Chapter 40 If You Build it Will They Come? And Other Sports Questions

Chapter 40If You Build it Will They Come? And Other Sports QuestionsChapter OutlineTHE PROBLEM FOR CITIESTHE PROBLEM FOR OWNERSTHE SPORTS LABOR MARKETTHE VOCABULARY OF SPORTS LABOR ECONOMICSThe Problem for CitiesIf a city wants a team should itwait for expansion?Cities that succeeded with expansionFootballJacksonville, Charlotte, Cleveland*, Houston*BaseballMiami, Tampa, Denver, Phoenixlure a team from another city?Cities that succeeded with luring othersFootballSt. Louis, Memphis, Oakland-LA-Oakland, BaltimoreThe Economic Impact of a Sports TeamsAre lures to sports franchises the same as lures to other business?Most economists, argue that sports teams do not offer much economic impact. The reasons areFew home games (8 in football up to 81 in baseball)Local substitution: the effect of the substitution of one economic activity for another within a community, so the net effect is zero. Money spent at the stadium is mostly money that would have been spent in the city anyway.Why are Stadiums Publicly FundedThe external benefits to a city that exist because a team is in the town. People in a city may enjoy following a local team and be willing to pay higher taxes to experience that enjoyment.The Problems for OwnersTo Move or to stayOwners often threaten to move to get better stadiums or luxury boxes added to existing stadiums. To Win or to ProfitSmall market teams rarely succeed in baseball because the bulk of revenue is locally derived (local TV deals) whereas this is not a factor in football because the revenue is generally shared.The Sports Labor MarketTo economists all firms compare the revenue they gain by having an employee, their marginal revenue product, with what that employee gets in wages and benefits. Sports is no different except there are often limits on what players can do. They can notpick the team they want to play for.agree to a lower salary than league minimumsmake so much that their team violates a salary cap.The NegotiationThe wage for any player will be between the most they are worth (their marginal revenue product) and the least they will accept, their Reservation Wage ( the least amount that a player will accept because it is the next best offer)Where the negotiation ends up depends greatly on the institutional framework of the sport.Necessary VocabularyFree Agent: A player that is able to offer services to the highest bidderDraft: The process by which new talent is assigned to teamsSalary Cap: the maximum in total payroll that a team can pay its playersRevenue Sharing: the process by which some revenues are distributed to all teams rather than simply the teams that generate themReserve Clause: a clause that requires that players resign with the team to which they belonged the previous yearStrike: an action by labor to deny employers the services of the employeesLockout: an action by employers to deny employees access to their jobsThe Various SportsTeam SportsFootballLeague minimum salariesLimited free agency after several years of serviceSalary capBaseballLeague minimum salariesBinding arbitration after 3 yearsFree agency after 6 yearsNo salary capBasketballLeague minimum salariesFree agency after several yearsSalary capThe Various SportsIndividual SportsIn golf, tennis etc. talent is paid appearance fees and winnings.In motor sports (NASCAR, CART, IRL, F1) talent is paid a salary and a share of winnings.Strikes and LockoutsThere have been repeated strikes and lockouts in the team sports and none in the individual sports.The fundamental economic reason for this is that there is a direct relationship between pay and performance in individual sports and no such relationship in team sports.Safety in Motor SportsIn 2000 and 2001 NASCAR lost four drivers in accidents on the track. In 2001 CART cancelled a race two hours before it was to start because of safety concerns.Safety-speed trade-offs:Everyone is made better off when safety is improved for everyone but if drivers must choose between being safe and winning a race, many choose to try to win.