Sports Economics Lecture Summary
Lecture 2 – The Organisation of a sporting competition
• A sporting competition: in economics terms, a sports championship cane thought of as two separate business, an upstream business of competition organising, which involves the creation of a tournament format, the provision of incentives, arbitration procedures for disputes, and so on, and a downstream competition business, where clubs supply teams for competition with the established championship format.
• Types of competitions:
è Individual
è Inter-‐national team è Intra-‐national team è Mixed team è Olympics
• The production of a league-‐based sporting competition è Governance
è Capital structure è League structure
è Structure of the competition è The player labour market
è Creation and allocation of revenue è Provision of Infrastructure
• Objectives on the demand and supply side
è Demand-‐side (Fans): What do fans care about? (importance of each factor varies by types of fan) o Own-‐team win probability
o Quality of play/contest o Uncertainty of outcome o Importance of contest o Preference for variety
è Supply-‐side (Competitors, Clubs): What do clubs care about? Profit maximization vs. Win maximization o Profit maximization: Max. Revenue – Cost (R – C)
o Win maximization: Max. w(winning percentage) subject to R – C ≥ 0 o Model of club revenue and costs:
§ Revenue R = R (M=market size, D=level of demand within market)
§ Costs C = c (X = total units of playing talent at team)
§ Win percent W = w (X=total units of playing talent at team, S=total units of playing talent in league)
• Why have leagues? (i.e., centrally organized competition)
è Key issue: Alternative perspectives., or an efficiency enhancing mechanism.
è A mechanism for facilitating collusion (anti-‐competitive behavior) between teams o Allows teams to coordinate to achieve outcomes such as
o Regulating league entry: reduce product market competition – higher revenue o Regulating the labour market: reduce labour market competitions – lower costs è Efficiency:
o The benefits of organized competition o Economies of scale (in organizational costs)
o A central planner: provision of public goods (e.g. marketing), regulation of externalities (e.g.
competitive balance)
• North Atlantic divide: differences between the structure and organization fo sporting leagues in the USA and Europe
Lecture 3 – Competitive Balance
• What is competitive balance?
è Definition: the degree of equality in the performance of teams or competitors. Distinguish between equality in performance at: match level, single season, multiple seasons.
• Why might competitive balance be important?
è Demand for a sport is increasing with various dimensions of competitive balance
o Match-‐level uncertainty: extent of uncertainty about the outcome of a given match
o Importance of a match within a season: whether a match matters for which teams will make playoffs and win premiership or be relegated
o Likelihood of variety in identity of which teams will be successful in current season compared to previous seasons – extent of dispersion in performance of teams across multiple seasons.
è Hence CB as a motivation for anti-‐competitive regulations in sporting competitions
• Measures of competitive balance è Match level measures:
o Uncertainty
§ Betting odds
§ Difference in ladder position
§ Difference in winning percentage
