Sports Economics Lecture 1 – 15-11-2021
Introduction
Looking at ratings of television programs you see that when there are sports involved, these programs
have many views. In 2019 there were not as much sports events than in the year before but still the
women’s final had many viewers and also the CL final Tottenham – Ajax attracted many viewers. In 2018
the Netherlands didn’t place for the WK, that’s why in this year there were less soccer games high in
the rating. In the normal weeks the summaries of sports games score high in the rating. Soccer is the
best watched sport in the Netherlands, followed by ice skating.
You can also look at the satellite accounts: they measure sports in a broad sense to the economy, the
conclusion is that sports constitute approximately 1% of the GDP with a value of 6 billion euros. It also
employs 2.9% of total consumption of households and 130 000 people are employed in sports. The main
work categories are: other services, restaurants and repair – low productivity.
If you look at expense’s households give to sports it’s average 473 euros per household, containing
memberships, clothing, shoes and rental accommodations. Soccer is economically the most important
sport in the Netherlands, in the English premier league have revenues which are more than 10 times
higher than in the Netherlands (especially in broadcast rights). The differences between the Dutch
league (relatively small) and the premier league (quite large) are translated in the distribution of talent
between those two leagues.
Sports economics
A sport economist analyses sport as an economic activity, so as an activity that involves choices and
scarce means to reach certain aims. The first question you can ask yourself is ‘what is sport?’, sport is
more than physical exercise: typically, sports is defined as engaging in physical activity with a
competition with a fixed set of rules. If you look at the definition any further it involves choices and
scarce means; but what does scarce means mean: look at money, talent and locations, these are all
scarce. The objectives of the coach may be different from those of the management and the objectives
of the player may be different of the objectives of the coach. The objectives of the athlete are influenced
by incentives, for example price money or qualifications.
The academic origin is in 1956: ‘the baseball player market’, in this paper he says that players should
not be able to move to different teams. The first possibility is that the player is a free agent and can go
to every team he wants – go to the big market where the player has the highest contribution and can
ask a high salary. Top players end up with the top teams and with the big value. Some players stay at
their local club to keep the league and team more interesting (Robben at FC Groningen). What will
happen is that owners receive a transfer fee when they help accomplish a transfer. Top players will end
up in a team where they have the highest value and receive the highest revenue possible. Participants
in negotiations choose the most efficient alternative independently of allocation of property rights.
Balance in competition is important – competition is valuable because how more competitive rivals are
how more interesting the game is. To retain competitive balance there are some proposals:
- Retain and transfer – players can’t go to another team easily
- Rookie draft – teams that end last get preferential access to new young talent
- Revenue sharing – successful teams sometimes share their successful athletes with less
successful teams (sharing of success)
- Salary caps – you can spend only percentages of certain revenue on salary
,Scarce good
What makes professional sports so valuable? It must produce some scarcity – but what are these scares
goods? The first one is Athletic Performance, looking at athletic performance there are not many people
who can reach close to the world record. A top athlete can perform in a way not many people can and
that makes it worthwhile to look at it.
The second scarce good is winning – people like seeing their idol win and see a tense game where there
is a lot of absolute and relative competition. And lastly communality is taken into account, if Holland
wins an important game everybody feels connected.
,Sports Economics Lecture 2 – 16-11-2021
Introduction
Research in sports can be done in the following fields:
- Olympic Games: history, economic impact, medal winning
Richer countries earn more medals, a city/country doesn’t benefit from organizing the games in terms
of GDP-growth – it’s not profitable for a country as a whole, but it could be beneficial for a certain
city/region or a certain sector (think of building stadia). A study was done on ‘cold war’ Olympic games,
which had the most impact.
- Performance: how do world records develop over time? How fast do older people slowdown
in running?
- Competition: are best performances influenced by more competition?
In this lecture two main economic themes will be discussed:
- How to choose out of scarce alternative sources: (a) today between a new Spalding basketball
or new Nike shoes, (b) shall I buy the new Spalding basketball today or next week? It depends
on preferences, utilities and the price to determine which one you will buy. Can I postpone the
decision till later or is the product very price sensitive?
- How to produce/add value bringing together production factors in an efficient way? This is
called production theory. Example: how do we organize the FIFA WC? Or how do we compose
a professional football team like FC Groningen and make a business of the ‘Euroborg’? The
production theory basically says what is needed to produce a new product/service. Production
factors can also be scarce – capacity and labour. The focus is a bit different; the focus is on how
to produce something new – how to be creative, how to organize and bring together the things
needed.
Chapter 1 – The economics of sports
In economics there are 2 basic concepts:
Opportunity costs: if there is a choice between alternative option A and B, any analysis of the benefits
and costs of A should include an analysis of the relative opportunities of B (or in general the best forgone
alternative option)
Comparative advantage: suppose we have two firms -each producing two goods: widgets and pins. It
could be that firm 1 can produce both widgets and pins both at absolute lower costs. But it is very likely
that firm 1 has a comparative advantage in producing only 1 of those two goods (and the other firm in
the other good). In that case both firms have a comparative advantage
1. Usain Bolt has a better absolute performance in both legs
2. But he can run only once
3. In the third leg Bolt is expected to gain 0.11 compared to Powell
4. In the fourth leg Bolt’s margin is only 0.08
5. So, Bolt has a relative comparative advantage to Powell by running the third leg
6. The other way round, Powell has a relative comparative advantage by running the fourth leg
7. And so, they did, finishing in a new world record of 37.10
The case of Bolt and Powell shows that looking for the best performance and having to choose out of
scarce alternatives leads to optimization and specialization. More generally, one of the most important
, conclusions of the theory of comparative advantage is that developing specific skills and specializing in
activities that use these skills makes individuals, firms, and nations better off. This is an important aspect
of the role of labor economics in sports: specialization.
Chapter 2 – Review of the economist’s arsenal
- How to choose out of scarce alternative sources and allocate those in markets? How are
markets organized? Many suppliers or a just a single supplier can make a big difference!
- How to produce/add value bringing together production factors in an efficient way? This is
called production theory.
2.1 The supply and demand model
Individual demand for baseball cards is the relationship between the price (p) of those cards and the
number of cards (q) that he or she is willing and able to buy. Market demand shows the quantity that
all consumers combined purchase at each price by summing the individual demand curves. As the price
of cards falls, the number of cards that consumers buy rises – the law of demand. A change in a good’s
price causes a change in quantity demanded.
In A and B the supply curve is added – the higher demand the higher supply is needed. In Figure (a), the
price is too high, and there is a surplus. In Figure (b), the price is too low, and there is a shortage. At pe
in each graph, the market is in equilibrium.
Changes in Supply and Demand – Factors that Affect the Location of the Demand Curve
A change in demand stems from a change in any of five underlying factors:
- Consumer incomes
o Normal goods: demand increases when income increases
o Inferior goods: demand falls when income increases
- The prices of substitutes or complements
o An increase in the price of a substitute causes demand to increase.
o An increase in the price of a complement causes demand to decrease.
- Consumer tastes
- The number of consumers in the market
- The expectations that consumers hold
A change in supply stems from a change in any of five underlying factors:
