1. Purpose of Sports? Baseball vs. Football

2. Unit 1 Warm Up: The Business of Sports
Economics of Sports
Unit 1  Warm Up:  The Business of Sports

3. Sports Play an Outsized Role
They have been used for political purposes
“Ping pong diplomacy” led to U.S. relations with China
Boycotts disrupted the Olympics in 1976, 1980, and 1984
Sports are not a very big business
MLB, NBA, NFL, and NHL combined generated $19.09 Billion in revenue in 2008
CIGNA Insurance generated $19.10 Billion
But the nightly news doesn’t have a segment devoted to the day in insurance report

4. The Module Economic / Financial Concepts in Sports
The Industrial Organization of Sports
The Public Finance of Sports
The Labor Economics of Sports
Intercollegiate and Amateur Sports

5. Review of Economic Concepts
Key Concepts
What is comparative advantage, and how does it apply to sports?
Review of
Supply and Demand
Financial Statements
Monopoly
Fixed Costs

6. The Industrial Organization of Sports
Key Questions
How do teams and leagues maximize profit?
What role does monopoly play in sports?
What is competitive balance and why is it important?

7. The Public Finance of Sports
Key Questions
How do teams and leagues benefit from their relationships with municipal, state, and national governments?
How do municipalities benefit from their relationships with sports teams and leagues?

8. The Labor Economics of Sports
Key Concepts
How do labor markets function in professional sports?
What impact do the monopoly (seller) power of unions and the monopsony (buyer) power of leagues have on labor markets in sports?

9. Intercollegiate and Amateur Sports
Key Concepts
How did the concept of amateurism arise?
What role does amateurism play in intercollegiate sports?
How have changes in admission and eligibility standards affected colleges and athletes?
Pay for Play?

10. Babe Ruth’s Odd Career Path
Babe Ruth was originally a star pitcher
From 1916 to 1918 he was the top pitcher on Red Sox
He was one of the best in all of baseball
From 1919 on he pitched in only 22 games
Why did the Red Sox stop using their best pitcher?

11. Babe Ruth and Opportunity Costs
The opportunity cost of using Babe Ruth in the outfield was large
Opportunity cost is the value of the forgone alternative
The Red Sox pitching was not as good without him
BUT: The opportunity cost of using Babe Ruth as a pitcher was greater
Ruth was the best hitter of his age
In 1918 he hit more home runs than the entire Red Sox starting outfield hit in 1917

12. Babe Ruth And Absolute Advantage
Absolute advantage occurs when a person (or nation) is better at doing something than another person (or nation)
Babe Ruth was the best pitcher and the best hitter on the Red Sox
Ruth had absolute advantage as a pitcher and as an outfielder
Despite an absolute advantage as a pitcher, he stopped pitching

13. Babe Ruth and Comparative Advantage
Comparative advantage exists where a person’s (or nation’s) relative advantage is greatest
Babe Ruth had a comparative advantage as a hitter
He had an absolute advantage as a pitcher
He had a much larger absolute advantage as a hitter
The opportunity cost of using him as a pitcher was greater than the opportunity cost of using him as a hitter

14. The Gains from Specialization
The Red Sox were better off with Babe Ruth as a hitter
The opportunity cost of using him as a pitcher was greater than the opportunity cost of using him as a hitter
People, teams, and nations gain from specializing where they have a comparative advantage
That means letting others do an activity that you can do better

15. Table 1-3 Highest Expansion Franchise Rights Fees ($millions)
MLB
NBA
NFL
NHL
Decade
Fee
Year
1960s
$12.5 ($78.5)
1968
$2.0 ($12.6)
$8.5 ($58.9)
1965
$2.0 ($13.1)
1967
1970s
$7.0 ($26.9)
1976
$6.2 ($27.5)
1974
$16.0 ($70.9)
$6.0 ($24.4)
1975
1980s —
$32.5 ($57.2)
1989
1990s
$130.0 ($174.2)
1998
$121.3 ($183.2)
1993
$700.0 ($917.0)
1999
$80.0 ($108.8)
1997
2000s
$300.0 ($357.0)
2003
Real Annual Rate of Growt
2.7%
10.0%
8.4%
7.3%