Economics of the Sports Industry

What Is Economics? Economics: The study of the choices and decisions that affect making, distributing, and using goods and services

Scarcity & Opportunity Cost Economic problem of people having unlimited wants and needs with limited resources Opportunity Cost: The cost of passing up the next best choice when making a decision

Opportunity Cost Example Choosing to watch a football game on TV instead of going to the game. What is the Opportunity Cost?

Trade-offs Trade-offs: Example: sacrifice one thing to obtain another You only have enough cash to buy a bike or a snowboard, but not both

Incentives Incentives: Any factor (financial or non-financial) that enables or motivates a particular course of action You must give the consumer incentives because without them, they would have no reason to do what you ask

Supply and Demand Supply = Demand Equilibrium: Supply: Demand: The amount of goods producers are able to make and sell Demand: The amount of goods customers are willing and able to buy Equilibrium: Supply = Demand

Law of Supply & Demand Supply Equilibrium Demand

Shortage and Surplus Shortage: Surplus: Supply Low Demand High Price High Surplus: Supply High Demand Low Price Low

Economic Impact on the SER Industry

Economic Impact Economic impact: defined as the net change in an economy resulting from sport or entertainment event related activity

Economic Impact: Host City Sports, entertainment and events inevitably make an impact on the host city’s economy: the activities involved in the development of new facilities and/or the revenue generated from visitor and public spending, employment opportunities and taxes

Economic Impact: Poor Economy A poor economy can: help certain segments of the SER industry hurt other segments of the SER industry

Economic Impact Study To measure economic impact, an economic impact study is often conducted These studies attempt to determine the financial implications an event has on a particular market or region

Economic Impact Example #1 College Bowl Game – Host Cities in USA: In 2015, San Diego’s Holiday Bowl brought in $17.2 million and the San Diego Poinsettia Bowl $6.4 million. Focused on money that otherwise would not have come into the city, - NOT including travel expenses or game tickets. Attendance that year: 48,329 for the Holiday Bowl – 56% from out of town 21,501 for the Poinsettia Bowl – 41% from out of town

Economic Impact Example #2 2015 PGA Championship impacted Whistling Straits (Kohler, WI) and surrounding areas economy by $100 million: 2014: Valhalla Golf Club near Louisville, Kentucky topped $100 million 2013: Oak Hill Country Club in Rochester, New York slightly higher at $102.1 million

Economic Impact Example #3 2016: set a record for the largest marathon in the world with 51,394 finishers <-37% from OUTSIDE the US! In 2015, 8,700 charity runners raised $33.9 million during the TCS New York City Marathon on behalf of hundreds of not-for-profit organizations in New York City and across the nation The 2014 TSC New York Marathon impacted the local economy by $415 million $37.3 million: Cost to stage the 2014 marathon. Running the TCS New York City Marathon is a feat of willpower—and the race itself is a testament to the economic power of 2 million spectators, thousands of runners and their guests, plus sponsors, vendors, and NYRR.

Economic Impact Example #4 Consider the potential implications to local businesses had the 2011 lockout not been resolved: In Minneapolis, the Downtown Council estimated potential losses at $9 million per game to downtown businesses without Vikings games Could have cost $72 million over the course of the NFL season

Class Activity You will now identify an event within the SER industry that had a strong Economic Impact (possibly use College Bowl Game): Write a short a summary of the event (use 5 W’s) Answer the following about your event (if they do not apply – answer them in general): What factors affect the price of this event? What would increase the demand for this event? What factors affect the supply for this event? How does the condition of the economy affect demand for goods and services associated with this event? Do you believe this event was beneficial to the local economy: why or why not?