2. Fan demand, substitute for sports output, fan preference, market size Market structure for sports output Consumer surplus Price elasticity: peculiar puzzle Revenue analysis (or profit-maximization analysis) Price discrimination

3. Figure 2-1 The Economic Trinity

4. Athletic Prowess

5. Quality of Team: absolute level of quality ex) NBA vs KBL major league vs minor league relative level of quality (quality competition) ex) Korea vs Japan Korea vs Vietnam Korea vs Brasil What is an owner’s decision on his team quality? uncertainty of outcome hypothesis Individual owner’s problem? League-wide problem?

6. 10/2/2016 TeamPriceWinning PercentClose Ratio New England$75.330.8750.625 Washington$68.060.3130.688 Jacksonville$62.850.3130.625 N.Y. Jets$62.200.3750.750 N.Y. Giants$61.670.2500.313 Green Bay$54.400.6880.500 Detroit$53.910.313 Tampa Bay$49.780.4380.563 Buffalo$42.550.3750.250 Carolina$42.270.875 Arizona$35.990.2500.375 Atlanta$34.630.3130.500 Willingness to Pay and Close Games, NFL 2003

7. Commonality: 유대감 Winning: Vince Lombardi “Winning isn’t everything. It’s the only thing.”

8. the definition: The relationship between price and quantity demanded, all e lse held constant. Attendance Ticket Price Individual Team Demand: As price rises, fewer people attend.

9. Figure 2-2 Demand Schedules for Men’s and Women’s Basketball Season Tickets (Typical class size = 100)

10. Preferences: history of sports, culture, ch anges in substitutes Fan income: normal or inferi or good The price of other goods enj oyed by fans: substitute, complement Fan expectations about the future: future price Population. CityTeamPopulation Per Capita Income New York918,323,002$29,605 Los Angeles512,365,627$23,558 Chicago59,098,316$27,354 Washington57,349,177$31,353 Philadelphia45,687,147$26,372 Indianapolis21,525,104$25,815 Salt Lake City11,411,514$22,012 Charlotte21,330,448$26,058 New Orleans21,316,510$20,958 Buffalo21,170,111$22,415 Hartford11,148,618$28,793 Table 2-4 Teams, Per Capita Income, and Population of Major League Areas

11. Figure 2-3 Varieties of Demand Functions

12. Why the downward slope at the individual team level? Market power for teams. Ex) professional leagues FIFA, IOC Regional monopoly power : entry barrier League decides # of teams, location of teams, expansion, movement

13. Attendance P0P0 At some price, willingness to pay (wtp) on every unit exceeds price. Summation-> buyers’ surpluses. A0A0 Ticket Price wtp

14. Attendance P0P0 A1A1 Lower price, response exceeds price reduction, so revenues rise: G–L > 0. Elastic region. P1P1 A0A0 L G C Ticket Price

15. Attendance P0P0 A1A1 P1P1 A0A0 L GC Ticket Price Switch Point A bar Lower price, response less than price reduction, so revenues fall: G–L < 0. Inelastic region.

16. Figure 2-7 Demand and Elasticity

17. Attend. A bar At first, increase output, increase TR. Ticket Price Eventually, increase output, decrease TR. A bar TR Demand $ Max TR Elastic Demand Inelastic Demand

18. Definition: MR =. In the limit, MR is the slope of the TR functi on. Derivation: Just track the slope of TR as o utput increases.  TR  X

19. MR > 0, Declining MR < 0 MR = 0 TR Max TR Elastic Demand Inelastic Demand Attend. A bar $ MR > 0, Declining MR < 0 MR = 0 TR Max TR Elastic Demand Inelastic Demand A bar $

20. For linear demand: Demand: P = a – bX. TR = PX = aX – bX 2. MR =  TR/  X = a – 2bX (exponent rule). So: For linear demnd, MR has the same y-interce pt, but is twice as steep, as the demand function.

21. At A 0, reduce attendance, increase reve nue and lower cost. Unless… Attendance-related revenue offsets (con cessions, parking, memorabilia) Habitual attendance? MR > 0, Declining MR < 0 TR Max TR Elastic Demand Inelastic Demand Attend. A bar A0A0 $

22. Increasing attendance can only take you s o far in your aim to increase revenue. Eventually, the only recourse is to shift the total revenue function. How can this happen? Something must increase demand. Any ideas?

23. Rules Innovations: Expanded play-offs, rules ch anges, rules enforcement. Other Innovations: Half-time shows, cheerleader s (then pro cheerleaders), musical interludes, applause-meter races, DiamondVision, mascot s, food service, the incredible exploding woma n, Eddy Goedel, uniform innovations and sales. Just go to a minor league baseball game to find out what’s coming next.

24. Teams generally inherit stadium capacity; i n the short run, it’s fixed. Can it make sense that revenues are highe st if the stadium is not sold out? Yes! If capacity exceeds A bar. (and attenda nce-related revenues don’t more than m ake up the difference!) In the longer term, alter capacity, but that c an be a long time coming. (MLB’s move to new, smaller venues).

25. If: Can tell fans apart, somehow. Resale can be prevented. Enforcement is cheap enough. Then: Charge different fans different prices for the s ame game. Charge the same fan a lower price for succes sive games purchased all at once.

26. Different prices to different fans: Student discounts. Faculty discounts. What about different prices for different location s? Or different times during the season? Nope. The quality of the good has changed! N ot selling the same product to different people.

27. Different prices to the same buyer: Buy one, get one half price. Season ticket prices lower than summed cost of individual attendance. “Family Plan” quantity discounts. What about season tickets that cost the same a mount as individual attendance? Nope. Paying to reserve a particular seat. Raises another interesting issue.... Price Discrimination Methods

28. League Smallest RevenueTeam League Ave. Largest RevenueTeam MLB114Min.158277NYY NBA73Charlotte106181NY NFL158Ariz192303Wash NHL56NYI76119Tor

29. Important Point of Analysis: Much is bandied in the press about small a nd large market teams. But just what do es this mean? Data show that it doesn’t always go by population. We’ll take Dee pThroat’s advice and.... Follow the money.

30. Comparing Small and Large Market Teams: “Large” and “small” only can be meaningfu l in terms of revenue. Demand (willingness to pay) for sports is g reater in some places. “Large” can be taken to mean “a greater wi llingness to pay for all levels.”

31. GB Packers, large or small market? Pop (incl. Milwaukee): 1.8 million NFL city ave. Pop: 3.7 million ’05 revenues: $194 million, 12 th in NFL NFL team ave. revenues: $192 million NFL team median revs: $186 million NFL team min. revenue: $158 (AZ) So, Packers are: Half the ave. pop. Right at ave. rev. 5% greater than median rev. 23% greater than min. rev. 10/2/2016

32. *Always think of teams in terms of market re venue potential: Larger potential– Larger market team Lower potential– Smaller market team. Go back to the general data: NYY top MLB, NYI bottom NHL! 10/2/2016

33. A Revenue Tale of Two Cities (MLB) 1990 2005 Atlanta Braves 25/26 12/30 Seattle Mariners 26/26 8/30 It is typically true that larger revenue market teams dominate, but don’t forget that the f aces change. 10/2/2016

34. Demand, its variation across sports and mar ket power. Demand and sports fan “welfare.” Demand, elasticity, total revenue and margin al revenue in sports. Price discrimination. Revenue variation and competitive imbalanc e in sports.