Economics of Sports Bob Donchez Robert.Donchez@Colorado.edu Unit 2  Economics

Table 2-4 Teams, Population, and Per Capita Income, Major League Areas City Number of Teams Number of teams Population 2005-2007 Income 2007 New York—Northern New Jersey—Long Island MLB (2), NBA, NFL (2), NHL (3) 8 9,441,316 $73,088 Los Angeles—Long Beach—Santa Ana MLB (2), NBA (2), NHL (2) 6 6,386,821 $63,569 Chicago—Naperville—Joliet MLB (2), NBA, NFL, NHL 5 4,907,604 $70,715 Dallas—Fort Worth—Arlington MLB, NBA, NFL, NHL 4 3,146,612 $63,719 Philadelphia—Camden—Wilmington 2,967,657 $73,536 Washington—Arlington—Alexandria 2,960,336 $97,095 Houston—Sugar Land—Baytown MLB, NBA, NFL 3 2,775,580 $60,188 Atlanta—Sandy Springs—Marietta 2,721,722 $67,568 Miami—Fort Lauderdale—Pompano Beach 2,680,893 $55,749 Boston—Cambridge—Quincy 2,438,340 $83,103 Detroit—Warren—Livonia 2,233,015 $66,930 San Francisco—Oakland—Fremont MLB (2), NBA, NFL (2) 2,221,909 $86,560 Phoenix—Mesa—Scottsdale 1,988,176 $62,143 Minneapolis—St. Paul—Bloomington 1,805,206 $79,158 Seattle—Tacoma—Bellevue MLB, NFL 2 1,782,632 $75,625 San Diego—Carlsbad—San Marcos 1,510,524 $71,139 St. Louis MLB, NFL, NHL 1,455,449 $64,111 Tampa—St. Petersburg—Clearwater Baltimore—Towson MLB, NBA 1,403,709 $77,501 Denver—Aurora 1,334,413 $71,531 Pittsburgh 1,180,651 $59,095 Portland—Vancouver—Beaverton NBA 1 1,143,930 $66,077 Cincinnati—Middletown 1,099,419 $65,396 Cleveland—Elyria—Mentor 1,082,972 $61,193 Kansas City 1,052,220 $66,504 Sacramento—Arden-Arcade—Roseville 1,042,211 $68,928 Orlando—Kissimmee 1,035,320 $57,186 San Antonio 933,596 $54,141 San Jose—Sunnyvale—Santa Clara NHL 920,884 95,980 Columbus 920,190 $64,886 Indianapolis—Carmel NBA, NFL 882,857 $64,343 Charlotte—Gastonia—Concord 859,243 $62,594 Milwaukee—Waukesha—W. Aliss 808,367 $66,707 Jacksonville NFL 661,231 $61,488 Memphis, Nashville NBA, NFL, NHL 636,871 $54,479 Oklahoma City 600,597 $55,168 Salt Lake City 569,422 $63,851 Buffalo—Niagara Falls 566,372 $59,763 New Orleans—Metairie—Kenner 542,239 $56,375 Raleigh—Cary 541,873 $72,792 Green Bay 165,426 $61,644 Min Max Ave 2.7 1,825,933 $67,457 Median 2.0

Table 2-5 Correlations between NBA Attendance and Prices, 2000-2007 Team Correlation (+) Correlation (-) INDIANA 0.81 HOUSTON -0.85 NEW YORK 0.79 GOLDEN STATE -0.78 DALLAS 0.77 NEW ORLEANS -0.64 SACRAMENTO 0.73 ATLANTA -0.57 PHILADELPHIA 0.72 NEW JERSEY -0.51 PORTLAND MIAMI -0.39 PHOENIX 0.57 CHARLOTTE -0.38 MINNESOTA 0.56 DETROIT -0.37 MEMPHIS 0.47 MILWAUKEE -0.36 TORONTO 0.46 DENVER -0.34 CLEVELAND SEATTLE -0.33 L.A. LAKERS 0.30 BOSTON -0.30 CHICAGO 0.28 ORLANDO -0.26 SAN ANTONIO 0.25 WASHINGTON -0.17 UTAH 0.21 L.A. CLIPPERS 0.02

Sports: Supply v. Demand Supply (more supplied at higher prices, i.e. luxury suites) Demand (more demanded at lower costs, i.e. sports programming on TV) The irrelevance of fixed costs Player’s salary

Maximizing Profit Recall: Profit = TR-TC Goal: Maximize profits? Key question: What do the NY Jets sell? Tickets! Mark Sanchez’s salary is a fixed cost to the Jets It is unchanged no matter how many tickets they sell Signing Sanchez does not affect Marginal Costs

Why Do Teams Raise Prices? MC does not change – but Marginal Revenue might More fans want to see the Jets play Demand – and MR – increase The Jets charge more because they can – not because they must

Uncertainty Are the Yankees bad for baseball? Are dynasties a bad idea? How often should the home team win? Why do teams sell season tickets? Why do fans buy them?

Can Losing be Good? Cleveland Browns dominated the old AAFC Fans lost interest Even Browns attendance fell Attendance fell in MLB in 1950s Dodgers, Giants, or Yankees were in every World Series Why bother seeing Pittsburgh play Cincinnati? A study has looked at attendance in MLB Controlled for day, time, weather, quality of opponent Attendance highest when home team won 60% of time

Season Tickets Pay for a December game in March Transfers risk from team to fans Why would fans assume risk? Often pay lower price Get preferred status for post-season