By Robbie Butler

The growth of the modern sports competition is inherently linked to the rise in sports broadcasting. Today, there are nearly 100 dedicated sports channels available on European satellite television. As these have grown in number, so too have the bargaining power of sports organisers. This has resulted in broadcasting revenue becoming the most important source of income for sports team owners. Two give just two examples, the Premier League broadcasting rights for the seasons 2016-2019 sold for £4 billion. The rights for the Summer Olympics sold for an almost identical amount.

Broadcasters have had an untold impact on the sports we watch. The changes include an exponential increase in the revenue generated by clubs, dramatic increases in player pay and changes in the structure and rules of the games themselves. It is to the third point I now focus. 

David Butler previously wrote about the changing face of tennis, snooker and cricket, and the emergence of short forms of each of the sports. There is a belief that the extended nature of the traditional forms of these sports e.g. five day test in cricket, is not attractive to viewers who instead seek more 'exciting' or 'instant winner' contests.

Recently, a students in a sports economics module I am delivering brought a YouTube clip, explaining similar problems facing baseball to my attention. The four-and-a-half minute video can be seen here.

It starts by saying that the average game time for baseball in the US reached an all-time high in 2015 of 3 hours and 8 minutes. However, both hits and runs are down. Organisers are attempting to change the rules to overcome this problem. The issues facing the sport may be deeper. For example, American football games are both longer and have more dead time, yet its popularity eclipses that of its MLB counterparts. 

The video is certainly worth a watch. 

By David Butler

The winner's curse is the tendency for individuals to overbid in common value auctions when information between buyers and sellers is not complete. If you are bidding in an auction with many others for an asset that you don’t know the value of, a winning bid can be overly optimistic and it can exceed the intrinsic value of the asset purchased. Simply put, if you win an auction when you don't really know what something is worth, there’s a chance you’ll be had! This curse has been shown to even affect experienced bidders.

This curse was originally conceptualized in light of auctions for oil reserves in the Mexican Gulf and famous experiments by William Samuelson and Max Bazerman during the 1980’s showed how buyers in the lab consistently fail to appreciate their information disadvantage when formulating a bid in bargaining games. When the best strategy to take is to opt out, the temptation to bid is too much for some. 

Economists have since looked to sport as a means to test for the winner's curse in the field. The big advantage of sport is that it provides scope for productivity evaluations that other auctions do not. We can tell how well an asset has performed after they are purchased, in this case a sports star.  

In particular, economists have looked toward baseball. The original study on the topic was by James Cassing and Richard Douglas. In 1980 the researchers analysed the bidding strategies of potential buyers of free agents in Major League Baseball, as naturally each franchise would place a different value on what a free agent is worth. The researchers found that from 1975 to 1980 free agents were overpaid relative to their productivity. A second study that cited the winner's curse was written in 1993 by Lawrence Kahn. While his research did not specifically set out to address the curse, Kahn ended up explaining his results in light of it. His study looked at salary and contract length for virtually all Major League Baseball players from 1987 to 1990. The winner's curse or 'super competitive' bidding was found again.  The most recent study comes from 2008 by John Burger and Stephen Walters who revise downward the strength of Cassing and Douglas’ (1980) original findings. Using superior measures of productivity to gauge player performance, they argue that there was positive returns to free agency over the late 1970’s and also the 1990’s. They suggest a ‘weak-form’ version of the winner's curse exists as the full expectations of buyers may still not be met.  

More information is often suggested as a solution to this curse but given that status and buying superstars for commercial purposes seems to be important across sports, it may always be the case that owners are not particularly concerned about efficiency or rational bids. Bounded rationality with a boosted ego may do just fine!

By John Considine

This post is the latest in our week-long look at some sports economics in The Simpsons.  The posts are to mark the publication by Stanford University Press of Homer Economicus: The Simpsons and Economics.

In this post I'm going to look at some of the sports economics issues raised in Homer at Bat.  Not surprisingly, this brilliant episode has been named as the best sports episode by Bleacher Report.  It revolves around the idea of buying success in sport.

In a striking similarity to Robert Redford in The Natural, Homer makes himself a bat and helps lead the Springfield Nuclear Power Plant softball team to an undefeated season.  In the championship game they face Shelbyville Power Plant owned by Aristotle Amadopoulous.  Monty Burns bets Amadopoulous $1m that Springfield will be successful in their contest.  In an effort to increase his chances of winning, Burns hires a collection of Major League Baseball players and gives them jobs in the power plant.  Due to bad luck, and some strange behaviour on the part of Monty Burns, all but one of the MLB ringers are unable to take their place in the game.  The one exception is Darryl Strawberry - the player taking Homer's position.  With the score tied and bases loaded with two outs in the bottom of the ninth inning, Burns replaces Strawberry with Simpson.  Burns proceeds to confuse Homer with his signals.  The confused Homer is hit on the head with the pitch bringing about the winning run.

At the moment, from a European perspective, it is hard to recall the episode and not think about the UEFA Financial Fair Play rules.  These rules arose, at least in part, to stop wealthy owners from investing large sums of money buying up players and potentially destablising the game.  This week the media was awash with speculation that Manchester City and Paris Saint Germain were facing server penalties for breaching the rules (here).  However, what I want to focus here is the issue of buying success or the cost of buying success.

The issue of buying success forms one of the best chapters in an excellent book by Rodney Fort and Jason Winfree.  The book is 15 Sports Myths and Why They're Wrong and, like Homer Economicus, it is published by the good people at Stanford University Press.  The relevant chapter is called 'Owners and General Managers are Inept'.  Fort & Winfree do a good job dispelling the myth captured by the chapter title (and seemingly personified by Mr Burns).  Along the way a few people come in for some mild/harsh criticism.  Sportswriter and broadcasters do not come out of the chapter that well.  According to the authors, sportswriters and broadcasters implicitly accept and sell the idea that there are constant costs to winning.  Fort & Winfree explain how the costs are non-linear and how they do not start at zero.

A similar analysis is presented in a superb piece in the latest The Economist. - it can be accessed through their blog on sport called Game Theory.  The graph below is reproduced from the article (although I have imposed the solid black production function that is available in some versions).  One could apply the following few lines from Fort & Winfree, "Depending on the sport, it is usually easy to win a few games.  However, wins get harder and harder to come by for good teams".

The Economist finds that money matters.  It also finds that the manager matters but not as much as money.  Fort & Winfree do not concede that Owners and General Managers matter.  In their efforts to prove that the decision makers are not inept, they leave the reader with the impression that Owners and General Managers do not matter much.  As an example, they say that Billy Beane would be hard pressed to better the record of Brian Cashman (Yankees).

It would be fair to say that Fort & Winfree are not overly impressed by Michael Lewis and Moneyball.  When discussing the cost of winning they say "We can't resist pointing out that the Oakland A's are also a bit below this more reasonable line (they were just above the earlier less reasonable solid line representation)."  I'm guessing there is little between Billy Beane and Monty Burns.

This brings us back to Darryl Strawberry.  Burns brought Strawberry to the power plant to replace Homer in the softball team.  This is the same Strawberry that features so prominently in Moneyball (the book rather than the movie).  The book explains how the New York Mets had the first draft pick in 1980.  They were considering Beane and Strawberry.  It seems the Mets head coach wanted Beane but they selected Strawberry with their first pick because of influence from Sports Illustrated.  They ended up getting both.  Strawberry was their first pick and Beane was their second pick.  It seems Sports Illustrated got it right - but for the wrong reason.  Just like Burns got it right in replacing Strawberry with Simpson.

By David Butler - This entry is part 4 of a weeklong series to mark the release of Homer Economicus:The Simpsons and Economics.

Since the publication of Moneyball,  a book that documents the rise of the Oakland A’s under Billy Beane, the empirical study of sport has seen a notable rise in popularity. The statistical analysis of baseball, referred to as sabermetrics, was pioneered by Bill James and is a topic which the Simpsons writers dedicate an entire episode to in season 22. MoneyBart, written by Tim Long, see’s Lisa apply statistics and probability theory to engineer success for Bart’s struggling little league baseball team, the Springfield Isotot’s. 

For me, the episode not only highlights the use of sports statistics but gives a great insight into the lessons of behavioural economics. The central theme of MoneyBart is how intuition and gut reactions often mislead and result in predictions that differ from those produced by cold calculated reason.

The episode refers (perhaps unintentionally) to the psycho-fictitious drama of system 1 and system 2 thinking that behavioural economists use to theorise the brain in a simplied fashion. System 1 is deemed the automatic and quick system that helps us consider space, distance, recognise faces, act emotionally etc., while system 2 is the supervisory system that consistently helps us update our views, learn from experience and engage in conscious reasoning. These two metaphorical systems can often conflict, most often when decisions have consequences at different points in time, leading to time inconsistent preferences or self control problems.

With very little knowledge of baseball Lisa first turns to those expected to have an intuitive understanding of the game, the bar-stoolers in Moe’s. It is in the local tavarn however that she comes across professor Frink who introduces her to the statistical side of baseball and the powers of sabermetrics. Lisa instantly becomes hooked, engaging system 2 and using books such as ‘Schrodinger’s bat’ to devise a strategy for the Springfield Isotots that's based upon the laws of probability. As was the eventual case with Billy Beane's strategy with Oakland A's, Lisa's statistically inspired strategy pushes the team to the top of the league.   

It is here however where her system 2 thinking is overcome by the forces of system 1, a role unsurprisingly played by her brother Bart. Contrary to Lisa’s statistically grounded advice to play safe, Bart, believing Lisa is taking the fun out of baseball, smashes a homerun and wins the game for the team.Bart tells Lisa he was on a hot streak, but Lisa informs him that the hot hand  is a statistical illusion!  For not following the coaches orders Bart is removed from the team (despite his success), only later to be reinstated for the last play of the championship final. 

But once again Bart defies Lisa's cold logic (despite her protests) and he begins to steal bases. A furious Lisa tells Bart that it is statistically impossible to steal a home run but nevertheless Bart goes for it! On Bart’s last steal Lisa fury turns to joy as her emotions get the better of her and she falls in love with the thrills of baseball rather than the power of statistics. Bart fails in his endeavours, getting tagged out at the plate and as the commentator neatly surmises “it’s a triumph of number crunching over the human spirit”.  Lisa and Bart’s disagreements are however resolved.

The writers do a great job in presenting a balanced view of opinions on sport and stats. The power of statistical evidence in sport is weighed up against the benefits of taking sport for the emotional roller coaster that it is. Equally the statistical approach in sport is poked fun at as Proffesor Frink reveals the triviality of some statistics. As Homer suggested in an episode many years ago... “people can come up with statistics to prove anything. 14% of people know that.”

by John Considine

Are some sports teams cursed?  Mayo fans who saw their team fail to win the All-Ireland senior football final for the 7th time since 1989 might think so.  So might the fans of the Chicago Cubs baseball team.  The Cubs have not won a World Series since 1908 (Mayo won titles in the early 1950s).  However, two Cubs fans believe they have found the reason for the poor  record of the Cubs.  It is not being cursed with bad luck.

Tobais Moskowitz and Jon Wertheim show that 93% of MLB winning percentages can be explained by the performance of players on the field.  That only leaves, at best, 7% for luck.  They find that 94% of the Chicago Cubs winning percentages can be explained by the performance of the team.  The problem is that the teams have not been that good.  Luck has little to do with it.

In their book Sportscasting, Moskowitz & Wertheim trace the source of the losing culture to the transfer of the club to P. K. Wrigley from his father William Wrigley (of chewing gum fame and fortune).  PK decided to make visiting the ball park an experience independent of the team’s on-field performance.  The result was that the Cubs did not always put the best team on the field.  By making attendances less sensitive to the performance of the team, the economic incentives to have a good team diminished.

Using a century of data, they estimate that the Cubs have one of the lowest sensitivity of attendances to winning percentages.  The result is one of the top-5 most valuable franchises in MLB.
 
Wrigley’s decision seems to have cultural as well as economic implications.  Moskowitz & Wertheim believe it has  fostered a losing culture. Despite being Cubs fans themselves, they seem to suggest that the Cubs fans feel  comfortable with losing.  The fans are more concerned with beer prices at the stadium than ticket prices.  An analysis of the increase in ticket prices since 1990 reveals that the Cubs have the third largest ticket price increase.  Yet, they have the third lowest price for beer.

The Chicago Cubs changed hands in 2009. The new owners seem interested in changing the culture.  It is difficult to say if they will succeed.  It is also difficult to say if Cubs fans like Moskowitz & Wertheim want them to succeed!!!

By John Considine

At the end of normal time in the All-Ireland hurling final it was announced that there would be at least two added minutes.  At the end of the two added minutes, with Cork leading by a point, the ball went out of play.  Cork fans wanted the referee to blow his whistle to signal the end.  However, he played another 30 second and Clare secured an equaliser.  The initial ire of the Cork fans subsided and most agreed it was a fair result.
 
The consensus seems to be that the referee did not have one of his better games.  Clare fans believe Shane O’Neill should have been sent off and that the referee gave some easy frees to Cork.  Cork fans believe that the Clare defence were too close to the ball on two Cork 20m frees.  They also believe that the referee gave Clare a chance to draw the game.  Crucially, neither set of supporters believe the referee was biased against their team.
 
One criticism of Brian Gavin is that he gave Clare a chance to equalise. This ignores the fact that referees tend to act like parents.  They tend to balance things out amongst their children by being flexible with the rules. They give everyone a fighting chance – especially those behind.  Using research on baseball, Tobias Moskowitz (Professor of Finance, University of Chicago) and Jon Wertheim (writer, Sports Illustrated), confirm that the behaviour of Brian Gavin conformed to officiating behaviour in other sports.  Moskowitz & Wertheim use millions of pitches in baseball to test their hypothesis.  These are pitches recorded on camera by MLB.  Table 1 presents their data.

On the first pitch the officials call between 83.4% and 98.9% correctly.  These are pitches that travel at speeds above 85mph.  On the first pitch the batter and the pitcher are tied 0-0.  At 0-0 the umpire call 84.9% of pitches in the strike zone correctly.  What is revealing about the data presented by Moskowitz & Wertheim is that the umpire tends to  favour the guy that is losing on subsequent pitches.  When the batter is behind 0-2, the umpire only calls 57.7% of balls that passed through the strike zone correctly.  The greater number of umpire “errors” favour the batter.  When the pitcher is behind 3-0 the umpire calls 93.1% correctly. The decrease in “errors” from the 84.9% (when the score was 0-0) to 93.1% favours the pitcher.

It is clear that parents and neutral fans are not the only ones that favour the underdog.

By David Butler

The news that baseball’s highest paid player, Alex Rodriguez, along with twelve others have been suspended over doping has once again raised the issue of drugs in sports and there effect on performance. While I’m sure the philosophy behind regulating against performance enhancing drugs is intended to ensure fairness in one pillar of competition, economists may traditionally look at the topic differently leaving the normative issues aside. 

More than likely an economist would evaluate the issue of banning drugs in a game theoretic sense. What I mean by this is that regulating against doping prevents a race to the bottom between athletes, who could strive to find superior drugs if they were permissible but alas would maintain the same relative position in the ranking (all the while carrying the increased costs of risks to their health). 

A sub-optimal doping arms race could transpire. In the words of the Red Queen from Lewis Carrols’ Through the Looking Glass “it takes all the running you can do, to keep in the same place”. Taking the usual microeconomic assumptions of rationality, preference stability etc,  I could see how economists would recommend a third party to regulate against drug use in sport given that game theory would predict that competition between athletes would lead to a ‘failed’ outcome. 

What are the economic arguments for permitting the use of drugs to improve performance in sport?

The first, I suppose, is an economic ideology; athletes should be allowed the freedom to choose and should bear the costs of that choice. Third parties need not interfere.  Economists model trade-offs for all consumers using what are called indifference curves, so why not for athletes too? In this case the trade-off is between improved performance and (to indulge in the jargon of the economist) an ‘economic bad’ of increased health risks. For improved performance, one must take on more risk and vice versa. 

A second reason may be to admit that all competitions are inherently unfair; the rules of the game, no matter how they are organised, will naturally confer a greater advantage on one party over another. Improved training methods and infrastructure may be available to some simply as they are luckily enough to have a particular nationality. By allowing drugs to be used it could counter intuitively ensure a fairer contest by allowing equal access to enhancements.

Thinking about the economics off doping and policy measures designed to prevent it does however carry with it a range of explicit and implicit psychological assumptions that are highly restrictive but allow economists model behaviours in a simplified manner, facilitatating formal predictions. To solve the doping problem, if it is a problem at all, economists may need to look beyond these tools. The works of Nobel laureate Elinor Ostrom would be a good place to start as sports, like the bulk of Ostrom's works, are about communities. Whether it is athletics, cycling or baseball the force of prohibiting third parties may be no match for the power of local social norms that are fostered and enforced within groups. Saying this and achieving this are however two different matters.

By John Considine

Coventry City FC and the Oakland A’s are not two teams one would usually group together.  The former is an English League One football club while the latter is an American baseball franchise.  However, both have legal battles hanging over their heads about planned relocations.  The issues at stake highlight some of the differences between the American and European models of sport.  With rare exceptions, there is no tradition of English football teams relocating whereas franchise relocation is a more normal feature of life in the US sports leagues.  Now, a planned temporary move by an English football club could end up in Courts while delays with moving a baseball franchise has resulted in proceeding being issued.

The twenty-first century has been a turbulent time for Coventry City.  In 2001 it was relegated from the Premier League after over three decades of playing in the top flight of English football.  In 2005 the team relocated to the larger capacity Ricoh Arena from Highfield Road.  Two years later, it avoided being placed in administration when it was taken-over at the eleventh hour by SISU (a Hedge Fund).  Unfortunately, another relegation for the club followed in 2012.  In early 2013 the club entered administration.  (The details of this particular administration are not the easiest to understand as it seems to involve separate elements of Coventry City.)

As a result of the administration process the owners successfully applied to the Football League to play Coventry City’s home games at a new venue over 40 kilometres away for the next three years.  The proposed move from the Ricoh Arena to Northampton’s Sixfields Stadium has brought the threat of legal action from the owners of the Ricoh Arena.

The stadium move was reluctantly approved by the Football League.  The reluctance arises because the Football League does not want teams to move from the traditional areas from which the teams take their names.  English football has been slower than US sport to see its sport primarily as a business.  This is largely because the sport was governed by the FA that had responsibility for amateur and professional elements of the sport.  Separation of the governance of different levels of the game was much slower to arrive in Europe than it was in America.  And, these professional US leagues prioritised the business side of their sports to a greater degree.  As a result, the number and location of teams is carefully regulated by the US leagues.

In the US it is more common for teams to relocate.  Location is a business decision.  A team like the Baltimore Colts can move cities and become the Indianapolis Colts.  Or the Montreal Expos can move cities and become the Washington Nationals.  These moves are relatively common compared to the situation in English football (admittedly, Wimbledon moved and became the MK Dons but this was one of the very rare exceptions).  If there is a better market for a franchise then the US Sports League will facilitate team relocation provided it does not clash with the interests of the other teams. Moreover, by keeping the number of teams lower than the number of cities wanting a team, the sports
leagues can extract monopoly rents.
 
For the last number of years it seems that the Oakland A’s wanted to move.  Initially the proposed move was to  Fremont.  For the last four years they have signalled their intention to move to San Jose.  San Jose have signalled their desire for the franchise.  Now, San Jose believes the move is being hindered by potentially anticompetitive practices.  As a result, they have taken Office of the Commissioner of Baseball to court to settle the issue.  San Jose argue that MLB is the mechanism whereby teams divide up the market to maximise their interests.  They argue that San Francisco Giants believe they have the territory rights over the San Jose area and that this is holding up the relocation of the Oakland A’s.

It would be an overstatement to say that the whole structure of US sport is on trial.  That said, the case does   challenge the exemption baseball has from US antitrust law.  The exemption is based on a 1922 decision by the Supreme Court.  Ninety years ago the Supreme Court decided baseball did not involve interstate commerce and therefore was exempt from antitrust legislation.  The decision was reaffirmed in 1953 and 1972.  An unlikely success by San Jose could shake the US Sport Leagues to their core and make the Oakland A’s more famous in sports economics than did the book/movie Moneyball.

What is more likely is that Oakland A's and Coventry City settle their dispute outside rather than inside the Court house and business continues as normal.