Economics Of Sports

Economics Of Sports

Author – Atharva Borade

MMS – Roll No. 70

Kohinoor Business School

 

Literature Review –

 

Sports based economic development 6

Blair J.P. (1997) discussed the role of sports projects in economic development. It emphasizes that while sports projects are unlikely to be dominant drivers of overall economic growth, they can make modest but positive contributions in specific circumstances. The article highlights the need for careful evaluation of sports projects, considering methodological issues and the emotional pressures associated with them. It also discusses the challenges of applying benefit cost analysis and the potential biases in studies favoring sports incentives. The document provides examples of successful sports-based development and emphasizes the importance of project-specific analysis. Ultimately, it suggests that sports-based economic development should be evaluated on a case-by-case basis using appropriate tools. The article also delves into the potential of sports projects as economic development contributors. While the general impact of sports development may be small compared to the size of a metropolitan economy, there are instances where sports projects can positively contribute to the economic development prospects of particular areas. Blair provides examples of successful sports-based development in Indianapolis and suggests that careful evaluation on a case-by-case basis using appropriate tools is essential. The article also discusses the practical problems and emotional pressures associated with assessing sports projects, emphasizing the need for a consensus on methodologies before making decisions about public subsidies for sports projects. Ultimately, the author highlights the importance of considering both economic and non-economic factors in the political decision-making process regarding sports-based economic development.

 

Sports Economics

Ross Booth (2009) gave an overview of the field of sports economics, highlighting its relevance and key concepts. Booth explains that sports economics involves applying economic principles to analyse sports-related issues, which can also have broader applications beyond sports. The article discusses various topics covered in Australian sports economics courses, including microeconomic concepts applied to sports, labor economics, industrial organization, and public finance. Booth explains that sports economics can help understand phenomena like comparative advantage in team selection, ticket pricing, scalping, and market power of sports teams. The article also discusses the impact of television broadcasting rights revenue on sports, as well as the behaviour of sports leagues and teams in different contexts. Furthermore, the article explores the concept of competitive balance in professional sports leagues and examines strategies used to increase competitive balance, such as revenue-sharing, player drafts, and salary caps. Booth also addresses the economic impact of sports events, facilities, and teams, highlighting the challenges in measuring their net economic impact and discussing the role of government subsidies. Overall, the article provides a comprehensive overview of sports economics, its applications, and its relevance in understanding various aspects of the sports industry.

 

Sports and (real) business cycles

Ҫenesiz M. A. & Pierdzioch C. (2015) in this paper authors explored the impact of sports on business cycle fluctuations. They extend a basic real business cycle model to include households’ decisions regarding time spent at work and time spent on sports activities. Sports are considered an investment in health, which in turn affects total factor productivity (TFP). The study investigates how sports influence the propagation of technology shocks and the volatility and persistence of output at business cycle frequencies. The authors find that sports have non-negligible macroeconomic effects, as shown by empirical research. Sports-related activities contribute significantly to jobs, purchasing power, and economic value-added. The theoretical model developed in the paper focuses on the effects of sports on business cycles, modeling the accumulation of health similar to physical capital accumulation, thereby studying how sports influence the spread of technology shocks over time.

The model’s key findings include:

1. Health as an Investment: Sports influence household health, which is treated as a form of capital complementing labor and physical capital in market production. Health is shown to be countercyclical, deteriorating during economic upturns due to factors like increased smoking and obesity.
2. Impact on Output Volatility and Persistence: Sports affect business cycle dynamics by changing the trade-off between work and leisure. Increased sports lead to lower health and, consequently, lower TFP, which dampens the effect of technology shocks on output. The persistence of health fluctuations further affects the persistence of TFP and output fluctuations.
3. Model Implications: The model suggests that higher elasticity of TFP with respect to health lowers output volatility, while higher weight of sports in utility increases output volatility. Output persistence decreases with higher elasticity of TFP with respect to health but increases with higher weight of sports in utility.
4. Policy Implications: The study implies that promoting sports and a healthy lifestyle could have macroeconomic benefits, potentially stabilizing business cycle fluctuations.

The authors suggest that future research could extend the model to include additional features of business-cycle literature, such as time lags between sports and health, other leisure-time activities, and a sports-business sector.

 

 

Social interaction and demand for sport: An economic analysis

Paul Downward and Joseph Riordan (2007) authors explored the impact of social interaction on sports participation. The paper uses a cluster analysis to identify groups of individuals with similar lifestyles and examines their participation in sports and leisure activities. The results suggest that age, gender, and broader lifestyles are significant factors in determining sports participation. The paper concludes that sports policy should focus on increasing general participation rather than targeting specific clubs or activities. The content emphasizes the importance of exploring the possibility of lifestyles and social interactions in sports participation. The paper also discusses the theoretical and empirical literature on sports participation, using an elementary model based on Becker (1974) to show how investment in personal consumption capital and social capital, through social interactions, can conceptually account for lifestyle and complementary consumption in sports. The results of the regression analysis suggest that participation in any sport and its frequency are likely to increase if there is participation in a number of sports, as a result of the accumulation of personal consumption capital. However, it is only the frequency of participation that will increase as a result of social interactions, as indicated by membership of the Sport or Recreation clusters. The opposite is the case for cases belonging to the Leisure cluster.

 

Measuring the contribution of sport to the economy

Hone P. & Silvers R. (2006) The article explores the economic impact of sports in Australia, focusing on the growing financial commitment of both the public and private sectors to sporting activities. It discusses the various forms of public sector involvement, including subsidies and underwriting of events, and highlights the importance of evaluating the economic return from public expenditures on sports. The authors argue against using changes in GDP as a measure of the economic impact of sporting events, suggesting that it provides potentially misleading information to decision-makers. They propose a taxonomy of economic measures and alternative methods for evaluating the contribution of sports to the economy, the firm, and the local community. They emphasize the importance of assessing social welfare through measures like producer surplus and consumer surplus, rather than relying on GDP alone. The article also discusses government intervention in sporting events, focusing on efficiency objectives and non-efficiency considerations. It examines market failures in the sporting industry, such as public goods characteristics, externalities, divergences in discount rates, and information problems. Additionally, it addresses the role of sporting events in promoting a healthier lifestyle and the potential impact on reducing obesity-related health costs. Overall, the article advocates for a more nuanced and comprehensive approach to evaluating the economic impact of sports, taking into account a range of factors beyond just changes in GDP.

 

 

 

 

 

Teaching the economics of sports

Michael A. Leeds (2022) said in this research paper that the economics of sports course offers a unique opportunity for economics departments, but presents unique challenges for instructors. Students in such a class are likely to be more heterogeneous and have inappropriate expectations, making it more challenging for instructors to address inclusion and exclusion issues. The author discusses the use of technology in the classroom and how sports economics can be used to address issues of inclusion and exclusion in a nonthreatening manner. The course is interdisciplinary, incorporating a wide variety of economics subfields, and can attract non-majors and enhance enrollments in other departments. Sports are a metaphor for life, allowing students to discuss sensitive issues without inflaming passions. However, the economics of sports class covers a broad array of subfields and attracts students with varying skills and expectations. The author provides a blueprint for designing an economics of sports class, describing challenges instructors might face and explaining how to deal with them.

 

The economics of sports facilities and their communities

John Siegfried & Andrew Zimablist (2000) authors provided an in-depth analysis of the economic impact of sports facilities and professional sports teams on their communities. The authors highlight the substantial investment in new stadiums and arenas for professional sports teams, with public funds contributing close to two-thirds of the total spending. They discuss the historical evidence on expenditures on new sports facilities, emphasizing the significant public support involved. The authors also examine the forces propelling the trend toward public provision of facilities for privately owned professional sports franchises, highlighting the financial attractiveness of a new sports playing facility and the negotiating power of team owners as members of premier leagues. Furthermore, the document explores the economic impact of sports facilities on metropolitan areas, citing empirical research that consistently finds no statistically significant positive correlation between sports facility construction and economic development. The authors discuss the substitution effect, extensive leakages, and the likely negative effect on local government budgets, providing a comprehensive analysis of the economic implications. Additionally, they address the concept of “big league city” and the demonstration effect, challenging the claims that sports facilities put a city on the map and attract increased tourism and business. The document concludes by discussing policy options for addressing the monopoly power of professional sports leagues, advocating for divestiture or the introduction of competition into the industry. The authors underscore the challenges associated with implementing these reforms and the potential gains for taxpayers. Overall, the document presents a thorough examination of the complex economic dynamics surrounding sports facilities and their communities, offering a critical analysis of the prevailing subsidies and their impact on various stakeholders.

 

 

 

 

The economic evolution of sport and broadcasting

Stefan Szymanski (2006) the author discussed the co-evolution of the sports and broadcasting industries, focusing on the economic impact of their relationship. It highlights the transformation of sports through broadcasting and the influence of income elasticity on sports viewing. The paper examines the historical evolution of sports broadcasting, detailing the impact of radio, television, and digital technologies on the availability and value of sports content. It also explores the economic implications of collective selling of sports rights, vertical integration of media owners in sports, and the regulatory issues surrounding exclusivity and content migration. Moreover, the paper considers the future prospects for these industries, pointing out the potential economic impact of income growth on sports rights values. The author suggests that despite the proliferation of alternative sports content, dominant providers of sports content are likely to maintain their appeal in the foreseeable future.

 

The applied economics of sport: introduction and overview

Mark P. Taylor (2009) an author provided an overview of 15 applied studies in the field of sport economics. These studies cover various international and regional experiences and use a variety of applied techniques. Here’s a summary of some of the key studies:

1. Basketball Talent Selection: Groothuis, Hill, and Perri analyse NBA data from 1987 to 2003 to explore the challenges in selecting basketball talent. They find that while superstars can be identified early, there are more false positives than correct decisions with high draft picks.
2. Effort Exertion in Tennis Tournaments: Sunde examines professional tennis tournaments to test whether greater heterogeneity of contestants leads to lower effort exertion. The results suggest that heterogeneity affects the incentives to exert effort.
3. Determinants of Attendance in Minor League Baseball: Cebula, Toma, and Carmichael investigate the determinants of attendance at minor league baseball games in the Carolina League in 2006. They find that game-day promotions and various factors related to the game experience affect attendance.
4. College Football’s National Championship Debate: Swofford, Mixon, and Green analyse the debate over the national champion in college football. They explain the resistance to expanding the playoff format and the persistence of the two-team playoff.
5. Impact of Soccer Match Results on Stock Prices: Scholtens and Peenstra analyse the effect of soccer match results on the performance of listed football teams. They find that stock market response is significant and positive for victories and negative for defeats.
6. Technical Efficiency of Soccer Clubs: Barros, Garcia-del-Barrio, and Leach analyse the technical efficiency of soccer clubs in the Spanish Football League. They conclude that no common public policy can improve efficiency for all clubs, and policies by clusters are required.
7. Impact of Subsidization on Ticket Prices: Miller examines how teams set ticket prices when they receive subsidization. He finds that subsidization of teams generally comes from subsidizing the amenities in the teams’ stadiums, leading to lower ticket prices.
8. Effects of a Soccer World Cup on the Job Market: Maennig and Hagn analyse the effects of the 2006 soccer World Cup held in Germany on the jobs market. They find that the event did not significantly impact unemployment in the match venues.

These studies provide insights into various aspects of sports economics, including talent selection, effort exertion, attendance determinants, championship debates, stock market responses, efficiency of clubs, ticket pricing, and the impact of sports events on the job market.

 

Economics of Sport

John Vrooman (2007) the author sets the stage for understanding the economics of sports, particularly football (soccer), as a balance between love for the game and financial considerations. It highlights the unique dualism of competition and cooperation in sports leagues, where teams compete fiercely on the field but also rely on each other for the league’s success. The introduction also touches on the history of sports economics, from Rottenberg’s seminal paper in 1956 to more recent developments in the field. The introduction discusses the impact of free agency on sports leagues, using examples from baseball and football. It also explores the challenges faced by European football leagues, especially after the Bosman ruling, which allowed players to move freely between clubs. This change, along with the increasing influence of media revenues, led to a growing divide between rich and poor clubs, necessitating new approaches to ensure competitive balance. The introduction previews the papers in the special issue, which cover various aspects of the economics of sport, including competitive balance, media rights, and player salaries. Each paper contributes to the understanding of how economic principles shape the sports industry, with a focus on finding the right balance between competitiveness and financial sustainability.

 

Summary –

The literature review on the economics of sports covers various aspects of sports economics, including sports-based economic development, the impact of sports on business cycle fluctuations, the contribution of sports to the economy, social interaction and sports participation, the economics of sports facilities, and the relationship between sports and broadcasting. Here’s a summary of the key points from each article:

1. Blair (1997) discusses the role of sports projects in economic development, emphasizing the need for careful evaluation and project-specific analysis. Successful sports-based development can positively contribute to economic development in specific circumstances.
2. Booth (2009) provides an overview of sports economics, highlighting its relevance and key concepts. It discusses topics such as microeconomic concepts applied to sports, competitive balance in sports leagues, and the economic impact of sports events and broadcasting rights.
3. Downward and Riordan (2007) explore the impact of social interaction on sports participation, highlighting the importance of age, gender, and lifestyles in determining sports participation. They suggest that sports policy should focus on increasing general participation.
4. Ҫenesiz and Pierdzioch (2015) extend a basic real business cycle model to include the impact of sports on business cycle fluctuations. They find that sports have non-negligible macroeconomic effects, contributing significantly to jobs, purchasing power, and economic value-added.
5. Hone and Silvers (2006) examine the economic impact of sports in Australia, discussing the various forms of public sector involvement in sports and proposing alternative methods for evaluating the contribution of sports to the economy.
6. Leeds (2022) discusses the unique challenges and opportunities of teaching the economics of sports, highlighting the interdisciplinary nature of the field and the use of technology in addressing inclusion and exclusion issues.
7. Siegfried and Zimablist (2000) analyze the economic impact of sports facilities and professional sports teams on their communities, finding no statistically significant positive correlation between sports facility construction and economic development.
8. Szymanski (2006) discusses the co-evolution of the sports and broadcasting industries, highlighting the economic impact of their relationship and the future prospects for these industries.
9. Taylor (2009) provides an overview of 15 applied studies in the field of sports economics, covering various international and regional experiences and using a variety of applied techniques.
10. Vrooman (2007) sets the stage for understanding the economics of sports, highlighting the unique dualism of competition and cooperation in sports leagues and discussing the impact of free agency and media revenues on sports leagues.

Overall, these articles provide valuable insights into the economic aspects of sports, highlighting the importance of careful evaluation and analysis in understanding the impact of sports on economies and communities.

 

 

 

 

 

 

 

 

References –

BLAIR, J. P. Sports-based economic development. Economic Development Review, [s. l.], v. 15, n. 2, p. 51, 1997. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=2d551a12-904b-3b24-bd2e-3b6be096302b. Acesso em: 22 fev. 2024.

BOOTH, R. Sports Economics. Australian Economic Review, [s. l.], v. 42, n. 3, p. 377–385, 2009. DOI 10.1111/j.1467-8462.2009.00562.x. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=e9cf760b-ea37-3f87-a48a-830c409896a8. Acesso em: 22 fev. 2024.

ҪENESIZ, M. A.; PIERDZIOCH, C. Sports and (real) business cycles. Applied Economics Letters, [s. l.], v. 22, n. 3, p. 233–238, 2015. DOI 10.1080/13504851.2014.934428. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=0ab3f9e4-72e7-3fca-852e-29f512dd4760. Acesso em: 22 fev. 2024.

DOWNWARD, P.; RIORDAN, J. Social Interactions and the Demand for Sport: An Economic Analysis. Contemporary Economic Policy, [s. l.], v. 25, n. 4, p. 518–537, 2007. DOI 10.1111/j.1465-7287.2007.00071.x. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=62fe3b8a-9d3b-34c8-87b2-69abbb318bb4. Acesso em: 22 fev. 2024.

HONE, P.; SILVERS, R. Measuring the Contribution of Sport to the Economy. Australian Economic Review, [s. l.], v. 39, n. 4, p. 412–419, 2006. DOI 10.1111/j.1467-8462.2006.00430.x. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=157ddc70-0958-3095-bd38-518cfcdac98d. Acesso em: 22 fev. 2024.

LEEDS, M. A. Teaching the economics of sports. Journal of Economic Education, [s. l.], v. 53, n. 2, p. 150–158, 2022. DOI 10.1080/00220485.2022.2038324. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=e49a76e8-028b-32d2-8048-dfb3e2147773. Acesso em: 22 fev. 2024.

SIEGFRIED, J.; ZIMBALIST, A. The Economics of Sports Facilities and Their Communities. Journal of Economic Perspectives, [s. l.], v. 14, n. 3, p. 95–114, 2000. DOI 10.1257/jep.14.3.95. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=89b068b6-2fd8-34a8-b218-c42657862b9b. Acesso em: 22 fev. 2024.

SZYMANSKI, S. The Economic Evolution of Sport and Broadcasting. Australian Economic Review, [s. l.], v. 39, n. 4, p. 428–434, 2006. DOI 10.1111/j.1467-8462.2006.00432.x. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=ae9c473e-6ea9-39fd-b316-7853958a2782. Acesso em: 22 fev. 2024.

TAYLOR, M. P. The applied economics of sport: introduction and overview. Applied Economics, [s. l.], v. 41, n. 25, p. 3189–3191, 2009. DOI 10.1080/00036840903385257. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=f8d37fde-1bbe-31b0-abfa-00aa4d297b5d. Acesso em: 22 fev. 2024.

VROOMAN, J. Economics of Sport: Editor’s Introduction. Scottish Journal of Political Economy, [s. l.], v. 54, n. 3, p. 309–313, 2007. DOI 10.1111/j.1467-9485.2007.00417.x. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=32e5f4f1-dfe2-3d71-96ee-65c5623e7a5c. Acesso em: 22 fev. 2024.