Strikes, Lockouts, and how players prepare for not having work.

Major League Soccer (MLS) is in the middle of a big negotiation between players and owners about the current collective bargaining agreement (CBA).  The players were set to strike earlier this week, but have instead tried to move forward with talks with owners setting a new deadline of February 12th.  At the end of January many news outlets were reporting positive progress in the talks.  In the last week or so, there has been no news from either the players or the owners, and some are wondering if this means there may be no MLS season this year.  However, the most interesting tidbit in this saga is Swedish superstar (and former Arsenal star) Freddie Ljundberg announced he would be returning to the MLS this season on his blog, claiming he was told there would be no strike by the players.  Now that is very interesting, cause either it means a deal has been struck and the players and owners are just working out small details, or it would mean someone has given poor Freddie some bad advice.  Stay tuned, we have a few days until players are required to report to training camp, and only a few days after that till the extended negotiation deadline comes to an end.

Moving to what us American’s call “football”, the National Football League’s (NFL) grand finale is only a day away, and yet much of the talk this week has been the discussion of the end of the current CBA for the NFL.  If all things go as current the NFL will see an uncapped season in 2010 as was discussed by Dr. Humphreys here, and will see changes in free agency status of over 200 players as I discussed in an earlier post.  Earlier in the week, the player’s association won a big battle, which prevented owners from getting rid of one of the revenue sharing pools, which is said to be worth around an estimated $220 million for 2010, and would be distributed among the 8 to 12 weakest teams in the league.  This revenue will most likely be very important for the smaller revenue franchises’ in the league, especially considering that with the potential of an uncapped year coming up, teams may need to pay higher salaries to players than at any point in the history of the league.

And it is precisely because of this, that thing seem headed towards the potential of having a lockout in 2011.  While Roger Goodell was quick to try and stop any talk and rumors about a lockout growing out of control, it has been discussed as a possibility by both players and owners.  ESPN was earlier reporting the player’s association members were going around to all the players in the league and telling them to start preparing for not having a job in 2011.  They basically told players that they should save around 25% of their 2010 salary, and to not make any large purchases, as they are expecting to be locked out in 2011.  While this seems to just be an early precaution, it sure does point towards the players digging in and preparing for a tough negotiation with owners over a new CBA.  The negotiations already seem to be getting messy, with the classic “he said, she said” arguing occurring.  Players claimed that owners wanted to lower salaries on average of about $340,000 per player, owners claim they never said such a thing, and that the players are making this up.

I’m sure this will become the focal topic of the NFL after the Super Bowl ends.  Both the owners and players have a lot to lose in terms of revenue, but I think the players are the one’s who are potentially the biggest losers.  Under the current agreement, the NFL owners would still collect $5 billion in television money, even if the league didn’t play a single game.  I’m sure the owners can make a strong case for their side of the argument if they can collect an average of $156 million in revenue without having to pay players.

On one final note, ESPN’s College Gameday came here to the University of Illinois this morning.  I woke up earlier and went to see 4,500 orange clad fans (who braved 5 inches of snow) scream in front of a camera for an hour.  It was an interesting experience, the highlight of which was watching Michigan State’s coach Tom Izzo defeat Illinois Coach Bruce Weber in a free throw shooting contest for charity (final score of 9-7).  This was the first time College Gameday has visited Illinois, and some say this is a big potential recruiting tool, however I don’t know if a single hour of television played early on a Saturday morning is enough to convince a better level of recruit to come play basketball at Illinois.

Cantor Fitzgerald Enters the Sports Betting Market

Wall Street bond trading house Cantor Fitzgerald has a new line of business: sports betting.  The company took over the operation of the sports book at the M resort in Las Vegas last March.  The first change was cosmetic; they redesigned the room to look like a Wall Street trading floor, instead of the typical Vegas sports book look.

Cantor Fitzgerald also introduced more substantive changes to their sports book.  According to an article in the Wall Street Journal, The M Resort sports book uses sophisticated software adapted from financial markets transactions to allow in-game betting on various proposition bets like whether or not a team makes an upcoming field goal attempt.  In-match betting on football is common in Europe, but this is the first such betting opportunity in North America.  In addition, the software allows the sports book to minimize risk on individual bets by making sure that any of the in-game prop bets are matched by a bet on the other side.

The similarities between sports bets and financial assets like stocks, bonds, and futures contracts are clear.  Economists have been using sports betting as a laboratory to study market efficiency for decades.  Because of these similarities, it is interesting that this appears to be the first foray by a Wall Street trading firm into sports betting.

I have one bone to pick with the WSJ article, which is worth a read.  It contains a number of references to the “balanced book” model of sports book operation. For example:

Cantor makes money by charging a small commission on bets. It tries not to take on any risk itself. That means that a bet that Miami is about to score has to be matched with the opposite wager. But frequently, there isn’t the same amount of money on the other side of the bet, leaving Cantor exposed.

Employees scan a risk-management chart—imported from trading platforms—which shows bets that Cantor still hasn’t been able to match.

When the charts show too much imbalance, Cantor gaming operator Andrew Patterson adjusts the odds to try to persuade gamblers to bet for the other team.

Quite a bit of emerging research suggests that sports books don’t operate that way.  Rather than balance betting equally on either side of a game or proposition, sports books appear to take “positions” on games, effectively participating in the betting market rather than passively accepting bets and making a profit on the commission in order to increase profits.

It will be interesting to see if other Wall Street trading houses enter this market.  Cantor Fitzgerald plans to market its software to other Las Vegas sports books.