Econ 14 Files
Econ 14 Lecture
Notes
Lecture 34: Sports
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Economics 14 |
Lecture 34: Sports
economic impact of a sports team
sports labor markets
Economic Impact of a Sports Team
Independent researchers have found that a sports franchise has little impact on the local economy, about as much as a large department store.
Why?
- few home homes (8 in football up to 81 in baseball
- local substitution effect - substitution of one economic activity for another within a community (going to games instead of going to the movies)
net effect on spending is zero
So why are stadiums publicly funded?
- a city may feel it needs a sports team to be seen as "major league"
- people in a city may enjoy following a local team and may be willing to pay higher taxes to experience that enjoyment
Sports Labor Markets
Firms compare the revenue they gain by having an employee (their marginal revenue product) with what the employee gets in wages and benefits.
The wage for any player will be between the most they are worth, their marginal revenue product, and the least they will accept, their reservation wage. The reservation wage is the lowest amount the player will accept because it is the next best offer.
Where the negotiation ends up depends greatly on the institutional framework of the sport.
Baseball:
- reserve clause
- players must resign with the team to which they belonged the previous year
- salaries close to reservation wage (next best alternative outside of baseball)
- free agency
- players are able to offer services to the highest bidder
- salaries closer to marginal revenue product
Football
- salary cap (maximum in total payroll a team can pay its players) + limited free agency
Basketball:
- salary cap + limited free agency + maximum salary
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David A. Latzko Business and Economics Division Pennsylvania State University, York Campus office: 13 Main Classroom Building phone: (717) 771-4115 fax: (717) 771-4062 e-mail: web: www.yk.psu.edu/~dxl31 |
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