What Exactly is Sports Economics? What is Sports Econ?

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Caitlin Strickland
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1 What Exactly is Sports Economics? Jadrian Wooten PhD Student What is Sports Econ? WSU s catalog definition: Economic aspects of American sports; fan demand; advertising; team output decisions; league/conference organization; government and sports. Dennis Coates: A study that examines sport using incentives and objective functions or tries to understand, explain, or predict choices in a sport context is sports economics 1

2 What is Sports Econ? Hiring of coaches and GMs Player drafts and competitive balance Unions and collective bargaining The myth of the Hot Hand Are the Cubs cursed? Race & nationality in sports Population s effect on winning Hands of projects: What is Sports Econ Summer How to build a baseball team from scratch Spring How to build a basketball schedule around home court advantage My goal for the class: Stop thinking like fans and start thinking like economists 2

3 What Research is Done in Sports Econ? The effects of postseasons on competitive bl balance Fantasy baseball s effect on baseball Athletic Scholarships and college football Bias among NBA coaches Firing a coach & its effect on performance Television demand for cities without pro teams What Sports are Covered Under Sports Econ? NBA MLB NFL NHL MLS MLL College football College wrestling basketball Tennis College Cricket hockey Rugby Internation Bowling al soccer Golf Champions league College soccer Sumo Olympics World cup Badminton MMA Archery Cycling Skiing 3

4 The Effects of a Ranked Nationalism Approach on Measuring Salary on Discrepancies in Major League Soccer Jadrian Wooten Research Questions $519, games, 2 goals, 1 assist, 604 i t 23 ld 1 i minutes, 23 years old, 1 year in MLS USA citizen $554, games, 8 goals, 1 assist, 2,860 minutes, 34 years old, 9 years in MLS Grenada citizen Why do these two people make different salaries? Is it the age, skill, nationality, or something else? 4

5 What People Have Said Before Nationality doesn t matter Nationality does matter Pay for performance is the answer Problem? Few have considered nationality past continent Some only do foreign vs. domestic Why Major League Soccer Different than tradition European Leagues Internationally diverse Considered a development league Salaries are public knowledge Firms operate as monopolies for soccer in the majority of cities The league office controls player costs (kind of) 5

6 Firms as Monopolies MLS in the News Toronto Star, October 28, 2012 League Source When the league talks to clubs about signing (designated players), about a significant amount of guaranteed money, they want to make sure the long term health of the team and the league are taken into consideration 6

7 MLS in the News One suspects two factors aside from the financial. As a Scandinavian, Mellbergi i llb appeals to none of the sizeable ethnic minorities MLS covets as fans; and also the fact that he is a stoical defender rather than a zigzagging forward. Cathal Kelly, Toronto Star October 28, 2012 Contribution New measure of nationality, more specific Subgroups based within confederation Where does a player s nationality rank in the world relative to other countries? The phrase Brazilian soccer player is like the phrases French chef or Tibetan monk. The nationality expresses an authority, an innate vocation for the job whatever the natural ability. Alex Bellos, author of Futebol: The Brazilian Way of Life 7

8 What s a Confederation? Contribution All countries within a continent are not equal English soccer is much different than Belarus Take a countries rank in March (Start of the season) Rank it relative to other s within their confederation Top Half, Third, or Fourth of each Confederation 8

9 Contribution More specific than Domestic vs. Foreign More specific than continental aggregation More general than individual country dummies Greatly reduces accuracy Influenced by outliers (David Beckham) Theory on Discrimination Becker (1971) describes three different types fdi i i of discrimination Owner discrimination Customer discrimination Employee discrimination For a competitive firm, only customer For a competitive firm, only customer discrimination can remain 9

10 Discrimination Present If owners prefer domestic players to foreign players, or If owners believe fans prefer domestic players to foreign players: Management is willing to pay a higher price to a price per unit of domestic talent hired Given a level of talent, domestic players are paid more The Model PLAYER PERF SUPER NATION FX Player characteristics Performance measures from LY Superstar measures from LY and CY Nationality measures Team & Year fixed effects 10

11 The Model Age Age 2 MLS Tenure MLS Tenure 2 Position dummies (Forward & Midfield) The Model Goals per game LY Assists per game LY Minutes per game LY # of red and yellow cards LY d d 11

12 The Model All Star Team LY MLS Starting XI LY Dummy for any experience with national team Designated Player for current season dpl t The Model Top Half of Confederation Top Third of Confederation Top Quarter of Confederation Top 20 team in FIFA Top 10 team in FIFA 12

13 The Model Team fixed effects for the upcoming season Year fixed effects for salary year Data Collection by the Numbers 1,500+ signed to contracts in (MLS Pl U i Players Union) 811 recorded stats in prev. season (MLS Site) 327 domestic players (40%) 477 foreign born players (60%) 60 countries 38 Designated Players (over 3 seasons) 13

14 Countries Represented in Sample Hypothesis 1 Fans and/or owners have a preference for d ti l f i l domestic players over foreign players: Result Overall, foreign (collective) and domestic players aren t paid different Canadians, Caribbean, Asians, Oceania suffer African and European benefit 14

15 Hypothesis 2 Owners (and fans) prefer talent from soccer rich countries over soccer poor countries. ih ti ti We ll examine this by each confederation Sample size is large enough to analyze CONCACAF UEFA CAF CONMEBOL Hypothesis 2 CONCACAF (North America) Players in the top half, third, and quarter all make more than their lower counterpart 41% 134% more UEFA (Europe) Only the top third make more (110% more) top third more more) Their starting values are the highest among all groups 15

16 Hypothesis 2 CAF (Africa) Neither tier makes more than the lower tiertier more than tier Again, big starting spot, but no difference between levels CONMEBOL (South America) The top third and quarter make 30% LESS than the lower tier All are very similar, but it may be a negative signal to send a Brazilian to MLS Hypothesis 3 Discrimination only occurs in certain quantiles of the salary range. Example: If a club wants to spend ½ million dollars, they may want a a marketable player If they re just filling a roster spot, they don t care 16

17 Hypothesis 3 Overall, rank has no effect on salary when we look at it in quantiles titi til Individual continents do have premiums and discounts Superstar measures REALLY matter at the top levels (Whew!) Conclusions Wage premiums exist for certain regions, as well as for players in the top countries within l t t i ithi the regions Different from what K&M (2009) found 4 more teams in this study 3 seasons of data vs 1 season 3 seasons of data vs 1 season Either owners or fans are discriminating in favor of players from more reputable countries 17

FIFA Football Men and Women

FIFA Football Men and Women EVENTS (2) Men (1) Women (1) 16-team tournament 12-team tournament ATHLETE QUOTA Men 288 (16 teams x 18 players) Women 216 (12 teams x 18 players) TOTAL 504 QUALIFICATION SYSTEM