Economics of Sports, The
Thornton, Robert
The Economics of Sports, Edited by William Kern. Kalamazoo, Michigan: W.E. Upjohn Institute for Employment Research, 2000. Pp. 146. $14.00, paperback. ISBN 0-88099209-3.
This little book is a collection of six papers delivered at Western Michigan University during the 1998-99 academic year. And a nice collection it is. The papers deal with numerous issues currently being debated in the world of sports. Since the papers were initially given as lectures (presumably before a general audience), they are not overly technical. Still, they capably reflect the research of well-known economists who have made substantial contributions to the growing sub-field known as sports economics. As many readers of this journal know, courses in sports economics are springing up at college campuses across the United States and tend to be extremely popular. (The course we offer at Lehigh is filled within five minutes after the start of course registration!)
In the first paper (“Market Power in Pro Sports”), Rodney Fort notes the rather small size of the sports industry. (The envelope industry, for example, is about the same size as the major league baseball industry with respect to revenues.) Nevertheless, the enjoyment and attention that baseball and other professional sports generate make them institutions that carry enormous influence in American society and politics. Fort argues that the big problems in professional sports (high ticket prices, high player salaries, and public subsidies for stadiums) all have a common cause. That cause is not the media, the players’ union, or the players themselves; rather, it is the monopoly status that pro sports leagues enjoy. As Fort notes, typically when market power “runs wild” society expects help from Congress or the courts. But in the case of professional sports, politicians have actually facilitated the monopoly structure through antitrust exemptions, encouraging league mergers, local blackout laws, and the like. The result is that ticket prices are high because there are no competing teams in the same market, and player salaries are high because they are able to appropriate some of these monopoly rents. Fort pulls no punches here: a stiff dose of competition is the solution, and he suggests that the plan with the best chance at succeeding would be one that breaks up an existing league into competing leagues with vigorous antitrust enforcement to prevent collusion or re-mergers. He fears that such a move will not happen on its own; it will require fans mobilizing.
The second paper in the volume (“The Impact of Sports Teams and Facilities on Neighborhood Economies”) is by Robert Baade. Baade notes that some big cities have attempted to relocate professional sports stadiums to central urban areas, purportedly to reverse the erosion of their economic base. He uses the city of Seattle (which is constructing two stadiums to replace the Kingdome) as a case study to analyze this strategy. He contends that there is growing agreement among economists that sports teams and stadiums have very little net impact on their host cities. The reason is simple- if the fans attending sporting events are for the most part native city-dwellers, the money they spend attending the events is offset by lower spending elsewhere. The impact on the local sub-economy in the immediate area of the stadium is less clear theoretically, and the empirical evidence from the Seattle experience is mixed. The stadium has a positive effect on businesses connected to the sporting events, such as bars, restaurants, and retail establishments selling sports paraphernalia. But other businesses in the area can actually suffer as a result of congestion problems on game days. As Baade concludes, whether a sports stadium will contribute to or detract from the immediate local economy depends on the nature of that economy and its ability to minimize disruption caused by peak stadium traffic.
In “Who Is Sitting in the Stands? The Income Levels of Sports Fans,” John Siegfried and Timothy Peterson note that most professional sports stadiums in the 1990s have been partly financed by taxpayers. Although much debate has focused on the financing issues, Siegfried and Peterson note that there has been little attention directed to the equity issues. In short, there is little evidence about which income groups gain the most from public funds being used for privately owned sports teams. To answer this question, Siegfried and Peterson use data from the Department of Labor’s Consumer Expenditure Survey and do some field research of their own to assess the income levels of consumers of various goods and services targeted by advertisers. (In doing the latter they actually videotaped several dozen sporting events, and then fast-forwarded through the games and watched the advertisements at normal speed!) Surprisingly, they find that both ticket purchasers and television viewers of sporting events have incomes substantially above the average. In other words, one of the redistributional consequences of public sports subsidies– the consumer surplus enjoyed by fans- favors higher income individuals.
The essay by Richard Sheehan (“Academics, Athletics, and Finances”) offers a look at the relation between collegiate athletics and finances while drawing some cautious conclusions. Sheehan finds that athletic success and financial success are intimately related. “Big-time schools with tradition and reputation make money with their athletic programs; others do not” [91]. Also, there is usually cross-subsidization; profitable athletic programs subsidize other sports as well as general academic programs. On the other hand, many schools with unprofitable athletic programs use revenues from the academic area to subsidize athletics. Sheehan does not suggest that this practice should be condemned, but he does argue that it must be justified explicitly [91].
Andrew Zimbalist provides a nice case study entitled “Economic Issues in the 1998-1999 NBA Lockout and the Problem of Competitive Balance in Professional Sports.” Having served as a consultant to the NBA players’ union during the 1998-99 season, Zimbalist offers an insider’s perspective on the lockout. He gives a fascinating account of the background to the lockout, the underlying economic issues, and the collective bargaining agreement that resulted. He also explains how some of the issues underlying the dispute (e.g., competitive balance among teams and high player salaries) are handled in professional baseball, football, and hockey. Zimbalist does not mince words in his assessment of the NBA dispute: “Contrary to the basketball owners’ rhetoric about their concern for financially weak teams, their lockout was really just a bold attempt to boost profit margins” [94]. And his own prescription for curing these problems is no different than that of Rodney Fort: “The natural economic solution for professional sports is competition…. Pass legislation that will break each league up into competing business entities” [111]. In passing, I cannot resist noting one humorous typo (was it Freudian?). Zimbalist says on page 95 that the (Larry) Bird exception to the salary cap “still provides a break [I think he meant to say a “brake”] on superstar salaries relative to a more open system of free agency.” Many fans would argue that both a brake and a break are needed!
The last essay in the volume, “A Level Playing Field? Sports and Discrimination” by Lawrence Kahn, surveys the evidence that economists have gathered on the extent of discrimination in professional sports. This has become such an interesting (and popular) subject for economists because professional sports is one of the few occupations where an employee’s “productivity” can be accurately measured.
Of course, the professional sports industry has come a long way from the time when blacks were actually banned from participating. But as late as the 1980s salary discrimination against blacks appears to have been widespread in the NBA. Even though black basketball players were paid more than whites, their higher levels of productivity should have resulted in even greater salary differentials. Kahn convincingly argues, however, that “pure salary discrimination [in the NBA] appears to have declined in the 1990s… and there is no evidence of salary discrimination in baseball and little in football” [127].
Does this mean that discrimination in sports is no longer a problem? Kahn says that this is not necessarily the case, since there is evidence that customer discrimination continues to exist. Kahn also cites evidence that reflects possible discrimination in hiring, positional segregation (e.g., fewer black quarterbacks, kickers, and punters in football), and retention. As Kahn concludes, “Professional sports and society at large have some distance to travel before they can say that they have truly eliminated discrimination” [127].
I liked this book a lot. Its essays present a broad perspective on a number of current issues from scholars who have made substantial contributions to this new field. The book is also very readable. (In fact, I read parts of it while working out on the treadmill, which, I guess, is appropriate for a book of this nature.) It will be useful to anyone interested in gaining a basic knowledge of some of the major issues in the economics of sports. And I would recommend it to anyone teaching a sports economics course and looking for supplemental reading material.
Robert Thornton
Lehigh University
Copyright Eastern Economic Association Winter 2002
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