Sports & Economics

Economic theory has numerous applications to the field of sports.

Economic issues are present in a number of everyday sports activities: drafting players, selling tickets, recruiting college athletes and trading pro athletes are a few examples. Because of these economic factors, many teams actually hire sports economists. A 2006 USA Today article states that 100 to 120 professors teach a sports economics class and the course often closes the day it is introduced.

Misconceptions of College Football

When colleges face budget deficits, many critique the amount spent on college sports as the primary culprit. In the case of smaller schools, this is true. However, economic reasoning indicates that the football team not only can save the school money, but in some cases, football teams actually earn money for the school. A PBS documentary titled, “The Business of College Football” explains that college logo licensing alone is a $3.5 billion industry. The University of Texas, for instance, earned $8 million in licensing revenue. Ticket revenue, Bowl Championship Series sponsorship, media coverage and interviews and increased donor contributions are just a few of the ways that several sports programs are entirely self-sustaining. Additionally, one college football team can subsidize other lesser-watched athletic teams, such as women’s water polo and men’s golf.

Benefits of Economic Reasoning

Applying economic principles to sports is one way teams gain an edge over the other, even when other economic factors (like large budgets) place them at a disadvantage. Michael Lewis, author of the book, “Moneyball: The Art of Winning an Unfair Game” explains how the coach of one of the lowest-paid teams in baseball, the Oakland A’s, uses statistical reasoning and strategy to find inexpensive players and replace the great ones that get bought by high payroll teams like the New York Yankees.

Significance of Ticket Pricing

Economics permeates every area of sports. When fans look out to an unfilled stadium, the company might have made more money than if it were full. Economists use profit-maximization models to find the ideal price at which sports tickets should be sold. Additionally, stadiums engage in an economic practice called price discrimination: tickets are sold at varying costs to different groups.

Economic Features of the NFL Draft

The National Football League (NFL) draft is a process filled with economic complexities. The Wall Street Journal outlines how the draft is in need of reform, arguing that the true market value of draft picks are not transparent. Two Yale and University of Chicago economists actually found that the first-round pick is the least valuable. Another market inefficiency is that many teams cannot afford the top-performing players anyway. The Wall Street Journal suggests using a matching system based on complex statistical algorithms to pair players with the best team: this matching system, used by medical schools to pair students with the right hospital, is based on a Nobel Prize-winning economic model.

Theories/Speculation

Technology allows sports to become an increasingly-automated process. Statistical data regarding a player’s batting average or jump shot throws are stored and accessed with great ease. This trend allows coaches to recruit players based on desired traits, like pinch-hitting ability or goals scored in the last two minutes of the game.

References

• "USA Today"; Batter Up! Sports Economics Hits the Field; Sue Kirchhoff; July 2006
• PBS: The Business of College Football Part 3--The Licensing Game
• "Moneyball: The Art of Winning an Unfair Game”; Michael Lewis; 2003
• "The Wall Street Journal"; The NFL Draft Drives Economists Crazy; Reed Albergotti; April 2010

Resources

• PBS: The Business of College Football--Part 3