Sportsgeekonomics

Musings on Sports Economics

Add this to your list of causal factors for declining student CFB attendance

"A recent Harris poll showed that compared to Gen X, Millenials are 12 percentage points less likely to follow football, 8 percentage points less likely to watch baseball, and so-on down the line. Younger people like sports less,…”

From http://www.forbes.com/sites/modeledbehavior/2014/10/14/no-the-rise-of-cosplay-is-not-a-bad-sign-for-the-u-s-economy/

The specific data for CFB are:

Millennials (18-36): 26%

Gen X (37-48): 30%

Baby Boom (49-67): 34%

So leaving aside all of the tactical “we should do X or Y or Z, recognize there are also long-term secular (in the sense of “occurring over time,” not “non-religious”) trends at work.  If you reserve a section of your stadium for the youngest of the millennials and interest in sports in general (including CFB) is waning compared to older generations (and if you assume that even within the millennials, the younger ones are below their cohort’s average), you shouldn’t be too surprised to find it getting a little harder to encourage attendance than when their parents and grandparents attended your school.

Posted by
Andy Schwarz

Not seeing anything like universal dissatisfaction at Michigan

I went to last night’s Penn State game at Michigan “under the lights.” As advertised, rock music (and, gasp! Hip Hop) blared from the stadium PA, tickets were expensive, halftime featured newfangled glow globes emphasizing the night-game break with tradition, etc.

After halftime, it was announced that a (presumably wealthy) couple had donated the funds needed to pay for the halftime show. I didn’t see much evidence of donor disgust in that data point.

My understanding is that this was the first ever Big Ten game played at night at Michigan Stadium. It was only the third ever night game, period (the previous two were Notre Dame games, which aren’t happening again for a while). So once again, this was a break from the traditional mid-day kickoff time.

Eve the opponent, Penn State, was a bit of a novelty in the 115-year history of Michigan football. Penn State was the team that broke the tradition of the Big Ten having, you know, ten teams, when it became the 11th member in 1993. 1993 is just yesterday for a sport and a school that traces its traditions back to the 19th century. It may seem  like a deep rivalry, but the two teams had only met 17 times before last night.

Despite these egregious breaks with tradition, the game had attendance over 113,000. The crowd was universally enthused during each timeout in which said prerecorded music played, esp. Michiganders like Enimem and White Stripes. The band was well appreciated too, but I didn’t experience one iota of decreased fan excitement between the two kinds of music. 

One item I forgot to mention at first — the crowd went wild when Dennis Norcroft, kick returner, did a nicely choreographed dance to George Clinton’s “Atomic Dog” (for you younguns, you might recognize it as the core song behind ”Who Am I (What’s My Name)?”).  In other words, though I am not sure Bo Schembechler would agree this was the Michigan Way, Michigan played a funk song behind a hiphop smash and a football player started DANCING on the field and yet everyone loved it.  Enjoy it yourselves:

https://www.youtube.com/watch?v=3IneWNeRFPg

Before the game, we went by the M Den, the store selling nothing but Michigan sports paraphernalia. It was so packed we took a photo

image

and then left, headed to the real campus bookstore, which was empty. I saw zero aversion to commercialization of the Michigan football team on Ann Arbor’s Main Street.

After the game, in our hotel 15 miles away from Ann Arbor, the breakfast buffet is packed with people my age (47) or older, all in blue and maize, many In brand new “under the lights” garb. Old couples are replaying the game and comparing to past years. The name Tom Brady is coming up a lot, but for the most part, people seem jazzed that Michigan won last night.  Nary a “Brandon must go” was heard.

I know I am picking a one-way fight with the John U. Bacon Weltanschauung that says the problem with Michigan is an absence of Raccoon Coats, sisboombah, and you know, RESPECT FOR TRADITION.

Neither Michigan nor Penn State are going to win the national championship this year. But the game was exciting (if not exactly All-American in quality) and the fans were into the energy and the fun of the game. No one said “get off my lawn” in my section of the end zone. Maybe up in the suites where the snooty folks sipped Chablis and read the hard copy New York Times, there were tut tuts about kids having no respect, but out in the iPhone sections, where the “cheap” seats cost $150, everyone had a good time and left in a good mood, except for that one lonely Penn State guy and even he was good-natured about it.

Admittedly, my whole weekend in here in Ann Arbor is only my third visit ever and is only one, long extended multi-dimensional data point. And my perspective may be skewed by the fact that I am just a Michigan dad and not a Michigan alum, I bleed (Stanford) Cardinal not Blue, etc. And Michigan won, which always helps soothe an angry fan base. But Bacon’s viewpoint is as skewed, I think, as mine, and the fact that a win can soothe the crowd is a sign that perhaps it’s not the breaks with traditional game-time activities, or even game time itself, or ticket prices, but instead the break with the tradition of winning that has the Bacon crowd up in arms. What people say and what they do are both Informative, but when they vote with their wallets, shell out the money, come to the game, and leave happy, I would be disinclined to listen to loudly to complaints that the problem is pervasive or unfixable by a winning seasons or two.

I believe Mark Twain would agree with me that tales of Michigan’s fandom’s demise are greatly exaggerated.

Posted by
Andy Schwarz

Thoreau 1, Emerson 0

For the “Rules are Rules” crowd, consider the lesson’s of Henry David Thoreau’s “Civil Disobedience”  (all of this taken verbatim from http://thoreau.eserver.org/wendy.html)

"Civil Disobedience" was Thoreau’s response to his 1846 imprisonment for refusing to pay a poll tax that violated his conscience. … Prior to his arrest, Thoreau had lived a quiet, solitary life at Walden, an isolated pond in the woods about a mile and a half from Concord. He now returned to Walden to mull over two questions: (1) Why do some men obey laws without asking if the laws are just or unjust; and, (2) why do others obey laws they think are wrong?

Emerson visited Thoreau in jail and asked, “Henry, what are you doing in there?

Thoreau replied, “Waldo, the question is what are you doing out there?”

See: http://thoreau.eserver.org/wendy.html for more details

Posted by
Andy Schwarz

Michigan Follow Up

I’ve gotten a decent amount of responses from Michigan fans and alumns challenging my Deadspin article saying that what Michigan needs is not less commercialism or lower prices, but a better product on the field.

So here’s a little follow up question.  If you read my Deadspin article and you think I’m wrong, honestly answer which of these two changes would please you more:

a) Brandon and Hoke stay, ads appear in-stadium, rock music blares from the PA system during some of the time outs, but the team starts winning and makes the 2015-16 Semi-Finals and wins the 2016-17 National Championship.  Prices also increase 5% a year.  the Coach is from the south and has no Michigan ties, and he plays a spread offense.  The QB (who wins the Heisman Trophy in 16-17) grew up loving Ohio State and has a suspended license from a DUI.  people outside the state say that Michigan is BACK and licensing booms.

b) Brandon and Hoke leave and are replaced by the Michigandest of Michigan men, the stadium stays ad-free, every time out is a student band moment, and ticket prices are rolled back to 2007 levels ($80, I’ve been told).  Unfortunately, the team’s recruiting does not improve, QB is from Ypsilanti and is studying to be a minister, but his on-field decision-making is questionable.  The coach has two degrees from UM, played for Schembechler, and runs a 1970s very basic NFL-style offense.  Wins remain scarce, and people outside of the state say that Michigan has lost its luster and people are more likely to buy a green Sparty hoodie than a Go Blue T-shirt.

I just have trouble believing many Michigan fans are going to pick (b).  Am I wrong?  Let me know in the comments below.

Posted by
Andy Schwarz

Excellent Student Journalism

Cameron Miller is using his column in the Stanford Daily (a job for which I believe he is paid, by the way, despite being a student) to dissect the O’Bannon ruling in pieces.

He’s just begun the journey, but if you are interested in the case, I recommend it:

Part 1: http://www.stanforddaily.com/2014/09/17/miller-a-timeline-of-events-from-this-summers-obannon-case/

Part 2: http://www.stanforddaily.com/2014/09/22/miller-explaining-the-obannon-v-ncaa-ruling/

Part 3: http://www.stanforddaily.com/2014/09/30/miller-analyzing-the-first-part-of-the-obannon-ruling

Posted by
Andy Schwarz

IRS confirms Union status doesn’t affect Tax status of Athletic Scholarships

This is not news.  The IRS issued this opinion in April and released it publicly on June 27.  (I likely missed it because June 27 was also the last day of the O’Bannon trial, so I was a tad busy.)  But the IRS was kind enough to put a spike into the heart of all of the concern-trolling about how the Northwestern Union vote was going to create a change in the tax treatment of athletic scholarships.  In short, it won’t.

My evidence is the following IRS advisory letter (sent to the Senate), which is available publicly on the web at http://www.irs.gov/pub/irs-wd/14-0016.pdf

Key passages:

Regarding the NLRB decision, whether an individual is treated as an employee for labor law purposes is not controlling of whether the individual is an employee for federal tax purposes. Accordingly, the NLRB decision does not control the tax treatment of athletic scholarships. The treatment of scholarships for federal income tax purposes is governed by the Internal Revenue Code (Code)….
Section 117 of the Code allows a taxpayer to exclude a qualified scholarship from gross income. …
It has long been the position of the Internal Revenue Service that athletic scholarships can qualify for exclusion from income under section 117. Revenue Ruling 77-263,1977-2 C.B. 47, addresses the tax treatment of athletic scholarships where the studentathlete is expected to participate in the sport, and the scholarship is not cancelled in event the student cannot participate and the student is not required to engage in any other activities in lieu of participating in the sport. The ruling holds that the athletic scholarship awarded by the university is primarily to aid the recipients in pursuing their studies and, therefore, is excludable under section 117….

Posted by
Andy Schwarz

The Penn State natural experiment (A Proposed Bet with Seth Davis)

There are two competing theories about the value of the marginal athletic recruit.  Folks like me say that even the 85th guy on a football team, or the 25th recruit in a given year, is worth at least a full scholarship, otherwise the school wouldn’t offer it.  There are those (and I usually blame Seth Davis for this incorrect thinking, so why stop now) that think that the school loses money on the last guy on the roster.

Today’s announcement that Penn State is going to have its full set of scholarships restored is a perfect chance to test the issue.

If Seth Davis is correct, then Penn State, having been granted the freedom from past tradition and now able to judiciously expand its roster, will only offer a few more scholarships than it would have under sanctions (or perhaps none) and will thus avoid the error of so many other teams by overspending on marginal talent not even worth the value of the scholarship.  Or perhaps they will route that money to non-athletes.  But in any case, if Davis is right the last thing we’ll see is Penn State aggressively trying to offer every newly allowed scholarship to football players.

On the other hand, if I’m correct, Penn State will use all 25 slots next year and will try as quickly as possible to get up to 85 athletes on scholarship.  Despite having the choice to avoid those costs, the school will look at the market and will say that the cost is worth it.  “The cost is worth it” is a sign that the profits associated with that last recruit are positive.  It may be because of a desire for insurance against injury; it may be for a desire for insurance against can’t-miss guys who turn into flops; it may just be that most recruits end up being worth it before they finish school.  In any event, if we see Penn State make the conscious choice to max out its restored limit of scholarship (or fall short but not for lack of trying), then once again, we’ll have strong evidence.

So Seth, care to bet?

And for the rest of you, what do you think?  Will Penn State expand as quickly as it can for a full 85 scholarships?  Ask yourself why, and if the answer isn’t “because Penn State thinks its recruits are worth the cost of a scholarship” then you need to explain why Penn State is being irrational.

Posted by
Andy Schwarz

Worth your time: Legal Summary of the O’Bannon decision

Prof.John Wolohan of Syracuse University has written a detailed but accessible summary of the recent O’Bannon v.NCAA decision. You can find it here: http://www.lawinsport.com/articles/intellectual-property-law/item/your-full-review-of-the-o-bannon-v-ncaa-judgment?category_id=124.

I have quibbles on the edges with some of his interpretations, but if you are looking for a quick way to digest the decision, I highly recommend this as a starting point.

Posted by
Andy Schwarz

Worth your time: John Infante on the so-called “autonomy”

John Infante is my favorite “I often disagree but always respect him” college sports analyst.  In this case, I think he has captured the essence of the economics of the market in which there is lots of demand for football of varying quality and lots of supply of players of varying quality.  Namely, that tiers of quality will emerge and that talent will sort out broadly by the value of that talent to generating revenue.  In other words, Infante’s analysis is consistent with the Invariance Principle[1] (from a paper published by Simon Rottenberg in 1956), which was the first sports economics paper and considered by many as the the foundation of the discipline.

I don’t agree with every point in Infante’s analysis, but I strongly agree with the idea that expecting schools to quit playing football if they can’t match the market price for a 5-star athlete is wrong.  Instead, as Infante explains they will stay in the market and acquire fewer stars worth of talent at lower prices.  (again,like they do now)

I recommend it and you can find it here:

http://www.sportingnews.com/ncaa-football/story/2014-08-19/autonomy-will-save-more-football-programs-than-it-kills-hawaii-mid-major-programs



[1] The paper itself is available at http://www.vanderbilt.edu/econ/faculty/Vrooman/rottenberg.pdf

For more on this, see http://www.vanderbilt.edu/econ/faculty/Vrooman/vrooman-econsport-intro.pdf

 ”The economics of sport is celebrating the golden anniversary of its origin in a seminal paper by Rottenberg [1956], where he presages the Coase theorem [1960] in a cogent argument about the impact of free agency on the baseball players’ labor market. According to Rottenberg’s invariance proposition, free agency would yield the same talent distribution as the reserve system in American baseball. The difference was that free agency would weaken monopsonistic exploitation of players trapped in the reserve system, and allow them to be paid their marginal revenue product. The theoretical foundations of the economics of sport are found in the elegant mathematical proofs of El Hodiri and Quirk [1971], in public policy awareness of Noll [1974], and for Europe, in Sloane’s [1969] early discussion of the European football market. The modern awakening of sports economics came when Quirk and Fort [1992] published a popular version of Quirk’s early models, followed by two separate adaptations of the model to the new realities of the rapidly changing American sport-scape [Fort and Quirk, 1995; Vrooman, 1995].”

Posted by
Andy Schwarz