A-Rod's Dollars Make Sense for Yankees

It is the largest deal in professional sports history, and both A-Rod and the Yankees stand to get significantly richer because of it. A-Rod is likely to generate $450 million of "value" for the Yanks. Assuming they will exceed the luxury-tax threshold in each 10 years and face the 40% tax, the total cost for Rodriguez will be $427 million. The true economic value of A-Rod is based on the Yankee's growth and his Marginal Revenue Product. The article talks about other places the Yankees could have spent their money, broadcast revenues, increased ticket prices and demand for games. All of these topics are because of Rodriguez. After our class discussions, what is everyone's opinions on one of the biggest sports contract to ever exist.

Tampa Bay to Get New Ballpark?

Despite money woes that have lawmakers scrambling to pay for state programs, Florida Govenor Charlie Crist said that he thinks the state should try to figure out a way to help the Tampa Bay Rays build a new waterfront ballpark in St. Petersburg. But how?
Earlier this month the Devil Rays announced plans for their $450 million open-air, waterfront, downtown stadium. Crist has stated that he will do whatever he can to help the process move along smoothly. He claims that the new stadium will result in economic growth for Florida and create "jobs, jobs, jobs for a lot of people." It seems that argument of new jobs is always used, but as we have learned, not as many jobs are created as people may think.
Currently, the Devil Rays play in Tropicana Field which does have a roof. However, they envision a 35,000 seat stadium on the current site of their spring training facility.
What do you think would be an appropriate way to fund the new stadium? Should they tax cruise-ship passengers and try to put the tax on out-of-town visitors (rental cars, etc) or should they simply just have the citizens pay for it? What about Crist's argument of the new stadium resulting in economic growth and jobs?

Teams bring more than money to a city...

Taking an Economics of Sports class and learning about the various financial effects of a sports team on the city they represent has got me to thinking. I know that a real Economist is only concerned with the bottom line, the final number, but I think that the effects of sports teams go beyond what can actually be measured by a calculation or number. Last night I attended the Pittsburgh Steelers vs. Baltimore Ravens game in Pittsburgh. I have attended many of the games at Heinz Field this season but each time have been more crucial of the economics side of the business (or team) that I was rooting for. Could they cut costs there? Should they make a bigger stadium? Why don’t they charge more for that? The list goes on. Last night however when I was standing in the parking lot 4 hours before the game drinking the legal beverage of my choice I realized that, at least in Pittsburgh, Steelers are about so much more than just a business. The effects of the team’s winning percentage are irrelevant to the atmosphere before the games, people from all walks of life come together to have a great time, to relieve the pressures of day to day life and the 64,546 people that packed Heinz Field last night experienced a type of emotion that is difficult to describe. Now last night’s game was an exceptional example considering the Ravens served the Steelers the win on a silver platter, but the effects are still the same. As I stopped at a rest area during my trip from Pittsburgh to Marietta at about one o’clock in the morning I realized that nearly every car in the Ohio rest stop were full of Steeler fans. Terrible towels, Steeler flags, logos, jerseys and more colored the rest area black and gold. I just think that to say that a few quick calculations could measure the true financial effects of a team on a city would be ignorant. Now of course, I am obviously a Steeler fan, and a Economics minor should I be able to separate emotion and passion for a team apart from the business side of the game? Maybe I should be able to, but I simple don’t think that it’s possible to do.

Baseball Stats Inspire Sports Economists

How do you become a sports economists? What 9 year old says I want to be a sports economists when I grow up? Most say I want to be a baseball player or football player, but not very many people get to make it professional. True sports fans have a numerical obsession that gages how well a player is hitting, throwing, or shooting. These stats are looked over and talked about every season, but unfortunately there aren’t too many careers that involve memorizing stats and analyzing. However there is an alternative career that involves numbers and sports and it is being a sports economist.

http://www.usatoday.com/money/2006-07-27-sports-econ-usat_x.htm

Former Former Federal Reserve chairman Alan Greenspan admits learning mathematics using baseball stats and current chairman Ben Bernake isn’t any different. The link above discusses more about why there is an increase in interest and the new audiences sports economics is grabbing the attention of.

Smaller Stadiums; are they good or bad for the viewers?

It is obvious that stadiums are getting smaller these days. In fact, in the past decade, the Seattle Mariners are the only team to have built a larger stadium than the one before it. At www.foxbusiness.com, they say that the reason for this is to be more like a nightclub. If the club is full, more people will come, even if it is full only because it is small. The owners want the stands to be full, because they don’t want the people at home watching the game to see the empty seats. The smaller stadiums are good to the fans, because they have larger seats that are closer to the field, wireless internet available, and more concessions available with smaller lines. All of these facts look good to the consumers, except for the fact that because of less seats, the price of seats will go up. Fans will also have the disadvantage if they like to decide to go to games the day before, or the day of, because tickets might be sold out. So, is it better for the fans to have smaller stadiums? I think it is better because if you plan ahead and pay a slight increase in ticket costs, the advantages of having smaller lines for food and larger seats will be worth it.

Teams pack up and leave (is that bad?)

It would be logical to think that a lockout by team would be bad for the local area around stadiums. With no games consumers would have less reason to visit the area. Also that a team leaving the city (for any reason, like lack of a new staduim) would have a heavy impact on the cities economy. However, its seems to be quite the opposite. During the strike of the NBA from 1998-1999 there was almost no impact at all. In fact a team leaving a city didn't even impact the economy the next year. This suggest that consumers will spend their dollars on something else, perhaps a different form of entertainment or maybe some other luxury. So does the threat of leaving if a city won't back the creation of a new stadium carry any weight, or is it the empty threat of desperate entity?

TBS Has Record-Low NLCS Ratings

After our discussion in class about broadcasting revenue, I thought this article was interesting. TBS, which is now carrying more than just Atlanta Braves games, isn't drawing a large crowd for the playoffs. The National League championship series had all the elements of a low-rated sporting event: a sweep involving two smaller-market, tradition-poor franchises. Why would anyone think that the ratings would be higher? The Rockies four-game sweep over the Diamondbacks drew a 3.3 rating for homes with TBS. The previous low average NLCS rating was a 6.2 for the Mets' five-game victory over the Cardinals in 2000. Why the big difference? Even though they are smaller teams, it's the playoffs. This is where teams are supposed to bring in extra money. However, Tuner Sports said network executives were "still very, very happy" with their seven-year deal with Major League Baseball despite the low NLCS ratings in their first year airing the playoffs. President David Levy is still optimistic. He said that broadcasting all the division series games on the same network helped attract viewers by eliminating confusion. Which could be very true. Were the ratings low because both contenders were small-market teams? Why wouldn't the playoffs draw more attention and demand?

Real Madrid the Yankee's of soccer

Baseball isn’t the only sport where teams attempt to buy a championship. Take a look at Real Madrid a Spanish soccer club. Real had over $200 dollars of revenue in the year 2002, and only made $10 in profit. Where’s it all going? You guessed it into the top notch players they buy from everywhere. Take a look at the roster. Ronaldo (world player of the year, current record holder for goals in a single world cup, world cup champion), Zinedine Zidane (2 time world player of the year, widely regarded as the best center midfielder to ever play period, was the highest paid player in sports prior to A-rod, world cup champion, Euro 2000 Cup champion), Luis Figo (2 time world player of the year), David Beckham (prior to move to the US, Beckham was the world player of the year and international icon). So what does it all mean can you buy a championship? Why yes you can…Real won the Spanish league in 2003, winning for the 29^th time and club history. That’s 3 more time than the Yankees, and they were founded just 1 year before. With all the power Real commands in Europe they sell jerseys for $65 a pop. That’s about $15 more than the Yankees. But does all this winning ruin the sport of soccer in Europe? Not quite. Real’s stadium holds 17,000 more people than Yankee stadium, it being one of the smaller stadiums in even in the country. Oh yeah its been sold out for the last 10 straight seasons (to every game)…

Forecasting the Winner of the Nobel Prize in Economics

The Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel (aka the Nobel Prize in Economics) will be announced on Monday, October 15, 2007. Of the 58 men who have won the award outright or shared in it since the prize began in 1969 (no woman has yet to win it), 38 have been Americans. The leading university homes of the winners include the University of Chicago (9), followed by Columbia (4), Harvard (4), University of California-Berkeley (4), and Cambridge University, England (4).

Now, let's see how well you can forecast. I will award 2 bonus points to the first person who correctly forecasts the next winner of the Nobel Prize in Economics. Your educated guess must be posted as a comment to this post before the Nobel Prize announcement is made. In the event that more than one person submit identical guesses, the earlier timestamp of the comment will determine the winner. The bonus points will be added to the winner's next exam score following the Nobel announcement on October 15.

Enter your comment by clicking the comment button at the bottom of this post. If you are not a member of Blogger you must choose an Identity: choose "Other" and put in your real name. Click "Publish Your Comment" when done.

Will/should the NFL move to a 17 game regular season?

The NFL Commissioner, Roger Goodell, stated on April 26, 2007 that the NFL has been thinking about adding a 17th game to the regular season. He said that if this idea goes through, they would probably drop a pre-season game. This option sounds like a good idea, but is it from an economic viewpoint?
There are many factors that will determine if an additional game will be a good idea or not. For instance, an increase in regular season games might only increase games in foreign countries. If this happens it will add profit to the NFL, but not to the individual teams and fans. If the extra game is played in the states, the fans will benefit by being able to watch another game, the players will benefit by getting a much higher salary in a regular game compared to a pre-season game, and the franchises will benefit by making a better game-day profit. The only problem is if the players’ salary increase were to be higher than the game-day profit. If this would happen, everyone would still profit except for the franchises. This probably will not happen because the demand for football is so high, that only one more game will still have the same demand as having a 16 regular season schedule.
So, should there be an additional regular season game? I say yes, but make it be in the United States, so we all can benefit from it.

Tribe Competes for Best Record in A.L. with One of the Smallest Payrolls

This past weekend the Cleveland Indians clinched the central division title for the first time since 2001. Now they are playing for home field advantage in the playoffs, were the team stands to make more money on gate, merchandise, and concession revenue while still paying much less salary to their players compared to Boston, New York and Los Angeles. http://sports.espn.go.com/mlb/teams/salaries?team=cle ranks the teams in MLB by salary this year and the Indians are 23rd out of 30 teams. Only San Diego (24th) is contending for the playoffs with a lower payroll. However, it has been 5 years without a playoff appearance for the Indians while the teams with the highest payrolls such as the Yankees, Mets, Dodgers, and Red Sox seem to always be in the race for a Pennant. There even seems to be a correlation with playoff appearances by teams and their salary. Yankees pay almost 4 times more then small market teams like Cleveland and San Diego, but as a result make the playoffs four times as much? Can a small market team compete year in and year out, or do they need to rebuild after a good run of 5 years or so? I think it would be better for MLB if every team made the playoffs equally to create excitement in these smaller markets and to stop “evil empires” from monopolizing the playoffs.

The Fed Rate Cut vs. Inflation Fear

The Federal Reserve cut the target on a key short-term interest rate by half of a percentage point to 4.75% last Tuesday. On the same day, the Fed also cut its discount rate by another half of a point to 5.25% after the surprise cut on 8/17/07. It is clear that the Fed is willing to take any moves necessary to ensure that the US economy is not derailed by problems in the subprime mortgage market. The federal funds rate is an overnight lending rate that banks charge each other. The rate cut is a very important tool because this funds rate influences the amount of interest consumers must pay for various types of debt, such as credit cards, home equity lines of credit and auto loans. The Fed is “intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.”

Stocks surge after the Fed announcement of rate cut. The risk of potential inflation starts to catch people’s attention. Inflation could come from the still-booming global economy and from the lower rates, which push more money into the economy, making it easier to raise prices. In the statement, the Fed indicated that more rate cuts could be on the way. Do you think the Fed might cut rates too much? Are we expecting inflation now? I remember that the Fed had to raise rates in 1999 after cutting them during the 1998 financial crisis and the economy ended up in a recession in 2001. Do you think the same thing is happening now?

GM Walkout: Union Fringe Advantage?

United Auto Workers (UAW) walked out across the US in the first strike at General Motors (GM) since 1998. The two major issued as the two sides negotiate a new national contract: whether the UAW, having made big concessions on health care, should get some kind of jobs guarantee from GM. The GM management and UAW leaders held several bargaining sessions, trying to come out with a deal that would set up a huge, union-led health-care trust to assume retiree medical benefits and address a slew of other economic issues. Apparently, the two sides did not come to an agreement.

As we notice, the union wage advantage is an estimated 13 percent over their nonunion counterparts. This advantage rises by 2 to 3 percentage points when fringe benefits are considered. Here comes the question: why do union workers enjoy a greater variety and higher overall level of fringe benefits than nonunion workers?

First, union fringes may be higher because the union is able to deprive management of its workforce and the employer is willing to pay both higher wages and larger fringe benefits to avoid the costs of a strike. Second, union workers, by virtue of their higher earnings, may simply choose to “buy” more fringes than lower-income nonunion workers. Third as a collective-voice institution, a union may formulate fringe benefit proposals, inform its constituents of the details of such proposals, and crystallize worker preference. Fourth, older workers are usually more active in the internal politics of a union and therefore more influential in determining union goals.

What do you think about unions? Do you think unions are a positive or a negative force insofar as economic efficiency and productivity are concerned?

Seattle Supersonics; An Attempt to Trump Local Government

Seattle officials filed a lawsuit against the SuperSonics to prevent them from leaving town this Monday. The franchise has claimed arbitrary losses since the 1990's, and the losses of the 2007 fiscal year will exceed seventeen million. However, the Sonics had previously agreed to a fifteen year lease to play the rest of their games at the KeyArena, the smallest venue in the league, which will be up in Sept. 2007.

The Sonics are trying to exploit their losses in revenue to the media, and use it to their advantage in an attempt to have a pricey new $500 million stadium built in Seattle. The franchise is claiming they have to pay unfair amounts of the revenue they are generating to the city. The team is trying to buy up the remainder of the lease in order to get out of their agreement and move out of the city. This would hurt the overall fan base for the Sonics, which is relatively small compared to other franchises because of the poor quality over numerous years in the league.

The franchise is trying to present an ultimatum to the city of Seattle. If they do not get a new stadium, they are threatening a move out of the city, causing a loss of revenue for the city as a whole. This would interfere with the markets of other regions in the country if a move was made. However, the local government is stepping up, and putting pressure on the franchise to remain loyal to their lease for the small amount of time they have left to fulfill it.

More Apply for Jobless Benefits

Recently, the labor department released the data of new applications for unemployment insurance. By August 4th, the application increases to 316,000, the highest point since late June. However, claims are still lower than one year ago, which is 319,000. The government also reported the nation’s unemployment rate of July. It was 4.6 percent in July, the highest in the recent six months, indicating new job creation is slowing down.
The unemployment insurance reminds me of the decline of unionism. Since 1960s, the percentage union members in the US are declining all the time. Besides the structural changes and managerial opposition, substitution effect is another important factor. Many of today’s public programs provided by the government were only available to workers through unionization, so employees of today do not have to join the unions to enjoy these benefits. Still, unions can bring some other benefits such as a higher wage, so to join or not to join the union is really a personal decision.

The Black Market and College Furniture

College kids have used stolen milk crates for decades as building blocks of coffee tables and dorm room shelves. Now, people are cashing in by swiping thousands of the containers from loading docks and selling them to shady recyclers. The containers are chopped and shipped to China to be made into a variety of products. This represents an estimated $80 million in losses from the thefts. Dairies across the country are moving to stop the plastic pilfering. In California, companies are even hiring private detectives and staging sting operations.

"We saw them disappearing into this black hole," said Rachel Kaldor, executive director of the Dairy Institute, a trade group in Sacramento. "We just don't know who's stealing these crates off the loading docks."

In the past two years, the high-density plastic has joined a list of materials that are being stolen and sold via a thriving underground recycling network. Thieves target copper, aluminum bleachers, beer kegs, even cemetery vases and nameplates.

It took a while for dairies to determine what was happening to their crates.
"If it were just college kids taking them, the dormitories would be overflowing with milk cases," said Stephen Schaffer, general manager of Alta Dena Dairy near Los Angeles. The crates are made of petroleum-based plastic that has increased in value along with gasoline prices. The material now sells for 22 cents a pound, compared to 7 cents a pound in 2005, said Patty Moore, a recycling consultant in Sonoma, Calif. Consumers can spend as much as $10 for an "authentic" dairy crate at retailers such as the Container Store. Dairies pay about $4 when they buy in bulk.
Last year, the industry lost about 20 million crates to thieves. California, the nation's largest dairy state, has taken the lead in the fight against plastic poachers. Wood hopes the busts encourage college students and homeowners to voluntarily return any stolen milk crates they might be using. Alta Dena's has even set up a "milk crate abuse" hotline at (800) 457-6688 for people to surrender the containers, no questions asked. It shows that illegal undocumented black markets really do exist. There can be a market for anything. Most often, we just think of black markets as drug selling murder rings. Well, milk crates count also.

Airspace a private good

The tragic story of the two news helicopters colliding in Arizona during a high-speed police chase demonstrates how airspace can be viewed economically as a private good. Air traffic control acts as a supplier of the good. The good is excludable because air traffic control must clear crafts to fly in the area. The air is rival in consumption because only one aircraft can occupy a particular unit of air at one time or tragedy will ensue as did in this story. What is considered a unit of air can change what category the good would be considered. If the unit of air is the entire airspace that air traffic control allowed the aircrafts to occupy, then more than one person could use that unit at the same time making the airspace an artificially scarce good.

Live Earth: Harmful...or Beneficial?

Some of you may recall that there was a series of concerts that took place in early July to benefit the environment, even though it wouldn't surprise me if you are scratching your head saying...what concerts? Anyways, Al Gore and a bunch of celebrities/music artists decided that it would be a nice idea to hold a series of concerts in different places around the world to "spread awareness" about the environment/global warming. The article gives some more specifics on the events that took place. Anyways, I have been sitting on my opinion of these concerts for a long time. While I understand their intentions, I question whether or not the benefits outweighed the negative outcomes. Now, the negatives of all of these shows would be the amount of fuel the artists wasted with their tour buses and planes, the electricity the concert was fueled on, the security, the money spent on fancy bottled water and random foods demanded(have you ever seen what some of those artists demand in their dressing rooms?) the artists drink and eat, the fact that they are wagging their fingers at me for taking a ten minute shower even though they drive a Hummer or Escalade which causes a certain feeling of nausea in my stomach.....but Al Gore swears up and down, as do many other green thinkers, that the "awareness" that was spread will outweigh these costs. Now, correct me if I'm wrong, but just because you tell someone something, it doesn't necessarily mean they are going to act upon that information. I can tell you we have class at 10 AM on Monday, Wednesday, and Friday, and you are aware of it, but you decide that staying in your room playing video games is worth more than your class. Another claim was that the concert "wasn't meant to just make changes for the general public, but to inform the lawmakers and activate their awareness". I just feel like this whole save the environment campaign would have worked better with a small, grassroots movement style. Concerts with thousands of people are VERY impersonal. Plus, if it is your favorite band, singer, or actress, you don't give a blast what they are saying--you're into the music! Adrenaline is pumping, you're waving your hands in the air, jumping like a puppet on a string...you aren't REALLY listening with full concentration (it is nearly impossible to with all the other people screaming around you anyways). I think by traveling the country/world (by bike or something more environmentally sound-maybe three bands could have fit into a plush tour bus instead of one) playing acoustic shows, doing volunteer work with communities, or holding autograph sessions and speaking about the environment, would have suited this kind of message a lot better than these concerts.

What do you think of the Live Earth Concerts? Did the costs outweight the benefits, or vice versa?

The economy of luxury

The Emporium is getting ready to celebrate their 10th anniversary. The Emporium is a large department store which carries all of the latest designers and fashions.
The senior managing director in charge of the Emporium explains how nothing comes easy but by pushing your idea and finding a level playing field with your shareholders you can be very successful. He managed to get a store placed in Thailand which he said was very hard work considering that his partners didn't think that it would do good. But because he researched his plan he found that the area would be a success, and now that 10 years have gone by he was right.
Another move that he made was by personally going to the clients he wanted on board with him. while Louis Vuitton and other clients turned him down, Chanel got on board with him. That was all it took because right after they took it one, the others followed.
He explains that you must start in moderation and then grow. But to be efficient in any economy you cannot grow too rapidly or you will lose your footing and your idea will collapse.

Northwest Airlines Canceled Flights

http://money.cnn.com/2007/07/30/news/companies/northwest_canceled_flights/index.htm?cnn=yes

In the attached article concerning Northwest airlines, the author talks about the high percentage of canceled flights due to the number of pilots calling in sick. He goes on to explain that the reason pilots are calling in sick is because they are afraid they will hit the maximum number of flight hours allowed by the FAA too early in the month. This action by the pilots has caused an 8% cancellation rate of scheduled flights and a 6% decrease in Northwest stock. I wonder if the airline has considered its marginal cost and the cost of hiring more pilots verses the cost of bad business?