Sportsgeekonomics

http://www.bloomberg.com/news/2013-02-27/could-the-miami-scandal-bring-down-the-ncaa-.html

Mahler offers a strong conclusion:

Once you start stripping away the senseless rules and regulations, the association’s multimillion-dollar compliance empire quickly crumbles. What’s left? An organization that hangs nets, keeps records and puts on a postseason basketball tournament that anyone would leap at the chance to run — and for a smaller profit margin.

Maybe the best NCAA is a nonexistent NCAA.

I recommend reading Dan Wetzel’s article:

NCAA’s mishandling of Miami case reason for college athletes to get endorsement deals

And then you can head to Andy Staples’s http://sportsillustrated.cnn.com/college-football/news/20130124/mark-emmert-ncaa-amateurism-changes/

And also Gregg Doyel’s piece from last week: http://www.cbssports.com/collegefootball/story/21575106/college-athletes-really-owe-schools-money-then-they-must-be-paid

New study out yesterday (which you may have missed because of a certain fake girlfriend story) saying that schools spend more on their athletes than on non-athletes.  You can read it here: http://www.nytimes.com/2013/01/17/education/top-public-colleges-in-ncaa-favor-sports-over-academics.html?_r=1&

Well, duh.

According to the New York Times, the methodology for this is to tally up all of the money spent on sports programs (coaching pay, facilities costs, etc.) and on academics (professor pay, etc.) and then divide by the number of students involved:

About one-third of athletic spending at Division I institutions goes to salaries and compensation, the report found, and about a fifth to facilities and equipment. In its tally of athletic costs, the report included recruiting, athletic scholarships, marketing costs, sports camps and spirit groups. Education costs included instruction, student services and a portion of academic and instructional support, and operations and maintenance.

But can you see what’s missing?  It’s a small item called Revenue.  Unless I am missing it, it looks like no credit was given to sports or to academics for revenue.  I suspect if you did that and looked at net expense (i.e., expense less revenue) (and if you left out government grants for sciences programs) you’d see a very different story.

But with that said, it’s no surprise that sports are increasingly expensive, but remember, it’s driven (in part) because sports are increasingly profitable.  Moreover, because sports are run by non-profit institutes and because they collectively agree not to pay the primary driver of those revenues, a.k.a. college athletes, they end up dissipating those profits in all sorts of inefficient and wasteful ways.

Fortunately, this is already well known.  And your intrepid sportsgeekonomist discusses one aspect of the problem here: http://sportsgeekonomics.tumblr.com/post/37128623071/monopoly-rents-in-action-gold-plating-among

Key points:

But often missing from this discussion is a recognition that the existence of football profits tends to make other men’s sports more expensive to sponsor.[4]  This is not a truly causal relationship; the presence of football profits doesn’t literally make men’s lacrosse costlier.  Rather, the presence of football profits creates demand for ways to spend that money.  Chad McEvoy and Alan Morse have shown this to be a systematic result.[5]   Football coaches’ salaries increase.[6]  Athletic Directors’ salaries increase.[7]  But generally speaking, what doesn’t happen is that when a new dollar of revenue comes in to a football program, the Athletic Department does not increase its contribution to the school’s non-athletic fund by anything close to $1.  Indeed, a series of studies commissioned by the NCAA found that for every new dollar of revenue, athletic departments generated 91 cents in new expenses over the period 2004-2007 and approximately $1 in new expenses in the period from 1993 to 2003.[8]

Waaaaay back when, before there was a Roman Empire, Rome was a small city state and it got into a war with a neighboring people called the Samnites.  They had a series of brutal wars but ultimately Rome conquered Samnium and absorbed it into its growing territory.  One of the cities they conquered was called Maleventum by the Romans (it may have been Maloentum originally… remember in Latin V sounds like W, so oe Malo-entum and malo-wentum are pretty similar).

Anyway, in Samnian (which I think is classified as an Oscan language, a dead form of Indo-European, similar to Latin), Maloentum probably just meant something like Mountain Marketplace.  But to Latin speakers, Maleventum could mean Bad Wind or Bad Event, depending on how you split it up.  Suffice it to say that when the Romans took over and wanted to encourage people to move there, a name like “Bad Wind” was not going to really do the job.

So, with typical Roman directness, they changed the name to Beneventum, i.e., Good Winds, and voila, we have the modern town of Benevento to this day.

Yesterday, I dashed off a post regarding proper Jeopardy! betting tactics based on the unusual circumstance of a tie for first place on last night’s episode. I encourage you to go read it (How to bet, and not to bet, in Jeopardy!), but the conclusion was:

Third Place.  Here is where I see the most bad betting and tonight’s show was no exception.  As the player in third place, you need to know 2 things.  One, you will only win if both of the players ahead of you going into Final Jeopardy! get the question wrong (unless they bet poorly).  Two, you’ve already proven over the course of two rounds of Jeopardy! that they are at least a little bit better than you at the game.  … the scenario where both of them get it wrong and you get it right is pretty rare.  You are best off betting as if the only way you can win is where everyone whiffs. … In this case, the correct bet for the player in third was no more than $2,800 and in reality, should have been zero.

To my delight and surprise, Natalie Hudson, the woman who came in third place on last night’s show, actually came here to Sportsgeekonomics and shared some of her insight.  First let me share that with you (it’s in the comments of the previous post, but it bears repeating):

On tonight’s Jeopardy! a fairly rare thing happened — the game ended with a tie for first place.  When Michael Felder (@InTheBleachers) announced this on twitter, my immediate reaction, without even knowing which of the contestants (in terms of their position prior to Final Jeopardy!) ended up in the tie, was that someone bet incorrectly.  This post is designed to explore that outcome.

First, as an introductory matter, Jeopardy! runs in my family.  My mother was on the show in the very old days, pre-Alex Trebek, when the dollar values started at $10, and although she lost at the Final Jeopardy! question, the host, Art Fleming, wished her “Good Luck with the Little One.”  The little one in question was me, in utero.

Fast forward 44 years and her grandson, my son, was on Jeopardy! during kids week and was the Wednesday show’s champion.  We talked about trivia a tiny bit before he was on the show, but really the only thing I coached him on was betting strategy.  I told him, as I am telling you all now, that many very smart contestants on Jeopardy! seem to make very poor tactical choices when it comes to betting.  And indeed, as I predicted this afternoon when I heard about the tie, tonight’s Jeopardy! is a great example of how poor betting strategy caused the third place player to miss her chance to win.

(As I note below, you can also argue it caused the second place player to have to share the win rather than win it outright.  But the specifics of the numbers meant she had to choose a scenario where she tied — there was no clear-cut winning bet, so I cannot call this an error ).

So, let’s work through some Jeopardy! math.

First Place: This one is easy and in fact regular viewers of the show probably know how this goes.  Unless you are absolutely convinced you know absolutely nothing about the category and so you’re certain you will get it wrong, the player in first needs to bet just enough to win one dollar more than double what player 2 bets.  This is the lowest-risk way to ensure that if you get it right, you’re guaranteed to win and if you get it wrong, you will potentially have enough money to beat the other players nonetheless.

On tonight’s show, the guy who finished Double Jeopardy! in first place had $16,400 and the woman who was in second had $13,000.  So, his optimal bet is to bet just enough to get $1 more than double $13,000.  That number is $9,601.  Not surprisingly, that is what he bet.  So one of the contestants bet correctly. 

Second Place: It is so rare that I see the person in second place bet correctly that I pretty much assume it will not happen.  The thing to recognize is that if first place bets as described above and gets the answer right, there is NOTHING that second place can do to win. Betting every last dime only means that at best you will lost by $1.  But since on Jeopardy! losing by $1 still means you lost (there is some minor difference b/w 2nd and 3rd, but in either case, it’s not the big money of winning).  Instead, the only way the person in second place ends up winning is if first place gets the Final Question wrong.  And you actually can calculate exactly what the person in first place will end up with if he/she gets it wrong, because you know what he/she is going to bet, i.e., just enough to beat you by $1 if you bet everything.

On tonight’s show, as we’re seen, that was $9,601.  So the woman in second place should have known that her target was not to beat what the guy in first place had, but what he would end up with if he got the answer wrong, which was $6,799.  Since she already had $13,000, she didn’t need to bet anything to beat that, but she could bet some if she wanted to.  She just needed to make sure of two things.  One, if both she and the guy in first got it wrong, she wants to make sure she loses only a small amount so she ends up ahead of him.  Two, she needs to also make sure that if she and the woman in the woman in third place both get it right, that she will still emerge victorious.

As it turns out, the woman in third place had $9,600. 

If you are quick at math you will see that this was actually an amazing number in this situation, because it put the woman in second place in a very delicate position.  The maximum she could bet and still not fall behind the guy in first was $6,201.  To see this, remember that the first place guy is going to bet $9,601 and thus, if he gets it wrong, he’ll end up with $6,799.  That means, for the woman in second with $13,000, she can afford to lose $6,201.  If they both get it wrong, they would both end up tied.  Normally, I would say this means she ought to have bet a little less, say $2 less, but as you’ll see below, in this very rare case, betting exactly $6,201 is the right bet even if it means she would tie, rather than win, in the event that both first and second get it wrong.

This is because she also had to worry about the woman in third with her $9,600.  If that woman she got the answer right and if she bet all her money (which she shouldn’t do but more on that later), she would end up with $19,200.  Which means that the woman in second place needed to bet $6,201 (yes, the exact same number!) to make sure the woman in third place didn’t pass her if they both got it right.  Which is actually pretty amazing.  Her maximum possible bet to beat the first-place guy (if they both get it wrong) is identical to the minimum possible bet needed to ensure she beat the third-place player (if they both get it right). 

So, suffice it to say, the woman in second place also bet correctly.  This is fairly rare to see and I commend her for it.  Indeed, in tonight’s show the woman in second was the returning champion, so she’s already shown she is smart and perhaps she’s had more time to think through these scenarios.  In any case, she threaded the needle and found herself a way to eke into another day’s competition.  Brava!

Note: One can quibble over whether this means she should have bet $6,200 or $6,201.  I’d argue the former bet of $6,200 was slightly smarter (and would have given her the outright win tonight), because it meant she would win outright on a really hard question that no one got right and still tie on one that only the first-place player got wrong.  Whereas, by choosing $6,201 she guaranteed a win on a question that only the first-place player got wrong and was willing to accept a tie on one where everyone got it wrong.  Since the person in third place is usually in third place for a reason — that is he/she is less good at the game — I’d prefer my tie come against third-place, who then advances with me, rather than having first-place advance with me.  But that’s a minor quibble and a nuance we needn’t worry about.

Third Place.  Here is where I see the most bad betting and tonight’s show was no exception.  As the player in third place, you need to know 2 things.  One, you will only win if both of the players ahead of you going into Final Jeopardy! get the question wrong (unless they bet poorly).  Two, you’ve already proven over the course of two rounds of Jeopardy! that they are at least a little bit better than you at the game.  It may not mean that they will be better at Final Jeopardy! than you, but it means that the likelihood of both of them getting the final question wrong while you get it right is pretty low.  You might all get it right.  You might all get it wrong.  But the scenario where both of them get it wrong and you get it right is pretty rare.  You are best off betting as if the only way you can win is where everyone whiffs.

So, what do you do then?  You know what the first place player will have if he/she gets it wrong.  In tonight’s show again that was $6,799. So the woman in third place was in good shape — she just needed to beat this by a little — say $5 — if she lost (I say by a little because she also needs to beware of the person in 2nd playing an optimal bet that allows second place to edge out first if they both get it wrong).  A bet of $2,801 means she would triple-tie for first, so betting just a little less, say, $2,795, should secure her a win in the event of everyone getting the final question wrong.

But again, she was in third-place.  She is only going to win on a hard question that both of the other two contestants get wrong.  Why risk any money on a question that you know is going to stump two other players, both of whom are have played better than her for the last 22 minutes or so?  The correct bet here is probably $0.  Yes, in the rare event that she got it right and no one else did, if she bets zero, she ends up leaving a little money on the table.  But she still wins and gets to play another round the following day.  And by betting zero, she gives herself a little more cushion in case someone else under-bets (and thus loses less).  In this case, the correct bet for the player in third was no more than $2,800 and  in reality, should have been zero.

Instead, tonight’s contestant bet $3,401.  I know where she got that — it is what she would need to bet if player 2 bet $0 and she wanted to pass her, because $9,600 + $3,401 would be $1 more than player 2’s initial $13,000.  But I cannot think of a scenario where player 2 would bet nothing.  Indeed, in this case, it turns out player 2’s optimal bet is darn close to being locked in at $6,200 or $6,201.  It’s usually not that easy to know player 2’s bet, but as a general rule it is safe for player 3 to assume that player 2 will bet enough to beat player 3 by at least $1 if they both get it right (i.e., player 3 can think about player 2 the same way player 2 thinks about player 1).  So the bet where you just try to nudge out player 2 if she bets $0 is not a good one.  You are better off beating where she will end up if she and player 1 both bet optimally.  Which in this case is $2,800… except that I still think it’s $0 because if it’s a hard enough question to trip up the first- and second- place players, who would want to make an even-money bet that the third-place player will get it right? Not me.

So, I was right when I predicted that someone bet wrong.  What’s surprising is that it was not the woman  in second place, who did just about the only thing she could do to survive, and her smart betting tactics paid off with a tie and advancement.  But, whether she knows it or not, the woman in third place had the game in her reach, and all she had to do was refuse to bet a dime.

Again, I am not just saying this because I saw how it worked out.  Her best bet prior to even seeing the question was $0. (In economics, we use fancy terms like “this is an ex ante, not ex post, optimal strategy, but all we mean is that this is not just a Monday Morning QB sort of carping — it was the smart bet even before the question was revealed). But she bet too much and we ended up with two champions, neither of whom knew the correct answer to Final Jeopardy!, but both of whom bet optimally. 

I live in full hope that some day third-place players on Jeopardy! will start betting more wisely.  But I am not holding my breath.

http://sports.yahoo.com/news/money-college-athletes-not-204128623—ncaaf.html

I would have like to see some discussion of why this is a collective decision at all (e.g., not discussion of why schools or conferences can’t just decide on their own, or negotiate with a players’ association), but I also realize I am an antitrust nerd.

Video: http://live.wsj.com/video/college-footballs-bigmoney-bigrisk-model/AA565F92-0A88-4CB6-ADD9-FE30CE16B1F2.html?KEYWORDS=college+football#!AA565F92-0A88-4CB6-ADD9-FE30CE16B1F2

Print: http://online.wsj.com/article/SB10001424127887324024004578169472607407806.html

When college sports programs tell you that without a nationwide agreement to cap compensation to college football players at the value of an athletic scholarship, there would be no non-revenue sports (and especially no non-revenue men’s sports), they are telling you a tall tale.  I’ve already written about this myth in “Excuses, Not Reasons: 13 Myths about (not) Paying College Athletes,”[1] specifically in “Myth 5: We can’t pay them or else we’ll have to cancel other sports.”[2]

There are several false elements to this claim.  Most obviously, many FCS, Division II and Division III schools (with little or no football profits) still sponsor other men’s sports.  In fact, in 2011, there were 61 Division I men’s lacrosse teams vs. 223 Division II and Division III teams.[3]  Schools sponsor non-revenue sports this because as a campus community, they have decided these sports are worthwhile additions to the campus, like many other money-losing activities such as drama productions, libraries, all-campus parties to celebrate the start of the school year, etc. 

But often missing from this discussion is a recognition that the existence of football profits tends to make other men’s sports more expensive to sponsor.[4]  This is not a truly causal relationship; the presence of football profits doesn’t literally make men’s lacrosse costlier.  Rather, the presence of football profits creates demand for ways to spend that money.  Chad McEvoy and Alan Morse have shown this to be a systematic result.[5]   Football coaches’ salaries increase.[6]  Athletic Directors’ salaries increase.[7]  But generally speaking, what doesn’t happen is that when a new dollar of revenue comes in to a football program, the Athletic Department does not increase its contribution to the school’s non-athletic fund by anything close to $1.  Indeed, a series of studies commissioned by the NCAA found that for every new dollar of revenue, athletic departments generated 91 cents in new expenses over the period 2004-2007 and approximately $1 in new expenses in the period from 1993 to 2003.[8]

One of the places these football profits are spent is on non-revenue sports, especially men’s sports other than football and basketball.  Simply put, in part because the schools don’t pay their players, they have profits just lying around and one of the ways that they spend those profits is to spend more money on their non-revenue sports.  Economists call this gold-plating — spending more than is necessary on aspects of the organization simply because money is available to be spent.  Athletic programs have no real shareholders, no quarterly profit targets, etc and consequently do not face the same demands as public corporations to generate profits.  When the University of Florida’s athletic associations gives the University of Florida $6 million,[9] they are hailed as a great source of profit.  Would that acclaim be all that much louder if they turned over $12 million instead?  In the absence of incentive pay (such as paying the Athletic Director based on how much money he/she transfers to non-athletics), programs tend to engage in use-it-or-lose it spending.

This short paper seeks to highlight one piece of evidence for this phenomenon of gold-plating non-revenue sports.  With assistance from my research assistant Giseob Hyun, I looked at EADA data from 2009-10 and 2010-11, across all of Division I, and calculated the average cost of each non-revenue men’s sports.[10]  I calculate two averages for each sport — one for all of the Division I schools whose football teams compete in FBS (Div-1A) and another for the schools with football teams in FCS (Div-1AA).  The FBS/FCS distinction is only for football, so for these non-revenue sports, the programs are all in Division I.  By splitting up the data this way, we can see how much more money is spent (even after accounting for any revenue) by FBS schools than FCS schools.  In the table below, what I present is the difference between the FBS and FCS average — in other words, this is how much more, on average, it costs an FBS school to run a Division I baseball team, track team, etc., than it costs an FCS school to run the same sport in the same Division.

As you can see, in every single one of these sports, the average FBS program spends more (even after accounting for any revenue as an offset) than the average FCS program.  In some cases the differences are in the hundreds of thousands of dollars.  And moreover, even in the passage of a single year, from the 2009-10 academic year to 2010-11, we generally see the gap growing in tandem with the increase in FBS football revenues.

Because all of these programs are in Division I, the rules on the number of scholarships, coaches, etc., is identical.  The primary difference is that the schools in FBS make a lot of money on football and the schools in FCS do not.  Now that also means the FBS schools are in more prestigious conferences for these non-revenue sports but there is no economic reason why that, by itself, should make these sports programs more expensive.  Instead, I posit that the reason we see so much more money spent on minor men’s sports at FBS schools vs. FCS schools is that FBS schools simply make more money on football and need to spend it on something.

Some may argue that this is because FBS schools want to win more in these non-revenue sports than do FCS schools.  That may very well be true.  But it doesn’t matter why these FBS schools choose to spend more than they need to run these sports, the point is that they do spend more than they need to.  One of the arguments against allowing competitive compensation for football athletes is that without those football profits, these other sports wouldn’t exist.  It would be a very different argument for the NCAA and its member schools to argue that without those football profits, the FBS schools and FCS non-revenue programs would be more competitive with each other.  Indeed, if the answer is that by agreeing not to pay college football players, the schools in FBS succeed in making lacrosse and wrestling, etc., less competitive, it would seem a very poor justification for that agreement in the first place.

So when you hear someone say that without a nationwide agreement to cap college athlete compensation, schools won’t have enough money to run their other men’s sports, ask yourself whether maybe the solution is to end the collusion, have the expenses of the football team rise to a market level, and then let FBS schools adjust by spending a little less on their other programs, like their FCS cousins, rather than using the fruits of that collusion to subsidize much more expensive non-revenue sports programs.

I highly recommend Patrick Hruby’s “Amateur Hour” piece (http://www.sportsonearth.com/article/40374506/) for Sports on Earth and not just because he cites to my “13 Myths” paper.  Read it!