2. MRP theory is a general and insightful explanation of pay and hiring in sports. The winner’s curse explanation doesn’t fit at all. The bidding war explanation only fits a specific situation. The winner-take-all explanation might work for individual sports, but not for team sports. Discrimination can have a variety of impacts on sports pay and hiring, but economics provides only limited insight in this area.

3. Even though Michael Jordan chose not to play, the owner of the Chicago Bulls offered him $33 million to play with the bulls in 1998, enough to put 200 students through a 4-year degree program at a prestigious university.

4. Table 6-5, 2003-2004 earnings ($millions): RankNameSport Earnings ($Millions) Salary ($Millions) 1Tiger WoodsGolf$80.3 2Michael SchumacherAuto racing$80.0 3Peyton ManningFootball$42.0$11.3 4Michael JordanBasketball$35.0 5Shaquille O'NealBasketball$31.9$26.5 6Kevin GarnettBasketball$29.7$28.0 7Andre AgassiTennis$28.2 8David BeckhamSoccer$28.0 9Alex RodriguezBaseball$26.2$22.0 10Kobe BryantBasketball$26.1$13.5

5. Celebrity Pay 2004 NameEarnings RankEarnings ($Millions) Mel Gibson1$210 Oprah Winfrey1$210 J.K. Rowling3$147 Michael Schumacher4$80 *Tiger Woods4$80 Steven Spielberg6$75 Jim Carrey7$66 Bruce Springsteen8$64 Nora Roberts9$60 David Copperfield10$57

6. Going back to your economic principles, remember that the most anyone would pay for an input, even sports talent, is its Marginal Revenue Product (MRP): MRP(W) = MP(W) x MR(W). MP = marginal product, or contribution to winning percent for a given player. MR = marginal revenue earned by the owner from fans that pay to watch the contribution made by the player. W = winning percent; both MP and MR depend on the team’s current level of winning.

7. Bond’s breaks the home run record in 2001. Attendance in SF increased by 1.2 million. Attendance-related incl. tickets: $50.5 million About the same attendance value as winning the division in 2000. ONLY attendance value. ONLY attendance value in SF. Bonds earned $10.3 million in 2001.

8. If we measure talent so that one more unit of talent raises winning percent by 0.001, then MRP = MR, and we get a familiar picture:

9. Marginal revenues are equal across teams. Revenue imbalance means there will be payroll imbalance. Revenue imbalance means there will be competitive imbalance. * The source is the maintenance of exclusive territories by leagues.

10. The evidence shows that there is dramatic payroll imbalance. The MRP explanation predicts this is due to revenue imbalance and this, too is borne out in the data. Owners, on average, have unbiased expectations about players; bargains and busts offset each other. Ticket sales are part of MRP. If the value of ticket sales rises, so will MRP and pay to players. Rising salaries do not cause higher ticket prices. The reverse is true. Favorite example: Figure 7.6 NHL Bruins

11. Social values: Why do pro athletes make more than teachers? International economics: Exchange rates in the NHL. Are rookies over-paid? Remember the lesson on bargains and busts…

12. There are other explanations of player pay besides MRP … The Winner’s Curse. Bidding Wars. The Winner-Take-All Logic. Each requires special situations that do not hold generally (and the winner’s curse logic probably doesn’t hold at all!)

13. Definition: Individuals with identical productive potential end up with very different pay and hiring outcomes based on gender, race, or ethnicity. Note that this is a very limited economic description. Economics provides limited insight into discrimination. Let’s look at: Statistical discrimination. Fan discrimination. Owner and teammate discrimination.

14. Innate talent and training determine sports potential. If discrimination is pervasive, some individuals won’t receive the same access to training and participation. Statistical discrimination lowers pay and hiring based on current perceptions built on this past restricted access to training and participation. Sometimes, statistical discrimination is referred to as perception barriers.

15. Lower pay and reduced hiring by race and gender only because of race and gender, not because of ability. Caution: How can an outside observer tell if this is the result of gender discrimination or simply preferences for higher absolute levels of play? Answer: We can’t! Men and women seldom play the same sport against each other or in mixed teams. But the same is not true of race and ethnicity. Interesting assessments in baseball card markets.

16. For the preferred group, there is a race premium. More of their services are hired at a higher wage than they really are worth relative to their actual performance. Bigoted fans pay the cost of their discriminatory preferences through less winning for the amount of money paid to preferred players.

17. For owners and teammates, there is a race premium. More of the preferred player services are hired at a higher wage than they really are worth relative to their actual performance. The costs fall on owners in this case since fans will only pay according to actual MRP. The shaded area must come from the owner.

18. There is evidence that pay discrimination existed in pro team sports in the past. But by the mid-1990s, pay discrimination is pretty much gone. Only a negligible premium for the very best white players in the NBA appears to remain. Interestingly, in the NHL, there appears to be pay discrimination against French-speaking players.

19. Hiring discrimination remains in pro team sports. Some evidence that black players leave the NBA and MLB earlier than white players of the same ability. Some evidence that black players are chosen lower in the NFL draft than white players of the same expected ability. Stacking remains a prevalent phenomenon both on the field and in the front office.

20. MRP theory is a general and insightful explanation of pay and hiring in sports. The winner’s curse explanation doesn’t fit at all. The bidding war explanation only fits a specific situation. The winner-take-all explanation might work for individual sports, but not for team sports. Discrimination can have a variety of impacts on sports pay and hiring, but economics provides only limited insig ht in this area.