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Rodney Fort's Sports Economics

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Presentation on theme: "Rodney Fort's Sports Economics"— Presentation transcript:

1 Rodney Fort's Sports Economics
Chapter 7  The Value of Sports Talent

2 Table 7-1 Details of 50 Top Athletes and Earnings, 2008
Sport # in Top 50 Top Earner Salary/Winnings Total Earnings Average Earnings Golf 3 Tiger Woods $22.9 $127.9 $68.7 Basketball 26 LeBron James $12.5 $40.5 $22.5 Boxing 1 Floyd Mayweather, Jr. $20.0 $40.2 Baseball 10 Alex Rodriguez $29.0 $35.0 $21.1 Football 7 Peyton Manning $17.5 $30.5 $20.5 Auto Racing Dale Earnhardt, Jr. $5.2 $27.2 $23.9 Notes: Salary/Winnings include bonuses. Total earnings includes endorsement income.

3 Figure 7-1 Randy Johnson’s Experience-Earnings Profile
Legend: Charting salary against experience for Randy Johnson (the data are in Table 7-4) generates his experience-earnings profile. It is common for all such profiles increase slowly at first, then rise quite rapidly, tailing off toward the end of a worker’s earning years.

4 Table 7-2 Average and Median Salaries in Pro Sports Leagues (2009 dollars) (slide 1 of 2)
Year MLB Average Median NBA NFL NHL 1988 $816,419 $418,275 1989 $928,576 $640,700 1990 $1,139,051 $287,288 1991 $1,521,713 $912,563 1992 $1,833,106 $665,000 1993 $1,858,988 $669,700 1994 $1,819,792 $702,000 1995 $1,764,147 $381,500 1996 $1,740,254 $521,900 1997 $2,022,230 $673,313 1998 $2,114,003 $712,313 1999 $2,466,003 $626,667 2000 $2,770,623 $1,001,300 $1,298,008 $596,812 $1,799,399 $1,123,750 2001 $3,140,547 $1,305,000 $4,205,421 $2,722,800 $1,656,222 $651,944 $1,983,227 $1,192,461 2002 $3,212,488 $959,438 $4,537,761 $2,632,518 $1,528,949 $634,621 $2,169,924 $1,219,750 2003 $3,291,557 $1,015,000 $4,294,075 $2,527,640 $1,738,428 $667,986 $2,239,329 $1,232,500 2004 $3,120,707 $861,625 $4,175,492 $2,514,160 $1,843,886 $713,793 $1,625,994 $966,830 2005 $3,222,349 $844,750 $4,013,907 $2,725,000 $1,739,966 $635,530 2006 $3,309,486 $984,210 $4,283,071 $2,886,887 $2,064,772 $760,280 $1,856,956 $1,043,252 2007 $3,468,819 $1,042,875 $4,534,432 $2,732,018 $2,023,299 $793,494 $1,986,983 $1,184,500 2008 $3,593,321 $1,064,250 $4,749,908 $3,065,700 $2,183,734 $921,294 $2,211,883 $1,340,213 2009 $3,579,403 $1,243,750

5 Table 7-2 Average and Median Salaries in Pro Sports Leagues (2009 dollars) (slide 2 of 2)
Growth Rate From 2000 on 2.40% 2.90% 1.80% 1.70% 6.70% 5.60% 2.60% 2.20% Notes: Averages assume total payroll reports are for the 25 man MLB roster, 15 man NBA roster, 53 man NFL roster, and 23 man NHL roster.

6 Figure 7-2 Market Equilibrium
Legend: In a two-team league, equilibrium in the talent market occurs where marginal revenues are equal and determine the price of talent. It is easy to see that the imbalance of revenues between the two teams ( for all levels of winning percent) generates competitive imbalance since the larger market team has a higher winning percent in equilibrium, that is,. Further imbalance in revenues also generates payroll imbalance. Spending on talent by the large market owner is larger than spending on talent by the smaller market owner.

7 Table 7-3 Celebrity Pay, 2008 (slide 1 of 2)
Name Pay ($mil) Pay Rank J.K. Rowling 300 1 Oprah Winfrey 275 2 50 Cent 150 3 Jerry Bruckheimer 145 4 Steven Spielberg 130 5 Tyler Perry 125 6 Tiger Woods 115 7 The Police Jerry Seinfeld 85 9 Jay-Z 82 10 David Beckham 50 16 Phil Mickelson 45 20 Kimi Raikkonen 44 26 Kobe Bryant 39 33 LeBron James 38 Ronaldinho 37 36 Roger Federer 35 Alex Rodriguez 34 41 Fernando Alonso 42

8 Table 7-3 Celebrity Pay, 2008 (slide 2 of 2)
Jeff Gordon 32 44 Shaquille O'Neal Dale Earnhardt Jr. 31 48 Kevin Garnett 29 52 Maria Sharapova 26 56 Serena Williams 14 73 Justine Henin 12.5 82 Annika Sorenstam 11 86 Lorena Ochoa 10 87 Vanessa Williams 4.5 98

9 Figure 7-3 Ticket Prices and Payrolls, Boston Red Sox (2009 dollars)
Legend: Adjusted for inflation, the average salary paid by the owner of the Boston Red Sox shows two significant episodes of decline. But ticket prices increased over nearly the entire period in the figure. The idea that rising salaries can cause rising ticket prices is not supported.

10 Table 7-4 Randy Johnson’s Pay and Performance (slide 1 of 2)
Year Team Wins Losses PCT ERA Pay ($2009) 1988 Mon 3 1.000 2.42 1989 Mon/Sea 7 13 0.350 5.54 $70,000 ($120,400) 1990 Sea 14 11 0.560 3.65 $150,000 ($244,500) 1991 10 0.565 3.98 $350,000 ($549,500) 1992 12 0.462 3.77 $1,392,500 ($2,116,600) 1993 19 8 0.704 3.24 $2,625,000 ($3,885,000) 1994 6 0.684 3.19 $3,275,000 ($4,716,000) 1995 18 2 0.900 2.48 $4,425,000 ($6,195,000) 1996 5 3.67 $6,025,000 ($8,194,000) 1997 20 4 0.833 2.28 $6,275,000 ($8,345,750) 1998 Sea/Hou 0.633 2.80 $6,000,000 ($7,860,000) 1999 Ariz 17 9 0.654 $9,700,000 ($12,416,000) 2000 0.731 2.64 $13,600,000 ($16,864,000) 2001 21 0.778 2.49 $13,350,000 ($16,020,000) 2002 24 0.828 2.32 $13,350,000 ($15,886,500) 2003 0.429 4.26 $15,000,000 ($17,400,000) 2004 16 0.533 2.60 $16,000,000 ($18,080,000) 2005 NYY 0.680 3.79 $16,000,000 ($17,440,000)

11 Table 7-4 Randy Johnson’s Pay and Performance (slide 2 of 2)
2006 NYY 17 11 0.607 5.00 $15,661,427 ($16,601,113) 2007 Ariz 4 3 0.571 3.81 $9,100,546 ($9,373,562) 2008 10 0.524 3.91 $15,100,546 ($14,949,541) 2009 SF $8,000,000 ($8,000,000) Lifetime 303 166 0.646 3.29 Notes: ERA is averaged across teams in 1989 and Lifetime includes partial 2009 performance not shown.

12 Figure 7-4 Ticket Prices and Payrolls, Boston Celtics ($2009).
Adjusted for inflation, the average salary paid by the owner of the Boston Celtics had some significant ups and downs early on. But ticket prices increased steadily over that time. The idea that rising salaries can cause rising ticket prices is not supported. Notes and Sources: See Figure 7.3.

13 Table 7-5 Major League Payrolls, 2008 ($Millions) (slide 1 of 3)
MLB Payroll NBA NFL NHL NYY $209.1 NY $97.1    Oak $152.4 NYR $66.1 NYM $137.8 Tor $95.4 Dal $146.4 Cal $63.1 Det $137.7 $93.2 Min $133.4 Phil $60.5 Bos Clev $90.8 $131.9 Otta $59.8 ChiWS $121.2 LAL $80.7 NO $131.5 Mon $58.9 LAA $119.2 $78.7 Pit $128.8 Wash $58.5 LAD $118.6 $77.0 Ten $126.0 $56.6 ChiC $118.3 Mem $75.8 Ariz $122.1 $56.4 Sea $117.7 Phoe $75.4 Jax SJ $55.8 Atl $102.4 Orl $74.9 Chi $120.1 NJ $55.7

14 Table 7-5 Major League Payrolls, 2008 ($Millions) (slide 2 of 3)
StL $99.6 Phil $74.4    SF $118.8 Dal $55.6 $98.3 Sac $71.5 NYJ $116.9 Edmon $54.1 Tor $97.8 Chi $116.7 Van $53.1 Hou $88.9 Wash $70.6 NYG $115.8 Min $52.9 Mil $80.9 $70.2 Miam $114.6 Colum $52.3 Clev $79.0 Ind $69.6 Buf $113.4 $52.2 $76.6 $68.8 Carol $112.1 Colo $51.9 Cin $74.1 SA $68.4 $112.0 $51.5 SD $73.7 Atl $68.2 $111.8 Bos $68.7 Char $68.0 $109.7 Flor $51.4 Tex $67.7 Den $67.1 $109.6 Ana $49.8

15 Table 7-5 Major League Payrolls, 2008 ($Millions) (slide 3 of 3)
Bal $67.2 NO $67.0    Hou $108.4 Carol $49.1 Ariz $66.2 Utah $66.3 TB $104.3 Tor $48.8 KC $58.2 Min $63.5 Sea $103.0 StL $45.5 $56.9 GS $63.3 Atl $96.4 Nash $44.2 Wash $55.0 NJ $62.0 Det $95.8 $43.5 Pit $48.7 LAC $61.9 Den $95.6 Phoe $39.1 Oak $48.0 OKC $61.5 GB $94.0 LA $36.1 $43.8 Port $56.2 Ind $93.4 $34.3 Flor $21.8 Miam $50.0 NE $92.7 NYI $33.3 $90.7 $83.6 Max/Min 9.6 1.9 1.8 2.0 Max/Median 2.6 1.4 1.3

16 Figure 7-5 Ticket Prices and Payrolls, New England Patriots ($2009).
Adjusted for inflation, the average salary paid by the owner of the New England Patriots showed a number of periods of decline. But during those, there always was at least one significant increase in ticket prices. The idea that rising salaries can cause rising ticket prices is not supported. Notes and Sources: See Figure 7.3.

17 Figure 7-6 Ticket Prices and Payrolls, Boston Bruins ($2009).
Adjusted for inflation, the average salary paid by the owner of the Boston Bruins almost continually increased over time. But ticket prices did not. The idea that rising salaries can cause rising ticket prices is not supported.

18 Table 7-6 Compensation Packages for First-Round NFL Draft Picks, 2009 (slide 1 of 2)
Player Position Team Years Ave. Salary (millions) 1 Matthew Stafford QB Detroit 6 $12 2 Jason Smith OT St. Louis 5 3 Tyson Jackson DE Kansas City $11 4 Aaron Curry LB Seattle $10 Mark Sanchez N.Y. Jets Andre Smith Cincinnati $7 7 Darrius Heyward-Bey WR Oakland $8 8 Eugene Monroe Jacksonville 9 B.J. Raji DT Green Bay $6 10 Michael Crabtree San Francisco (unsigned at press) 11 Aaron Maybin Buffalo $5 12 Knowshon Moreno RB Denver 13 Brian Orakpo Washington $4 14 Malcolm Jenkins CB New Orleans 15 Brian Cushing Houston 16 Larry English San Diego

19 Notes: Includes total package signing bonuses.
Table 7-6 Compensation Packages for First-Round NFL Draft Picks, 2009 (slide 2 of 2) 17 Josh Freeman QB Tampa Bay 5 $7 18 Robert Ayers LB Denver $3 19 Jeremy Maclin WR Philadelphia 20 Brandon Pettigrew TE Detroit 21 Alex Mack C Cleveland 22 Percy Harvin Minnesota 23 Michael Oher OT Baltimore 24 Peria Jerry DT Atlanta 25 Vontae Davis CB Miami 26 Clay Matthews Green Bay 27 Donald Brown RB Indianapolis 28 Eric Wood Buffalo 29 Hakeem Nicks N.Y. Giants 30 Kenny Britt Tennessee $2 31 Chris Wells Arizona 32 Evander Hood Pittsburgh Notes: Includes total package signing bonuses.

20 Figure 7-7 Hypothetical Demands for Teaching and Athlete Services
Legend: Even though society is willing to pay more for teachers than for sports stars, as revealed by the higher demand for the former, supply also matters. Equilibrium in the market for teachers occurs with ST units of teaching services hired at a wage equal to WT. In the market for stars, the result is SS units of star services hired at WS. Since so many more teachers than stars are available at each possible wage, earnings by teachers are lower, that is, WT > WS.

21 Table 7.7 Matthew Stafford Contract Details
Year Guaranteed Bonuses Discounted No Option Option 2009 $0 $3,100,000 $2,924,528 2010 $3,480,000 $3,097,188 $3,875,000 $3,448,736 $9,500,000 $8,454,966 2011 $2,921,875 $4,650,000 $3,904,230 $9,000,000 $7,556,574 2012 $2,756,486 $5,425,000 $4,297,108 $10,500,000 $8,316,983 2013 $2,600,458 $6,200,000 $4,633,001 $11,500,000 $8,593,469 2014 $2,453,263 $11,000,000 $7,754,566 Totals $17,400,000 $13,829,270 $23,250,000 $19,207,603 $54,600,000 $43,601,086 Notes: The option bonus must be paid in any event. If Stafford fails to take 35 percent of the snaps in 2009, the “No Option” case holds. If he does, the “Option” case represents the highest pay to Stafford.

22 Figure 7-8 Men’s and Women’s Golf Lorenz Curve
Legend: The farther the actual Lorenz Curve bows away from the 45-degree line, the more unequally shared is the purse. The Gini Coefficient is the ratio of the area between the 45-degree line and the Lorenz Curve to the area under the 45-degree line. The closer the Gini Coefficient is to one, the more unequal the outcome. Gini Coefficients of and are very high, indicating unequal outcomes in both women’s and men’s golf purses.Notes: Men’s tournament is the Players’ Championship, Women’s tournament is the 2004 U.S. Open.

23 Table 7-8 Purses and Shares in Tennis and Golf Majors
Men's Purse Winner's Share Women's Tennis 2004 Australian Open $19.0 million $924,480 French Open $8.3 million $1.04 million $7.56 million $1.02 million Wimbledon $9.9 million $1.10 million $7.82 million U.S. Open $17.8 million $1 million Golf 2003 Masters $6 million $1.08 million $2.1 million $320,000 $3.1 million $560,000 British Open $6.2 million $1.1 million $1.6million $240,000 PGA $1.6mi1 Notes: Tennis purses for U.S. Open and Australian Open are the total for both men and women; separate amounts not reported. The French Open purses do not include mixed doubles, men's seniors, or per diem. Total: $17.6 million. Currency converted at current rates.

24 Figure 7-9 Fan Discrimination
Legend: Favored race players have an MRP that includes the race premium put on them by fans. As a result, relative to their MRP in the absence of such favored status, more of their services are hired in the presence of fan discrimination, SR > SA, and they are paid more, WR > WA.

25 Figure 7-10 Employer/Teammate Discrimination
Legend: Favored race players have an MRP that includes the race premium put on them by employers or teammates. As a result, relative to their MRP in the absence of such favored status, more of their services are hired in the presence of employer/teammate discrimination, SR > SA, and they are paid more, WR > WA. However, in this case, the employer bears the cost of the premium since fans do not share their preference and will only pay according to the actual MRP. In order to have favored race players, the owner pays a wage, WR, in excess of the value to fans give by Actual MRP. The owner’s excess payment is equal to the shaded area


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