1. Rodney Fort's Sports Economics
Chapter 2  Demand and Sports Revenue

2. Figure 2-1 The Economic Trinity
Legend: Scarcity is a fact of life. Because scarcity exists, rationing devices must be chosen. Once a rationing device is chosen, people will compete according to that choice in order to obtain the scarce good.

3. Table 2-1 Willingness to Pay and Close Games, NFL 2008
Team
2008 Ave. Ticket W%
% Close Games
Tennessee
$58.55
0.813
37.5%
Indianapolis
$81.13
0.750
62.5%
Pittsburgh
$67.47
56.3%
New York Giants
$88.06
Carolina
$63.32
Miami
$66.11
0.688
Atlanta
$63.95
New England
$117.84
31.3%
Baltimore
$77.20
Minnesota
$73.23
0.625
68.8%
Averages for Best Teams
$75.69
0.719
47.5%
Philadelphia
$69.00
0.594
50.0%
Chicago
$88.33
0.563
Tampa Bay
$90.13
New York Jets
$86.99
43.8%
Arizona
$65.08
Dallas
$84.12
Washington
$79.13
0.500
San Diego
$81.39
Houston
$66.69
New Orleans
$62.22
Denver
$76.75
San Francisco
$70.55
0.438
Buffalo
$51.24
Green Bay
$63.39
0.375
Jacksonville
$55.30
0.313
Oakland
$62.23
Cincinnati
$69.85
0.281
Seattle
$61.25
0.250
Cleveland
$54.41
Kansas City
$80.69
0.125
St. Louis
$68.28
Detroit
$66.39
0.000
25.0%
Averages for Worst Teams
$64.64
0.226
38.9%

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

5. Figure 2-2 Demand Functions for Men’s and Women’s Basketball Season Tickets
(Typical class size = 100)
Legend: A simple classroom experiment chooses a subset of the class and asks, “How many season tickets to men’s or women’s basketball would you buy at various prices?” Plotting price against their response gives two different demand functions for the two sports. For example, 70 students are willing to buy a men’s ticket at a price of $20. But the price would have to fall to $10 before 70 students would buy a women’s ticket.

6. Table 2-3 Sports Participation by High School Boys and Girls, 2007=2008, Selected Sports
Football
1,108,286
Basketball
449,450
552,935
Outdoor track & field
447,520
548,821
Volleyball
397,968
Baseball
478,029
Fast-pitch softball
371,293
Soccer
383,561
346,545
Wrestling
259,688
Cross country
190,349
221,109
Tennis
172,455
Golf
159,958
Swimming & Diving
147,197
156,285
Competitive spirit squads
111,307
111,896
69,243
Total
4,372,115
3,057,266

7. Figure 2-3 Varieties of Demand Functions
Legend: D1 represents the case of demand with perfect substitutes; raising the price even a bit results in a complete collapse in attendance to zero. D2 takes the polar opposite case of no substitutes at all; fans demand a particular level of tickets regardless of price. D3 is the intermediate case of downward sloping demand; raising price reduces attendance, but not completely.

8. Table 2-4 Teams, Population, and Per Capita Income, Major League Areas
City
Number of Teams
Number of teams
Population
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

9. Figure 2-4 Upward Sloping Demand V. Change in Demand
Legend: A change in demand, from D1 at one point in time to D2 at a later point in time can be confused for a positive relationship between attendance and price. Rather than correctly identifying point (A1, P1) on demand D1 and point (A2, P2) on D2, one could mistakenly conclude that demand slopes upward by failing to account for factors that change demand, itself.

10. 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

11. Figure 2-5 Buyers’ Surpluses for Men’s and Women’s Basketball Tickets (Typical class size = 100)
Legend: Buyers’ surpluses are the area above a given price, but below the demand function, on the number of tickets sold. At a price of $20, 40 women’s tickets are demanded. On each and every ticket, willingness to pay (along the demand function) lies above the price. The shaded area shows the buyers’ surpluses enjoyed buy those purchasing the 40 tickets.

12. Figure 2-6 Price Change and Buyers’ Surpluses for Women’s Basketball Tickets (Typical class size = 100)
Legend: Buyers’ surpluses can be used to measure the value buyers put on changes in prices. At a price of $20, buyers’ surpluses on the 40 tickets purchased are the shaded area above $20 and below the demand function out to 40 tickets. When price falls to $10, buyers’ surpluses increase by the shaded rectangle on the original 40 tickets, plus the shaded triangle since the number of tickets purchases increases by 30 to 70 total.

13. Table 2-6 2007 Forbes Revenue Data (All figures in $ millions)
League
Smallest
Revenue
Team
Average
Largest
MLB
$128 ($134)
Florida
$183 ($192)
$327 ($343)
NY Yankees
NBA
$82 ($86)
Oklahoma City
$126 ($132)
$208 ($218)
New York
NFL
$195 ($205)
Minnesota
$222 ($233)
Washington
NHL
$64 ($67)
NY Islanders
$92 ($97)
$160 ($168)
Toronto

14. Figure 2-7 Demand and Elasticity
Legend: A linear demand function is defined as P=a–bA, where P=Price, a is the y-interecept, –b is the slope, and A is attendance. Elasticity is . Above the linear midpoint, demand is elastic (e > 1). At the midpoint, demand is unit elastic (e = 1). Below the midpoint, demand is inelastic (e < 1).

15. Figure 2-8 Demand, Marginal Revenue, and Total Revenue
Legend: A linear demand function is defined as P=a–bA, where P=Price, a is the y-interecept, –b is the slope, and A is attendance. Marginal revenue has the same y-intercept but twice the slope, –2b. Total revenues are R(A)=P(A)A. Total revenues rise to a maximum through the elastic region of demand (e > 1), reach their maximum at the unit elastic point (e = 1) associated with attendance A0, and fall through the inelastic region of demand (e < 1).

16. Figure 2-9 Production in the Inelastic Region of Demand
Legend: A linear demand function is defined as P=a–bA, where P=Price, a is the y-interecept, –b is the slope, and A is attendance. Marginal revenue has the same y-intercept but twice the slope, –2b. Total revenues are R(A)=P(A)A. Total revenues rise to a maximum through the elastic region of demand (e > 1), reach their maximum at the unit elastic point (e = 1) associated with attendance A0, and fall through the inelastic region of demand (e < 1). If all that matters is attendance revenue, production in the inelastic region of demand, at A1, has lower total revenue than production at the unit elastic point, A0. Reducing ticket sales raises total revenues.

17. Figure 2-10 Total Revenue and an Increase in Demand
Legend: An increase in demand, from D0 to D1, increases total revenues from R0 (A) to R1 (A). It is important to note that the maximum of the new total revenue, R1 (A), occurs at a higher level of attendance, A1 > A0.

18. Figure 2-11 Personal Seat License for a Typical Fan
Legend: Personal seat licenses, or PSLs, are a form of two-part price discrimination. In addition to charging a ticket buyer the ticket price P*, an additional charge equal to buyer’s surplus (the shaded triangle XP*Z) also is sought. It is the additional charge that discriminates between higher willingness to pay and lower willingness to pay among different buyers.

19. Figure 2-12 2007 Forbes Revenue Data (Million 2009 dollars)
Legend: Each line in the chart shows the smallest, average, and largest team revenues for each of the four major pro leagues. Revenue variation among teams is shown along a given line. Revenue variation between leagues is apparent from a comparison among the lines. The low-end NFL team earns much more than the low-end NHL team. The NFL and MLB averages are the highest, and MLB clearly has the largest revenue team at the high end.