Rodney Fort's Sports Economics

Rodney Fort's Sports Economics Chapter 6Sports Market Outcomes II

Figure 6-1Small and Large Revenue Market Teams in a Two-Team League Legend: The smaller market team has lower marginal revenue for all levels of winning percent than the larger market team. MRL(W) > MRS(W) for all W. An example is shown at W = 0.250.

Table 6-1Gini Coefficients for Revenue Imbalance in Pro Sports Leagues (slide 1 of 3)

Table 6-1Gini Coefficients for Revenue Imbalance in Pro Sports Leagues (slide 2 of 3)

Table 6-1Gini Coefficients for Revenue Imbalance in Pro Sports Leagues (slide 3 of 3) Notes: Pre-strike/lockout and post-strike/lockout are calculated according to the following: 1990s: MLB 1994–1995; (NBA excluded since 1998-99 lockout only leaves one post-year); NHL 1994; 2000s: NHL 2004–2005.

Figure 6-2Two-Team League Revised Legend: This depiction of the two-team league is a useful adaptation. The larger market team is portrayed from left to right and the smaller market team is portrayed from right to left. Since the sum of winning percents in a two-team league equals one, . But at that winning percent outcome, so it cannot be an equilibrium since the large market team wishes to buy more talent and the smaller market team will sell it.

Table 6-2Gini Coefficients for Payroll Imbalance in Pro Sports Leagues(slide 1 of 2)

Table 6-2Gini Coefficients for Payroll Imbalance in Pro Sports Leagues(slide 2 of 2) Notes: Pre-strike/lockout and post-strike/lockout are calculated according to the following: 1990s: MLB 1994–1995; (NBA excluded since 1998-99 lockout only leaves one post-year); NHL 1994; 2000s: NHL 2004–2005.EOS = end of season.OD = opening day.

Figure 6-3Market Equilibrium Legend: Since the sum of winning percents in a two-team league equals one. And this result is an equilibrium outcome. With neither team wishes to alter its talent choice. The market equilibrium price of talent.

Table 6-3Standard Deviation of Winning Percent Imbalance in Pro Sports Leagues (slide 1 of 3)

Table 6-3Standard Deviation of Winning Percent Imbalance in Pro Sports Leagues (slide 2 of 3)

Table 6-3Standard Deviation of Winning Percent Imbalance in Pro Sports Leagues (slide 3 of 3) Notes: Pre-strike/lockout and post-strike/lockout are calculated according to the following: 1990s: MLB 1994–1995; (NBA excluded since 1998-99 lockout only leaves one post-year); NHL 1994; 2000s: NHL 2004–2005.

$ $ MRL(W) a c MRS(W) b e d WL = 1 WS = 0 WL = 0 WS = 1 Figure 6.4 The Avalanche Leave for New Jersey: Impacts on the Nuggets Legend: When the Avalanche leave for New Jersey, the marginal revenue function for the Nuggets shifts from to . The Nuggets owner is clearly better off (team quality is higher, , and net value from winning increases (). The larger-revenue owner is clearly worse-off (team quality falls, payroll rises since the price of talent increases in the inelastic portion of , and the net value of winning decreases by area ). Players are clearly better off since the total of league payrolls increases ().

Table 6-4Years Per League or Conference Title in Pro Sports Leagues (slide 1 of 3)

Table 6-4Years Per League or Conference Title in Pro Sports Leagues (slide 2 of 3)

Table 6-4Years Per League or Conference Title in Pro Sports Leagues (slide 3 of 3) Notes: Actually, it’s the Brooklyn Robins/Dodgers, Baltimore/Capital/Washington Bullets-Washington Wizards, Ft. Wayne/Detroit Pistons, Ottawa/Eagles Senators I, Detroit Cougars/Falcons/Red Wings, and Toronto Arenas/St. Patricks/Maple Leafs. All leagues are calculated relative to their 2008 regular seasons. Finally, only teams winning less than every ten years are shown.

Table 6-5Correlation Coefficients and Competitive Balance in MLB Notes: Payrolls are “end-of-season” only because that is most useful for this purpose; ends 2004. No revenue data for 1998.

Figure 6-5Gate Revenue Sharing in a Two-team League Legend: Under gate revenue sharing, if the home team keeps a share equal to a, then both MRS and MRL shift down to aMRS and aMRL. The new equilibrium occurs at the same winning percents, . But the price of talent falls from P to P’. The amount of revenue shared by the large revenue market owner is the area of the parallelogram abcd. The amount of revenue shared by the small revenue market owner is area fbcg. The difference between the two is the net gain to the smaller revenue market owner, easy to see since abcd > fbcg.

Table 6-6NFL Gate Revenue Sharing Through the Years

Figure 6-6The Impact of Luxury Taxes in a Two-team League Legend: At the spending threshold associated with W1, a tax of t1 = 0.5 (50% on talent chosen beyond the threshold W1) is imposed. The new equilibrium choice by the large revenue owner is . Since the sum of winning percents is one, the talent choice by the smaller market owner must increase. In addition, the price of talent falls to P’.

Table 6-7MLB Gate and Local Revenue Sharing Through the Years(slide 1 of 2)

Table 6-7MLB Gate and Local Revenue Sharing Through the Years(slide 2 of 2)

Figure 6-7The Impact of a Salary Cap in a Two-team League Legend: A cap on the price per unit spent on talent of C, along with the imposition of equal spending, has the following impacts. First, the price of talent falls and payments to talent are reduced by the shaded rectangle, P*-C. At equal spending, and spending by each team is equal at 0.500*C. However, since MRL>MRS on all units between 0.500 and , both teams have an incentive to violate the cap.

Table 6-8Standard Deviation Ratios and MLB Pooled Revenue Sharing

Table 6.9MLB Revenue Sharing Comparisons, Split-Pool and Straight-Pool ($Millions) (slide 1 of 3)

Table 6.9MLB Revenue Sharing Comparisons, Split-Pool and Straight-Pool ($Millions) (slide 2 of 3)

Table 6.9MLB Revenue Sharing Comparisons, Split-Pool and Straight-Pool ($Millions) (slide 3 of 3) Notes: If Net < 0, then that is the team’s net contribution to the pool after deducting their share. If Net > 0, it is the team’s net receipt from the pool after deducting their contribution to the pool. League transfer is the sum to the net gainers (from the net contributors) . Average contribution equals league transfer divided by number of net contributors. Montreal moved to Washington so there is a payroll discontinuity that doesn’t allow either to be included in 2005.

Table 6-10The Draft and Competitive Balance in MLB and the NFL Notes: MLB periods are 12 years long; draft in place beginning Period 3, 1964. NFL periods are 6 years long; draft in place beginning Period 3, 1936. Source: See Table 6.3.

Table 6-11Salary Caps in the NBA, NFL, and NBA ($Millions) (slide 1 of 2)

Table 6-11Salary Caps in the NBA, NFL, and NBA ($Millions) (slide 2 of 2)

Table 6-12Caps and Actual 2008 Payrolls in the NBA and NFL (slide 1 of 3)

Rodney Fort's Sports Economics