Economics 262

Winter, 2018-19
Mark Kanazawa

THE ECONOMICS OF SPORTS

“I’m the most loyal player money can buy!”

-- Don Sutton, pitcher, LA Dodgers

Goals & Objectives: This course examines a variety of important issues in the professional
sports industry, mostly in the United States. Economists have a great deal to say about how this
industry works, and how well societal needs are met by the operation of this industry. They do
this by applying formal models of economic behavior and then examining available evidence to
see how well it comports with the predictions of those models. By the end of this course, you
will hopefully have a much better understanding not only of this industry itself, but also of the
economist’s approach to examining evidence and testing hypotheses which are firmly based on
economic theory.

Readings, Lectures: There is one required book for this course: Economics of Professional
Sports, 4th ed, by Duane Rockerbie. In addition, there will be other topics not covered by
Rockerbie, for which you will be provided additional readings, mostly journal articles and book
excerpts, which have been posted in Moodle. YOU ARE EXPECTED TO DO ALL OF THE
ASSIGNED READINGS BEFORE THE CLASS MEETING. Failure to do so will
significantly diminish how much you will get out of this course and will inflict negative
externalities on your classmates, who will then be forced to discuss issues with ill-informed
peers. Regular class attendance is an important expectation of the course.

Other Resources:

Time management/study skills: Many Carleton students want to develop new strategies
for addressing management, studying for tests, and study skills in the Carleton
environment. Coaching in the Academic Support Center is available on a number of
learning strategies, including:
• Organizing busy schedules
• Breaking term-long assignments into manageable tasks
• Improving in-class notetaking and participation
• Enhancing your repertoire of approaches to studying
• Developing effect test-preparation strategies

For more info, go to: https://apps.carleton.edu/campus/asc/academicskillsconsulting/.

Disability accommodations: The Disability Services office (Henry House, 107 Union
Street) is the campus office that collaborates with students who have disabilities to provide
and/or arrange reasonable accommodations. If you have, or think you may have, a
 disability (e.g., mental health, attentional, learning, autism spectrum disorders, chronic
health, traumatic brain injury and concussions, vision, hearing, mobility, or speech
impairments), please contact [email protected] or call Jan Foley, Student
Accessibility Specialist (x4464) or Chris Dallager, Director of Disability Services (x5250)
to arrange a confidential discussion regarding equitable access and reasonable
accommodations.

Technology resources: The Assistive Technologies program brings together academic and
technological resources to complement student classroom and computing needs,
particularly in support of students with physical or learning disabilities. Accessibility
features include text-to-speech (Kurzweil), speech-to-text (Dragon) software, and audio
recording Smartpens. If you would like to know more, contact [email protected] or
visitgo.carleton.edu/aztech.

Evaluation: Your grade for the course will be based on your performance on two midterm
exams, final paper, class participation, and several assignments you will be assigned during
the course of the term.

The midterms will be held on February 1 (Friday of week 4) and March 4 (Monday of week
9). The final paper will be due on Monday, March 18, the last day of finals week. More
details to follow.

In addition to these two major assignments, you will be given periodic assignments to reinforce
your understanding of the concepts discussed in class. These will include problem sets that will
be assigned at various strategic junctures throughout the course, which are aimed at reinforcing
your understanding of some of the theoretical material discussed in class.

Weights for the course components are as follows:

Midterm exam s 40%

Final paper 25%
Additional assignments 30%
Class Participation 5%

Late Policy: Extensions on assignment deadlines are certainly possible. However, to

obtain an extension, I would ask that you have a reasonably compelling reason for being
unable to meet the deadline. I would also ask that you clear it with me by no later than
5pm the day before an assignment is due. All negotiations regarding extensions must be
handled in person or by phone: e-mail are not to be used for this purpose. If you think
you need an extension, the best thing you can do is to come talk to me or call me, well in
advance of the deadline. The second worst thing you can do is to come to me the day an
assignment is due and tell me you need an extension. The worst thing you can do is to
not communicate with me at all.
Examples of compelling reasons include: unexpected illness, family emergency, other
assorted unexpected crises.
Example of non-compelling reason: “I have a lot of other work to do.” {IDEA:
Planning Ahead is a valuable life skill!}

*** This is obviously not a comprehensive list. If you are unclear whether your reason is
compelling, just ask me. I am quite willing to listen. ***

Office Hours, Contact Info: My office(Willis 308) hours this term will be Mondays,
2:00-4:00pm; Thursdays, 10:00-12:00pm; and by appointment. You may contact me through
E-mail at mkanazaw. My phone numbers are 222-4106(ofc) and 645-5688(home).

COURSE OUTLINE

I: Introduction

1/7(Mon): Introduction to the Economics of Professional Sports

Reading: Rockerbie, chapter 1.

1/9(Wed): What Insights can Economics Provide?

• Important concepts/applications to professional sports

o Demand shifters
▪ Ex: Baseball cards
o Fixed vs. variable costs
▪ Ex: Ticket pricing
o Elasticities
▪ Ex: Are Were the Cubs cursed?
o Modeling competing influences
▪ Ex: Violence in the NHL

Reading: Rockerbie, chapters 2, 3.

Moskowitz and Wertheim, “Are the Chicago Cubs cursed?”

1/11(Fri): Insights(Conc); Some important econometric concepts

• Some important (econo)metric tools

• Introduction to advanced metrics
Reading: “Regression analysis in brief”

II: Markets for Outputs

1/14(Mon), 1/16(Wed): The market for professional sports franchises, theory and evidence

• Franchise markets, demand and supply

• Determinants of franchise valuation
o Important concept: Discounting
• Application: The value of regional identity

Reading:

Rockerbie, chapter 4.
Alexander, Donald L. and William Kern. “The economic determinants of professional sports
franchise values,” Journal of Sports Economics 5(February 2004): 51-66.

1/18(Fri): Behavioral Interlude I: The Moneyball thesis and market inefficiency

• The Moneyball thesis

• Does the Moneyball thesis still hold?
• Market inefficiency more generally
o Beating the spread in NFL betting
o Overvaluation of pro athletes

Reading:

Lewis, Michael. “The science of winning an unfair game,” Moneyball, chapter six. New York:
Norton, 2003: 119-37.
Hakes, Jahn and Raymond Sauer. “An economic evaluation of the Moneyball hypothesis,”
Journal of Economic Perspectives 20(Summer 2006): 173-86.
Zuber, Richard A.; John M. Gandar; and Benny D. Bowers. “Beating the spread: Testing the
efficiency of the gambling market for National Football League games,” Journal of
Political Economy 93(August 1985): 800-06.
Ballard, Chris. “Should we believe in Melo?” Sports Illustrated, 1/21/2013.

1/21(Mon), 1/23(Wed), 1/25(Fri): Competition on the Sports Field

• Professional sports leagues as monopoly cartels

• Complication: Need for competitive balance
 • The reserve clause, salary caps and other stories
• Evidence on the effects of these mechanisms
• Behavioral Interlude II: Referees in pro sports

Reading:

Rockerbie, chapters 5, 6.
Moskowitz and Wertheim, “Whistle swallowing”.

1/28(Mon), 1/30(Wed): The Economics of Stadiums and Sports Arenas

• Stadiums and arenas in the U.S.

• Costs and benefits of new stadiums
• Behavioral interlude III: Home-field advantage

Reading:

Rockerbie, chapter 7.
Clapp, Christopher M. and Jahn K. Hakes. “How long a honeymoon? The effect of new
stadiums on attendance in major league baseball,” Journal of Sports Economics 6(August
2005): 237-63.
Moskowitz and Wertheim, “Comforts of home” and “So what is driving the home field
advantage?”

2/1(Fri): Midterm #1

III: Labor Markets

2/4(Mon), 2/6(Wed): What Determines the Salary of a Professional Athlete(I)?

• The economics of wage determination

• Applying the model to professional sports

Reading:

Rockerbie, chapter 8.
Scully, Gerald W. “Pay and performance in major league baseball,” American Economic Review
64(December 1974): 915-930.
Krautmann, Anthony C. “What’s wrong with Scully – Estimates of a player’s marginal revenue
product,” Economic Inquiry 37(April 1999): 369-81.
2/8(Fri), 2/13(Wed), 2/15(Fri): What Determines the Salary of a Professional Athlete(II)?

• What do marathons and pro golf have in common?

• An alternative incentive structure: Rank-order tournaments
• Extended Application: Professional golf
• Behavioral interlude IV: Loss-aversion in the PGA

Reading:

Hutchinson, Alex. “What will it take to run a 2-hour marathon?” Runner’s World.
Ehrenberg, Ronald G. and Michael L. Bognanno. “Do tournaments have incentive effects?”
Journal of Political Economy 98 (December 1990): 1307-24.
Pope, Devin G. and Maurice E. Schweitzer. “Is Tiger Woods loss averse?: Persistent bias in the
face of experience, competition, and high stakes,” American Economic Review 99(June
2009).
Moskowitz and Wertheim. “Tiger Woods is Human”.

2/18(Mon), 2/20(Wed), 2/22(Fri): Why do some Athletes get paid so much money?

“I got my family to feed.”

-- Latrell Sprewell, forward, MN Timberwolves, on why he

wanted to renegotiate his contract, which paid him $14.6
million in 2004-05.

• Are superstars overpaid? or Did Bryce Harper really just turn down a contract for $300
million?
• Economic models of superstars
• Application: NBA basketball

Reading:

Rosen, Sherwin. “The economics of superstars,” American Scholar (Autumn 1983): 449-59.
Adler, Moshe. “Stardom and talent,” American Economic Review 75(March 1985): 208-12.
Franck, Egon and Stephan Nuesch. “Talent and/or popularity: What does it take to be a
superstar? Economic Inquiry 50(January 2012): 202-16.
Hausman, Jerry A. & Gregory K. Leonard. “Superstars in the National Basketball Association:
Economic value and policy,” Journal of Labor Economics 15(1997): 586-624.
2/25(Mon), 2/27(Wed), 3/1(Fri): Is There Discrimination in Professional Sports?

• Is there?
• How economists think about discrimination
o Different types of discrimination
o Economic implications
• Application: Some evidence on discrimination in the NBA

Reading:

Kanazawa, Mark & Jonas Funk. “Discrimination in professional basketball: Evidence from
Nielsen ratings,” Economic Inquiry (October 2001): 599-608.
Price, Joseph and Justin Wolfers. “Racial discrimination among NBA referees,” Quarterly
Journal of Economics 125(November 2010): 1859-1887.
Moskowitz and Wertheim: “Thanks, Mr. Rooney”.

3/4(Mon): Midterm #2

IV: College Athletics

3/6(Wed), 3/8(Fri): Intercollegiate Athletics I: Competition and wages

• The economic nature of the NCAA

• Who wins and who loses? Competitive balance in college sports
• How do NCAA rules affect student athletes?
• Application: Should student athletes be paid more?

Reading:

Kahn, Lawrence M. “Markets: Cartel behavior and amateurism in college sports,” Journal of
Economic Perspectives 21(Winter 2007): 209-26.
Depken, Craig A. and Dennis P. Wilson. “NCAA enforcement and competitive balance in
college football,” Southern Economic Journal 72(April 2006): 826-45.
Sanderson, Allen R. and John J. Siegfried. “The case for paying college athletes,” Journal of
Economic Perspectives 29(Winter 2015): 115-137.
Brown, Robert W. and R. Todd Jewell. “Measuring marginal revenue product in college
athletics: Updated estimates,” in Economics of College Sports, ed. John Fizel and Rodney
Fort, 153-62. Westport, CT: Praeger, 2004.

3/11(Mon), 3/13(Wed): Intercollegiate Athletics II: The relationship between athletics and
academics
 “Does this school have a football team? Does it have a college?
Well, we can’t afford both. Tomorrow we start tearing down the college.”

-- Groucho Marx, in Horse Feathers

• College athletics and academics: Overview

• Effect of athletics on academics and life outcomes
o Compositional effects
o Effect on academic effort
o After-graduation career outcomes
• Title IX

Reading:

Pope, Devin G. and Jaren C. Pope. “The impact of college sports success on the quantity and
quality of student applications,” Southern Economic Journal 75(January 2009): 750-80.
Lindo, Jason M.; Isaac D. Swensen; and Glen R. Waddell. “Are Big-time sports a threat to
student achievement?” American Economic Journal: Applied Economics 4(2012):
254-74.
Tucker, Irwin B. and L. Ted Amato. “A Reinvestigation of the Relationship between Big-Time
Basketball Success and Average SAT Scores,” Journal of Sports Economics 7 (November
2006): 428-440.
Maloney Michael T. and Robert E. McCormick. “An examination of the role that intercollegiate
athletic participation plays in academic achievement: Athletes’ feats in the classroom,”
Journal of Human Resources(Summer 1993): 555-70.
Long, James E. and Steven B. Caudill. “The impact of participation in intercollegiate athletics
on income and graduation,” Review of Economics and Statistics 73(August 1991):
525-31.
Anderson, Deborah J. and John J. Cheslock. “Institutional strategies to achieve gender equity in
intercollegiate athletics: Does Title IX harm male athletes?” American Economic Review
94(May 2004): 307-11.

Some resources for your final papers: Readings

(1)Competitive balance

Szymanski, Stefan. “Income inequality, Competitive balance and the attractiveness of team
sports: Some evidence and a natural experiment from English soccer,” Economic Journal
111(February 2001): 269-84.
DeBrock, Lawrence, Wallace Hendricks, and Roger Koenker. “Pay and performance: The
impact of salary distribution on firm-level outcomes in baseball,” Journal of Sports
Economics 5(August 2004): 243-61.
(2)Salary determination

Idson, Todd L. and Leo H. Kahane, “Team effects on compensation: An application to salary
determination in the NHL,” Economic Inquiry 38(April 2000): 345-57.
Alexander, Donald L. and William Kern. “Drive for show and putt for dough? An analysis of the
earnings of PGA tour golfers,” Journal of Sports Economics 6(February 2005): 46-60.

(3)Tournaments

Taylor, Beck A. and Justin G. Trogdon. “Losing to win: Tournament incentives in the National
Basketball Association,” Journal of Labor Economics 20(January 2002): 23-41.

(4)Superstars

Lucifora, Claudio & Rob Simmons. “Superstar effects in sport: Evidence from Italian soccer,”
Journal of Sports Economics 4(2003): 35-55.

(5)Discrimination

Goff, Brian L., Robert E. McCormick, and Robert D. Tollison. “Racial integration as an
innovation: Empirical evidence from sports leagues,” American Economic Review
92(March 2002): 16-26.
Hanssen, F. Andrew and Torben Anderson. “Has discrimination lessened over time? A test using
baseball’s all-star vote,” Economic Inquiry 37(April 1992): 326-52.
Madden, Janice Fanning. “Differences in the success of NFL coaches by race, 1990-2002:
Evidence of last hire, first fire,” Journal of Sports Economics 5(February 2004): 6-19.
Nardinelli, Clark and Curtis Simon. “Customer racial discrimination in the market for
memorabilia: The case of baseball,” Quarterly Journal of Economics 105(August 1990):
575-95.
Parsons, Christopher A., Johan Sulaeman, Michael C. Yates, and Daniel S. Hamermesh. “Strike
three: Discrimination, incentives, and evaluation,” American Economic Review 101(June
2011): 1410-35.

(6)College athletics

Sutter, Daniel and Stephen Winkler. “NCAA scholarship limits and competitive balance in
college football,” Journal of Sports Economics 4(February 2003): 3-18.