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.

Cubs in Chapter 11

The Chicago Cubs filed for bankruptcy protection today, according to news reports.  It appears that this is some sort of legal move to keep the Cubs from becoming part of the bankruptcy of their owner, the Tribune Corporation. The Cubs were not included in the Tribune Corporation’s December bankruptcy filing.   It will make it easier for the team to be sold to the family of Joe Ricketts, founder of TD Ameritrade, for $845 million (including Wrigley Field).

The Cubs and Wrigley Field were purchased in 1981 by the tribune Corporation for $20.5 million.  That works out to a 9.85% annualized return, or a 1,288% return over the 28 year period.  Not a bad ROI, even if the Cubbies have not been very good on the field.

Hidden Stadium Subsidies in New Jersey

The most common image of public subsidies for sports facilities is the shiny new palace of a stadium or arena paid for with public dollars and leased to the local team for a nominal fee. While this still happens, a recent article in the New York Times highlights some of the less visible subsidies that rain on professional sports teams in North America.

A new home for the two New York NFL teams, the Giants and Jets, will open next season in New Jersey.  This $1.6 billion facility is frequently held up as a shining example of a “privately financed” stadium.  As they say in the NFL, “Upon further review…” New Jersey taxpayers provided $400 million in infrastructure improvements for the new stadium and also paid $100 million to retire the debt on the old stadium.  Since some of the infrastructure can be enjoyed by taxpayers throughout the week, and not just on game day, a case can be made for some of this spending, but the debt retirement is a direct transfer from taxpayers to pro team owners.

And then there is the property taxes on the new facility.  The new football stadium sits on land owned by a government agency, the New Jersey Sports and Exhibition Authority, so the stadium, as well as the practice facilities and offices for both teams, so no property taxes are owed.  This applied to the old stadium and other facilities as well, but under an agreement between the teams and the state, an annual payment of $1.3 million was collected from the teams in lieu of taxes and passed on to the local government.

In general, property taxes depend on the value of the property, so a reasonable person might expect that the payment in lieu of taxes (PILOT) made by the Giants and Jets would increase.  Nope.  No new agreement is in place between the teams and the Authority, and it looks like no additional PILOT funds will be paid on the facility by the teams.  This clearly has a sizable opportunity cost for the local government; if this land was privately owned, the property taxes on the stadium and related facilities would be substantially larger than $1.3 million.

Finally, the Jets and Giants were given the naming rights to the stadium and the rights to all parking and related game day revenues generated in and around the new facility.  These revenues could have been shared by the teams and the government.  Infrastructure and debt retirement, reduced taxes, and naming rights/parking revenues.  That’s what we call the “subsidy trifecta” in the sports facility biz.

IJSF September Access Statistics from RePEc

Time for the updated access statistics for the IJSF.  First, the page views and file downloads for the journal:

Page views (file downloads) on participating RePEc services:
Last month:    514 (136)
Previous month:    427 (101)
Last 3 months: 1376 (367)
Last year:     7272 (1965)
Since start:   14413 (3650)

Looks like an upward trend in both over the past three months.  Next, the impact factors:

Simple impact factor: 0.28
Recursive impact factor: 0.01
Discounted impact factor: 0.13
Recursive discounted impact factor: 0.01
h-index: 2

Roughly the same since the last report.  Finally, lets have a look at the most viewed articles.  The entire top 25 can be found here.  The top five are:

Rank	Journal Article	File Downloads			Abstract Views
		Last month	3 months	Total	Last month	3 months	Total
1	Ticket Prices, Concessions and Attendance at Professional Sporting Events Dennis Coates and Brad Humphreys	8	21	293	52	89	1,020
1	“If You Can’t Win, Why Should I Buy a Ticket?”: Hope, Fan Welfare, and Competitive Balance O’Reilly, Norm, Alan Kaplan, Ryan Rahinel and John Nadeau	8	12	32	10	18	67
1	The Causality between Salary Structures and Team Performance: A Panel Analysis in a Professional Baseball League Jane, Wen-Jhan, Gee San and Ou, Yi-Pey	8	19	29	21	41	79
4	Developing a Profitability Model for Professional Sport Leagues: The Case of the National Hockey League John Nadeau and O’Reilly, Norm	7	13	120	10	21	357
5	Betting Exchanges: The Future of Sports Betting? Ruud Koning and Bart van Velzen	6	26	55	19	62	162

I find it interesting that my paper with Dennis on ticket prices and concessions seems to generate a lot of interest. I presented it at a conference a few years ago and the discussant said something like “I predict that this paper will never be published in a journal.” Just goes to show that you never know what papers readers will find interesting.