.172 0.188 0.177 0.104 0.074 0.138 0.149 Pre-strike/lockout average 0.160 0.161 0.139 Post-strike/lockout average 0.206 0.225 0.241 0.199 2000 0.221 0.239 0.237 0.233 0.131 0.037 0.195 2001 0.213 0.211 0.185 0.088 0.095 0.208 2002 0.202 0.204 0.228 0.220 2003 0.212 0.238 0.171 0.134 0.059 0.197 2004 0.243 0.278 0.145 0.080

Table 6-2 Gini Coefficients for Payroll Imbalance in Pro Sports Leagues (slide 2 of 2) 2005 0.227 0.110 0.068 0.103 2006 0.210 0.092 0.071 0.061 2007 0.217 0.093 0.047 0.094 2008 0.226 0.081 0.079 2009 0.198 2000s average 0.223 0.238 0.192 0.154 0.138 Pre-lockout average 0.205 Post-lockout average   0.086 Notes: Pre-strike/lockout and post-strike/lockout are calculated according to the following: 1990s: MLB 1994–1995; (NBA excluded since 1998-99 lockout only leaves one post-year); NHL 1994; 2000s: NHL 2004–2005.EOS = end of season.OD = opening day.

Figure 6-3 Market Equilibrium Legend: Since the sum of winning percents in a two-team league equals one. And this result is an equilibrium outcome. With neither team wishes to alter its talent choice. The market equilibrium price of talent.

Table 6-3 Standard Deviation of Winning Percent Imbalance in Pro Sports Leagues (slide 1 of 3) Year MLB–AL MLB–NL NBA NFL NHL Sports Economy Average 1901–1909 average 2.55 3.28 1910–1919 average 2.71 2.36 1.73 2.27 1920–1929 average 2.40 2.31 1.96 1.78 2.11 1930–1939 average 2.79 2.37 1.70 1.62 2.12 1940–1949 average 2.29 2.50 2.58 1.85 1.83 2.21 1950–1959 average 2.52 2.06 2.18 1.52 2.07 1960–1969 average 2.01 1.68 2.14 1970–1979 average 1.84 2.45 2.61 2.10 1980–1989 average 1.75 1.69 2.76 1.99 1.94 1990–1999 average 1.72 1.76 3.08 1.51 1.98 Pre-strike/lockout average 1.50 2.03

Table 6-3 Standard Deviation of Winning Percent Imbalance in Pro Sports Leagues (slide 2 of 3) Post-strike/lockout average 1.83 1.79 1.74 2000 1.37 1.76 2.85 1.58 1.95 2001 2.41 1.65 2.50 1.63 1.66 2002 2.69 2.06 2.61 1.32 1.69 2003 2.48 1.78 2.46 1.54 1.73 2004 2.11 2.20 2.80 2005 2.05 1.39 2.47 1.98 2006 1.88 1.26 2.40 1.45 1.85 2007 1.71 1.24 3.06 1.19 2008 1.59 2000s average 1.68 2.64 1.56 1.93 Pre-lockout average Post-lockout average

Table 6-3 Standard Deviation of Winning Percent Imbalance in Pro Sports Leagues (slide 3 of 3) Notes: Pre-strike/lockout and post-strike/lockout are calculated according to the following: 1990s: MLB 1994–1995; (NBA excluded since 1998-99 lockout only leaves one post-year); NHL 1994; 2000s: NHL 2004–2005.

Figure 6.4 The Avalanche Leave for New Jersey: Impacts on the Nuggets $ WL = 0 WS = 1 WL = 1 WS = 0 MRL(W) MRS(W) a b c d e Legend: When the Avalanche leave for New Jersey, the marginal revenue function for the Nuggets shifts from to . The Nuggets owner is clearly better off (team quality is higher, , and net value from winning increases (). The larger-revenue owner is clearly worse-off (team quality falls, payroll rises since the price of talent increases in the inelastic portion of , and the net value of winning decreases by area ). Players are clearly better off since the total of league payrolls increases ().

Table 6-4 Years Per League or Conference Title in Pro Sports Leagues (slide 1 of 3) MLB (11 teams) Titles Years Years/ Title NBA (14 teams) New York Yankees 39 106 2.7 Minneapolis Lakers 6 12 2.0 New York Giants 15 57 3.8 Los Angeles Lakers 24 49 Los Angeles Dodgers 9 51 5.7 Boston Celtics 20 63 3.2 Brooklyn Robins/ Dodgers 6.3 St. Louis Hawks 4 13 3.3 St. Louis Cardinals 17 108 6.4 Chicago Stags 1 4.0 Milwaukee Braves 2 6.5 Syracuse Nationals 3 14 4.7 Florida Marlins 16 8.0 Philadelphia Warriors 5.3 Oakland Athletics 48 Chicago Bulls 43 7.2 Atlanta Braves 5 8.6 Philadelphia 76ers 46 7.7 Boston Pilgrims/ Red Sox 109 9.1 San Antonio Spurs 31 7.8 Baltimore Orioles 55 9.2 New York Knicks 8 7.9 Detroit Pistons 7 61 8.7 Rochester Royals 9.0 Washington Wizards

Table 6-4 Years Per League or Conference Title in Pro Sports Leagues (slide 2 of 3) NFL (18 teams) Titles Years Years/ Title NHL (17 teams) Years+5 New York Giants 18 76 4.2 Ottawa Senators I 8 2.3 Dallas Cowboys 10 49 4.9 Montreal Canadiens 27 93 3.4 Boston Redskins 1 5 5.0 Detroit Red Wings 24 84 3.5 Cleveland Browns 11 59 5.4 Toronto Maple Leafs 22 Oakland Raiders I 2 12 6.0 Edmonton Oilers 7 31 4.4 Baltimore Colts 6.2 Montreal Maroons 3 15 Chicago Bears 6.3 Boston Bruins 17 86 5.1 Green Bay Packers Hamilton Tigers 6 Denver Broncos 39 6.5 Philadelphia Flyers 43 6.1 New England Patriots Carolina Hurricanes 13 St. Louis Rams 14 7.0 New Jersey Devils 4 28 Washington Redskins 7.6 Colorado Avalanche 7.5 Miami Dolphins 7.8 New York Islanders 38 Indianapolis Colts 8.0 Chicago Blackhawks 8.4 Cleveland Rams 9 9.0 New York Rangers Minnesota Vikings 48 9.6 Dallas Stars 8.5 Buffalo Bills 9.8 Calgary Flames 9.3 Los Angeles Rams

Table 6-4 Years Per League or Conference Title in Pro Sports Leagues (slide 3 of 3) Notes: Actually, it’s the Brooklyn Robins/Dodgers, Baltimore/Capital/Washington Bullets-Washington Wizards, Ft. Wayne/Detroit Pistons, Ottawa/Eagles Senators I, Detroit Cougars/Falcons/Red Wings, and Toronto Arenas/St. Patricks/Maple Leafs. All leagues are calculated relative to their 2008 regular seasons. Finally, only teams winning less than every ten years are shown.

Table 6-5 Correlation Coefficients and Competitive Balance in MLB Averages Revenue and Payroll Revenue and Winning Payroll and Winning Pre-1950s 0.657 0.693 0.530 1950s 0.633 0.667 0.713 1990s 0.688 0.346 0.453 2000s 0.894 0.466 0.483 Notes: Payrolls are “end-of-season” only because that is most useful for this purpose; ends 2004. No revenue data for 1998.

Figure 6-5 Gate Revenue Sharing in a Two-team League Legend: Under gate revenue sharing, if the home team keeps a share equal to a, then both MRS and MRL shift down to aMRS and aMRL. The new equilibrium occurs at the same winning percents, . But the price of talent falls from P to P’. The amount of revenue shared by the large revenue market owner is the area of the parallelogram abcd. The amount of revenue shared by the small revenue market owner is area fbcg. The difference between the two is the net gain to the smaller revenue market owner, easy to see since abcd > fbcg.

Table 6-6 NFL Gate Revenue Sharing Through the Years Old 60/40 Gate Sharing Team Gate Revenue ($Millions) Amount Paid ($Millions) Amount Received ($Millions) Net ($Millions) High revenue $68.3 $27.3 $11.6 –$15.7 Median revenue $33.0 $13.2 $18.6 $5.4 Low revenue $24.7 $9.9 $20.2 $10.3 Sums $126.0 $50.4 $0.0 2001–present, Pooled Gate Revenue Sharing Local Revenue ($Millions) $16.8 –$10.5 $3.6 $6.9

Figure 6-6 The Impact of Luxury Taxes in a Two-team League Legend: At the spending threshold associated with W1, a tax of t1 = 0.5 (50% on talent chosen beyond the threshold W1) is imposed. The new equilibrium choice by the large revenue owner is . Since the sum of winning percents is one, the talent choice by the smaller market owner must increase. In addition, the price of talent falls to P’.

Table 6-7 MLB Gate and Local Revenue Sharing Through the Years (slide 1 of 2) 80/20 Equal-Proportion Gate Sharing Team Gate Revenue ($Millions) Amount Paid ($Millions) Amount Received ($Millions) Net ($Millions) High revenue $88.1 $17.7 $6.4 -$11.2 Median revenue $48.6 $9.7 $10.4 $0.7 Low revenue $15.7 $3.1 $13.7 $10.5 Sums $152.4 $30.5 $0.0 1996–2001, Split-Pool Sharing Local Revenue ($Millions) Net ($Millions) $184.7 $31.4 $13.1 -$18.3 $94.6 $16.1 -$3.0 $29.3 $5.0 $26.2 $21.3 $308.6 $52.5 $0.0</TB>

Table 6-7 MLB Gate and Local Revenue Sharing Through the Years (slide 2 of 2) 2002–present, Straight-Pool Sharing Team Local Revenue ($Millions) Amount Paid ($Millions) Amount Received ($Millions) Net ($Millions) High revenue $184.7 $62.8 $35.0 -$27.8 Median revenue $94.6 $32.2 $2.8 Low revenue $29.3 $10.0 $25.0 Sums $308.6 $104.9 $0.0</TB>

Figure 6-7 The Impact of a Salary Cap in a Two-team League Legend: A cap on the price per unit spent on talent of C, along with the imposition of equal spending, has the following impacts. First, the price of talent falls and payments to talent are reduced by the shaded rectangle, P*-C. At equal spending, and spending by each team is equal at 0.500*C. However, since MRL>MRS on all units between 0.500 and , both teams have an incentive to violate the cap.

Table 6-8 Standard Deviation Ratios and MLB Pooled Revenue Sharing Years AL NL 1991 1.54 1.56 1992 1.61 1.68 1993 1.39 2.37 1994 1.78 1995 2.04 1.47 1991-1995 average 1.65 1.77 1996 1.42 1997 1.58 1.49 1998 2.06 2.24 1999 1.93 2.01 2000 1.37 1.76 1996-2000 average 1.74 1.79 2001 2.41 1997-2001 average 1.87 1.83 2002 2.69 2003 2.48 2004 2.11 2.20 2005 2.05 2006 1.88 1.27 2002-2006 average

Table 6.9 MLB Revenue Sharing Comparisons, Split-Pool and Straight-Pool ($Millions) (slide 1 of 3) Team 2001 Net 2001Payroll Change 2002 Net 2002 Payroll Change 2003 Net 2003 Payroll Change 2005 Net 2005 Payroll Change Anaheim $9.6 -$6.3 -$1.3 $13.7 $1.9 $18.3 -$11.0 -$17.9 Arizona -$4.4 $7.4 -$3.3 $18.2 $1.5 -$19.1 $13.0 -$6.1 Atlanta -$10.6 $10.5 -$9.8 -$4.6 -$11.3 $4.5 -$10.0 $7.0 Baltimore -$6.8 $7.7 -$5.3 -$16.6 $0.3 $11.6 $2.0 $17.1 Boston -$16.4 $38.6 -$5.7 -$38.7 $0.0 -$52.0 -$6.9 Chicago Cubs -$6.6 $19.5 -$8.3 -$16.7 $8.4 -$32.0 -$13.6 Chicago White Sox -$4.2 $25.2 -$3.8 -$4.8 $6.2 -$18.0 $10.6 Cincinnati $13.4 $0.2 $9.8 $2.6 $6.5 $5.6 $16.0 $15.6 Cleveland -$13.3 $15.3 -$14.8 -$25.4 $6.0 -$1.1 Colorado -$6.0 -$2.8 -$5.1 -$4.3 $2.5 $10.0 -$21.3 Detroit $5.1 -$8.0 $8.3 $16.7 $0.4 $25.0 $10.3 Florida $18.6 $16.2 $20.9 $3.6 $21.0 $13.9 $31.0 $10.1 Houston -$5.2 $22.4 -$9.1 $1.2 $9.4 Kansas City $8.5 $16.6 $12.9 $19.0 -$1.8 $30.0 -$7.8 Los Angeles $31.2 -$9.3 -$25.3 -$9.5 $18.4 -$20.0 -$18.6 Milwaukee $1.7 $3.2 $24.0 Minnesota $19.1 $14.7 $8.8 $17.2 $16.8 $22.0 $1.4

Table 6.9 MLB Revenue Sharing Comparisons, Split-Pool and Straight-Pool ($Millions) (slide 2 of 3) Montreal $28.5 $3.3 $8.1 $29.5 $8.6 N.Y. Mets -$15.7 $5.1 -$17.4 $7.2 -$21.5 $18.2 -$24.0 -$1.9 N.Y. Yankees -$26.5 $25.6 -$26.6 -$52.7 $43.7 -$76.0 $20.4 Oakland $10.5 $10.9 $9.2 -$1.6 $11.8 $11.7 $19.0 -$4.9 Philadelphia $3.7 $9.8 $9.0 $13.6 $5.8 Pittsburgh $1.8 $8.0 $6.4 $0.7 $13.3 $25.0 $5.6 San Diego $8.7 -$19.6 $6.3 $6.7 $9.5 $5.7 -$2.6 San Francisco -$6.3 $24.5 -$9.6 -$13.0 -$14.0 $7.8 Seattle -$18.8 $19.1 -$19.9 $1.4 -$31.0 $15.4 -$25.0 $5.9 St. Louis -$8.2 $1.5 -$8.4 $3.5 -$9.2 -$19.0 -$0.7 Tampa Bay $12.4 -$23.1 $14.7 -$3.8 $20.5 -$6.9 $33.0 $5.3 Texas -$8.7 $22.6 $24.8 -$7.2 -$2.0 $0.0 -$23.4 Toronto $18.4 $13.7 -$14.1 $18.7 $31.0

Table 6.9 MLB Revenue Sharing Comparisons, Split-Pool and Straight-Pool ($Millions) (slide 3 of 3) League Transfer $167.0 $169.1 $220.4 $304.5 Net Contributors 16 17 12 Average Payroll Change Net > 0 $2.6 $3.4 $5.8 $0.1 Average Payroll Change Net < 0 $17.1 -$0.6 $9.8 -$1.1 # Increasing Payroll Net > 0 10 13 8 # Reducing Payroll Net < 0 1 9 2 7 Notes: If Net < 0, then that is the team’s net contribution to the pool after deducting their share. If Net > 0, it is the team’s net receipt from the pool after deducting their contribution to the pool. League transfer is the sum to the net gainers (from the net contributors) . Average contribution equals league transfer divided by number of net contributors. Montreal moved to Washington so there is a payroll discontinuity that doesn’t allow either to be included in 2005.

Table 6-10 The Draft and Competitive Balance in MLB and the NFL League Period 1 % Change Period 2 Period 3 Ave. % Change MLB-AL 2.38 –2.1% 2.33 –18.9% 1.89 –10.5% MLB-NL 2.43 –9.5% 2.20 –14.5% 1.88 –12.0% NFL 2.03 –18.2% 1.66 7.2% 1.78 –5.5% Notes: MLB periods are 12 years long; draft in place beginning Period 3, 1964. NFL periods are 6 years long; draft in place beginning Period 3, 1936. Source: See Table 6.3.

Table 6-11 Salary Caps in the NBA, NFL, and NBA ($Millions) (slide 1 of 2) NHL Year Cap Ave. Team Payroll 1984 $3.6 1985 $4.2 $4.6 1986 $4.9 $5.7 1987 $6.2 $6.0 1988 $7.2 $6.8 1989 $9.8 $11.3 1990 $11.9 $13.7 1991 $12.5 $15.8 1992 $14.0 $18.5 1993 $15.2 $22.2 1994 $16.0 $25.0 $34.6 $36.6 1995 $23.0 $28.5 $37.1 $42.6 1996 $24.4 $32.7 $40.8 $45.7 1997 $26.9 $38.1 $41.5 $43.6 1998 $30.0 $45.1 $52.4 $61.4 1999 $34.0 $51.6 $58.4 $66.1 2000 $35.5 $53.3 $62.2 $68.1 2001 $42.5 $57.3 $67.4 $70.8 2002 $40.3 $57.2 $71.1 $66.0 2003 $43.8 $56.0 $75.0 $76.9 2004 $43.9 $55.4 $80.5 $83.8

Table 6-11 Salary Caps in the NBA, NFL, and NBA ($Millions) (slide 2 of 2) 2005 $49.5 $55.1 $85.5 $82.0 $39.0 $34.3 2006 $53.1 $60.6 $102.5 $100.0 $44.0 $40.3 2007 $55.6 $66.0 $109.0 $100.9 $50.6 $44.4 2008 $58.7 $72.0 $116.0 $113.3 $56.7 $51.4 2009 $123.0 $56.8

Table 6-12 Caps and Actual 2008 Payrolls in the NBA and NFL (slide 1 of 3) NBA (2008-09 Season) Cap = $58.7 million NFL (2008 Season) Cap = $113.0 million NHL (2008-09 Season) Cap = $56.7 million Team Payroll New York $97,085,751 Oakland $152,389,371 NY Rangers $66,064,200 Toronto $95,358,923 Dallas $146,401,600 Calgary $63,100,000 $93,215,017 Minnesota $133,354,045 Philadelphia $60,472,500 Cleveland $90,794,387 $131,916,300 Ottawa $59,778,117 LA Lakers $80,745,793 New Orleans $131,531,820 Montreal $58,908,000 Boston $78,738,973 Pittsburgh $128,815,061 Washington $58,522,500 Detroit $77,046,985 Tennessee $126,017,443 $56,589,460 Memphis $75,819,691 Arizona $122,110,110 $56,400,000 Phoenix $75,449,279 Jacksonville $122,109,207 San Jose $55,811,667

Table 6-12 Caps and Actual 2008 Payrolls in the NBA and NFL (slide 2 of 3) Orlando $74,863,198 Chicago $120,065,819 New Jersey $55,654,200 Philadelphia $74,434,445 San Francisco $118,766,239 Dallas93-4 $55,625,000 Sacramento $71,517,217 New York Jets $116,910,097 Edmonton $54,067,381 $71,487,984 St. Louis $116,677,660 Vancouver $53,144,000 Washington $70,558,149 New York Giants $115,816,180 Minnesota $52,861,000 Milwaukee $70,220,238 Miami $114,649,660 Columbus $52,342,500 Indiana $69,623,798 Buffalo $113,364,927 $52,225,700 Houston $68,761,285 Carolina $112,114,711 Colorado95-6 $51,940,000 San Antonio $68,403,480 $111,963,684 $51,548,557 Atlanta $68,165,839 San Diego $111,813,340 Boston $51,535,000 Charlotte $68,004,277 Cincinnati $109,727,880 Florida $51,392,500

Table 6-12 Caps and Actual 2008 Payrolls in the NBA and NFL (slide 3 of 3) Denver $67,068,631 Philadelphia $109,557,398 Anaheim $49,838,000 New Orleans $67,017,804 Houston $108,445,418 Carolina97-8 $49,075,000 Utah $66,266,407 Tampa Bay $104,329,311 Toronto $48,835,000 Minnesota $63,527,135 Seattle $102,985,710 St.Louis $45,483,333 Golden State $63,287,110 Atlanta $96,391,525 Nashville $44,155,000 New Jersey $61,983,445 Detroit $95,827,117 $43,501,666 LA Clippers $61,883,344 $95,599,778 Phoenix96-7 $39,102,500 Oklahoma City $61,534,722 Green Bay $94,018,300 Los Angeles $36,112,500 Portland $56,154,803 Indianapolis $93,373,915 $34,262,500 Miami $50,031,123 New England $92,734,120 NY Islanders $33,267,500 Baltimore $90,713,965 Kansas City $83,623,776 Average $71,968,308 $113,253,609 $51,387,176 % Teams Over Cap 93% 50% 20%