Coyotes Bankruptcy: Sale Finalized

The CBC is reporting that the sale of the Coyotes to the NHL will be finalized on Monday.  The league is paying $140 million for the team, and $13.3 million of the proceeds will go to Gerry Moyes and The Great One. For those keeping score, the highest bid offered by Jim “persona non grata” Balsillie was $292 million, a cool $152 million more than the league paid.

Somewhere, some creditors are furious.  The original Chapter 11 petition for Coyotes Hockey LLC lists the 40 largest creditors.  #1 is Moyes, who the team owed $103 million and change.  It’s clear he’s not getting anywhere close to that amount of money.  #2 on the list is BWD Group, LLC, a sports and entertainment  insurance firm, who were owed $1.3 million.  Law firm Bingham McCutchen was owed $423,000.  I’m sure they are getting paid.  The city of Glendale was owed about $800,000, and the League was owed $271,000.  Much of the rest of the details must be in the related bankruptcy filing of Dewey Ranch Hockey LLC, the other Moyes shell corporation.  I was unable to find that filing.  While looking for it, I did come across Judge Redfield Baum’s ruling on Dewey Ranch Hockey.  I’ll have some more to say on that later this week.  It lists the Coyote’s operating loss in 2007 at $107 million, and $54 million in 2008.

In another franchise milestone, the Coyotes drew a franchise low of 5,355 fans in their game vs. the Kings Monday night.

IJSF 4.4

Volume 4, Issue 4 of the IJSF is now available on-line.  For all I know, it may be in some subscriber’s mailboxes in print form as well. My mail comes via Canada Post, perhaps the worst public mail system I have every experienced.  Seriously.  The postal system in the Czech Republic was better when I lived there 8 years ago.  I get my print copy many months after publication. 

IJSF 4.4 marks the end of the first year of the Simmons/Frick/Humphreys editorial troika, and contains four papers.  I think it’s a strong issue, with contributions from a number of notable sports economists including the most recent contribution from Wolfgang Maennig and his Hamburg research team, a betting paper from the Paul-Weinbach team and friends, a provocative NCAA paper by long-time collaborators Alexander and Kern, and a paper by noted European theorist Stefan Kesenne on a topic, optimal league size, that has been long neglected in the literature.  Here are the titles and abstracts:

Arne Feddersen, Ande Leao Grotzinger, and Wolfgang Maennig, “Investment in Stadia and Regional Economic Development: Evidence from FIFA World Cup 2006“

Abstract: Using the case of the new stadiums for the FIFA World Cup 2006 in Germany, this paper is the first multivariate work that examines the potential income and employment effects of new stadiums outside of the USA. This study is also the first work on this topic that conducts tests on the basis of a (serial correlation consistent) Difference-in-Difference model with level and trends. As a robustness check, we use the “ignoring time series information” model in a form that is modified for non-synchronous interventions. We were not able to identify income or employment effects of the construction of new stadiums for the FIFA World Cup 2006, which are significantly different from zero.

Donald L. Alexander and William Kern, “The Impact of Athletic Performance on Tuition Rates“

Abstract: This paper explores the impact of intercollegiate athletic performance on tuition rates. A number of recent studies have examined the advertising effect generated by participation in intercollegiate sports. These studies have attempted to ascertain whether athletic performance improves student quality, graduation rates, and state appropriations. Only one previous paper examines the impact of intercollegiate athletics on tuition, and it found a positive impact on out-of-state tuition rates from participation in the NCAA men’s basketball tournament. In this paper, we find that athletic performance as measured by win-loss records in football and basketball impacts both in-state and out-of-state tuition rates, though it appears that the effects are largely confined to members of the six major power conferences.

Rodney J. Paul, Andrew P. Weinbach, Richard Borghesi and Mark Wilson, “Using Betting Market Odds to Measure the Uncertainty of Outcome in Major League Baseball“

Abstract: Betting market odds for Major League Baseball are used to examine the level of uncertainty of outcome, an ex-ante form of competitive balance. The efficient markets hypothesis cannot be rejected for the years 1990-2006 in Major League Baseball. Therefore, the odds provide an ex-ante measure of the uncertainty of outcome of baseball games in the minds of fans and bettors. The odds for both the American and National Leagues were shown to increase during the 1990s, implying more certainty in the expected outcome of the game. Bettors and fans believed favorites in Major League Baseball were more likely to win during this time frame. Differences in the average odds, formed ex-ante, compared to win percentages, formed ex-post, help to explain the dichotomy found in Schmidt and Berri (2001) in relation to public belief in less competitiveness compared to economic findings of relatively high levels of competitive balance.

Stefan Kesenne, “The Optimal Size of a Sports League“

Abstract: In this contribution, based on a simple theoretical approach, we try to show that the number of teams that is optimal to a monopoly league, being a cartel of clubs and acting in the interest of the participating or insider clubs only, is smaller than the welfare optimal number of teams in a league, which also takes into account the interests of the spectators.

Big Win for Illini Football

This is not an IJSF post, or a sport finance post.  But the bloggers here at the IJSF blog have a strong ties to the University of Illinois.  I was on the faculty at the U of I for several years, and co-bloggers Brian Soebbing and Nick Watanabe are U of I alumni.  After being ranked in the preseason, the Illinois football team was on life support last week, limping through their schedule with a terrible 1-6 record and a win over only Division I-AA Illinois State.  I had the Illini penciled in for 1-11.  Then the Michigan Wolverines came to Champaign, and left with a humiliating 38-13 beat down.  They are probably still looking at 2-10, but a win over Michigan does wonders for the team.  So hats off to Ron Zook and the Illini.  Good job!

Motivation for Team Ownership: Tom Ricketts and the Cubs

Noted Cubs fan Scott Simon interviewed new Cubs owner Tom Ricketts on NPR’s Weekend Edition Saturday.The interview is chock full of interesting insight about why billionaires want to buy sports teams.  One quote jumped out at me.  Early in the interview, Ricketts claims

“You don’t buy sports teams just because you’re looking at the investment side of it.”

Really?  Rod Fort pointed out in IJSF 1.1 that the average return from owning an MLB team in North America over the last 100 years was significantly higher than the rate of return on stocks.  Mike Mondello and I pointed out in IJSF 3.2 that the increase in franchise values was larger in the last 20 years across all professional sports in North America than in earlier periods, even when accounting for changes in the characteristics of teams.  This evidence suggests to me that the investment side of it must be very important.   I chalk this quote up to the usual team owner penchant for not revealing their true motivations.  Fans don’t want to think that the owner of their beloved local team is in it for the bottom line.

There is also an interesting discussion of the financial benefits of related real estate development projects.  The Cubs are considering the purchase of property adjacent to Wrigley Field in order to develop it for some unspecified use.  Ricketts alludes to expansion of space for players and coaches.  At least Ricketts has no plans to replace Wrigley, unlike the recent travesty in the Bronx.

IJSF Author Q&A: Todd Jewell

Researchers trace the advance of a line of research through citation trails, a progression of published articles through time.  But each published article is like an iceberg: it’s just the visible tip of the research project, and most of the big, important stuff lies below, unobservable.  The IJSF blog is a useful way to expose some more of the iceberg, and can help us learn more about the space in between published papers, where the interesting part of the research process takes place.

Todd Jewell is a professor in the Department of Economics at the University of North Texas.  His research focuses on applied microeconomics with an emphasis on health, labor and sports.  He has published extensively on labor applications in sport.  His paper “Estimating Demand for Aggressive Play: The Case of English Premier League Football” was published in IJSF 4.3.

1. Where did you get the idea for this paper?

I am a big fan of the English Premier League (Manchester United is my favorite team, I can’t stand Liverpool or Arsenal), and I have noticed that some EPL teams seemed to play more aggressively, and sometimes even play better, when they were a man down. This thought peaked my curiosity about the cost and benefit of teams playing aggressively. I assumed that there was a “price” of getting a red card in terms of a lower probability of winning, but I discovered that there wasn’t much research that measured such a price in association football (soccer). So, there seemed to be a minor hole in the literature. After finding evidence of the price of aggressive play in the EPL, it was a short intellectual jump to a supply and demand analysis of red cards.

2. What were some of the challenges that you faced when working on this research?

The biggest challenge was dealing with the estimation issue of endogeneity. Anytime a researcher has a model of supply and demand, endogeneity is an issue. Although I am comfortable with how I handled it, I’d like to get more data and do the study again using some different methods. This type of robustness check would make me more confident in my results.

3. How does this paper fit in your research agenda?

With this paper, I am trying to re-establish my research agenda in sports economics. I plan to continue in the area of “soccer economics” into the foreseeable future.

4. How do you see this paper moving the literature forward?

As stated above, there was a hole in the literature with respect to the cost of a red card in soccer. This paper fills that hole, by measuring the actual “price” and by establishing that teams respond to the price. The paper also supports research in other sports (mainly hockey) indicating that participants in sporting contests respond to negative incentives.

5. Describe a future research project that you would like to see that builds on your paper.

I have several projects in the works that build on this paper. First, I am looking at red-card prices and behavior in other soccer leagues (US Major League Soccer, Spanish Primera Liga, Italian Serie A, French League 1, and German Bundesliga). Preliminary results indicate that the responsiveness to red-card price (“red-card-price elasticity”) differs significantly from league to league. My focus is on determining why the differences exist, with the intention of predicting the effects of potential UEFA regulation changes. Second, I am collecting data on attendance and revenues, in an attempt to understand the relationship between violence/aggression and attendance demand.

NFL Betting Lines

We are now going into Week 8 of the NFL season and by this point one can separate the good teams (New Orleans, Indy, etc) from the bad (St. Louis, Washington, Tampa Bay, etc). According to an article by Dan Wetzel, there is something very interesting happening with the NFL this year and it is in Vegas.

The NFL, and every other professional sports league, relies on the uncertainty of outcome of each individual game. Without that, the NFL is the WWE. For sports economists, uncertainty of outcome was commented on by early economists such as Rottenberg and Neale and has been a cornerstone of sport economic research when examining such things as competitive balance and attendance demand. Furthermore, betting on sports games creates interest in games that by themselves would not be as interesting.

This NFL season has been unlike any other NFL season. As Wetzel writes, the weak teams have been so bad that the oddsmakers have not been able to set a high enough line to balance the volume on each side of the spread. Unlike college games which Vegas will take off the board, NFL games rarely come off the board. The result has been big losses for Vegas odds makers in the first half of the season as they have failed to set odds high enough . The details that Wetzel provides is certainly work a quick read for people who are interested in sports betting and also talks about the illegal bookmakers.

Like all other trends, oddsmakers will adapt and certainly make their money by the end of the season. If one would believe the work that Levitt has done saying that oddsmakers do not attempt to balance the books, one might wonder if the oddsmakers are believe that gamblers will fall for the “This team cannot keep losing and have to win the game” theory and are setting odds closer to that thought (especially if it had been a dominate strategy used by gamblers in the past).

1994 MLB Strike

Tonight is Game 1 of the World Series between the Yanks and the Phillies. Fifteen years ago, Game 1 never took place. Yes, it was 15 years ago this year that baseball work stoppage was in full swing.

In today’s Wall Street Journal, Allen Barra writes about the 1994 shortened MLB season.  Tony Gwynn was closing in on .400, and Matt Williams was on pace to break the home run record.  The Montreal Expos had baseball’s best record at 34 games over .500, and a staple of good young talent such as Larry Walker, Marquis Grissom, Pedro Martinez, Moises Alou, and John Wettleland.

Bud Selig, at the time, claimed that the reason for the strike was competitive balance. However, that would prove to be false. Barra writes about how that season was one of the more competitively balanced seasons in recent memory (when examining the dispersion of winning percentage). In fact, the previous five World Series Champions were not in “large” markets (Toronto X2, Minnesota, Cincinnati, Oakland).

As Barra points out, the real reason was salaries (shocking!). The owners of course wanted that salaries lower (and a salary cap) while the Players Association said, “Thanks, but no thanks.” Once the strike ended and the two parties started working on the next CBA, the idea of a luxury tax (an idea that Barra notes came from the Players Association) was introduced by Selig and now is part of MLB.   Since then, the home run record has been broken twice, players have testified in front of Congress about steroids, Montreal Expos is now the Washington Nationals, a Blue Ribbon Panel was commissioned, and the Yankees have won 4 World Series titles and have been to 3 others (counting this year).  All for competitive balance?

La-La Land Stadium Deal

Reports of financial problems in California appear to be greatly exaggerated.  What else can explain the recent news out of California that The Governator signed legislation that will permit the construction of a new football stadium in City of Industry, an LA suburb.  The stadium will cost an estimated $800 million (subject to the usual cost over-runs, so better make that a billion or so by the time it’s all said and done) and will be “green.”  Of course it will.

It also appears that someone in the governor’s office has been drinking the economic impact Kool-Aid.  According to the press release put out by Governor Ah-nold, this new stadium will “generate 18,000 jobs and $760 million in annual revenue.”  I think that the last 30 years of economic research showing no tangible economic benefits from professional sports stadiums has not yet reached California.

Gambling Probes

Two gambling probes recently in the press. The first on ESPN.com today discusses a tennis match that included U.S. Open finalist Caroline Wozniacki. In the match, Wozniacki was up one set and on the verge of winning the second (up 5-0) but apparently was injured. Her father came over to tell her that she should not continue in the match because of the injury since she could not survive the next round if she won. However, his comments were picked up on microphones, which people watching the match over the internet heard. As a result, a surge of online bets were placed on her opponent to win once the comments were heard.

The second gambling probe occurs “down under” with the Australian Rules Football League. The league has been dealing with perceptions of teams tanking late in the regular season to get a better draft pick. Now, the minister of gambling in Victoria is launching an investigation regarding the effect that tanking (or the perception of tanking) has on gambling lines. The full story is here.

Tennis gambling probes are nothing new since the investigation a couple of years ago.  Tennis has a partnership with Betfair to examine issues of match fixing in the sport.  The Australian Rules Football League probe is interesting to me because it examines the consequences of even the perception of tanking in sports leagues and its effect of stakeholder revenues, in this case bookmakers and the government.

Rival Leagues: UFL Kicks Off

The latest edition in the long history of rival sports leagues, the United Football League (UFL), started play last week.  I was unaware of the start of the season until I stumbled on an article in the Washington Post about one of the team owners, Paul Pelosi, husband of Speaker of the House Nancy Pelosi.  This low profile probably bodes poorly for the new league.

The WaPo also has some information about the financial model for the UFL.  The league has only four teams, which is a bit small for a new league – eight is a more common number of teams for start up leagues.  Teams are in California, New York, Orlando and Las Vegas.  The California team will play games in both San Francisco and LA; the New York team will play games in both NYC and Hartford.  Investors put $12 million into each franchise, and there is a $6 million salary cap. The head coaches are a bunch of NHF retreads: Dennis (“They are who we thought they were“) Green, Jim Haslett, Jim Fassell, and Ted Cottrell.  There are not very many high profile former NFL players in the league.

The UFL has a two year TV contract with Versus that brings in $70 million.  That should keep the league around for two years.  However, with only four teams in the league, if one franchise goes belly-up (a common event in new leagues) the whold league is done.  That’s one reason why new leagues tend to be larger.   In another interesting note on the revenue side, the league is using helmet and jersey sponsorship, which is a no-no in existing North American leagues but very common in European football.

Note that franchises are in big cities on the coasts (and the California team is exploiting the LA market which has no NFL team), and in two large cities with no NFL franchise.  That’s the classic model for rival leagues – exploit open markets that are large enough to support a team in the existing league.

The league championship is scheduled for November 27th in Las Vegas.  No rival league has succeeded in North America since the 1970s (defining “success” as some teams absorbed into the existing league), and the small size of the UFL, and the ongoing recession, makes me doubt that the UFL will survive.