Sports economics: it may be fun but what's the point?

Bryson, Alex ; Frick, Bernd ; Simmons, Rob 等

Economists' interest in sports has grown dramatically in Europe and North America over the past twenty years. Today there are two journals devoted to sports economics, (1) and much-cited symposia have appeared in Applied Economics, Economic Journal, Journal of Economic Perspectives, Journal of Productivity Analysis, Labour Economics, Oxford Review of Economic Policy and Scottish Journal of Political Economy. This might have been pretty difficult for Simon Rottenberg to imagine when he wrote perhaps the first sports economics article in the Journal of Political Economy back in 1956.

Cynics might say this growth in sports economics happened simply because it could--there are plenty of people out there, including economists, who have an interest in sport and can pursue that interest thanks to the increasing availability of large data sets containing economically relevant information such as firm performance, worker productivity, and wages. Sceptics may say that there is no harm that can come of such studies but that, equally, one can expect them to generate little by way of useful insights into the operation of labour markets and the performance of workers and firms. This scepticism might be justified to the extent that it can be difficult to extrapolate from sports data to the wider labour market. For example, whilst sports teams are in competition, they often have a symbiotic relationship since the sports spectacle relies, to some degree, on competitive balance between the teams, something that is often enforced through rules governing finances and wages. In this sense, sports 'firms' differ from those in other industries who are often more intent on trying to kill off rivals through competition. The scepticism may also be justified when sports economists appear to be motivated more by the love of sports than the pursuit of knowledge. At its worst sports economics can appear to be the domain of geeks out to have fun with data period.

In fact, sports economics cannot be dismissed quite so lightly for at least four reasons. First, sport is big business. A 2007 European Commission White Paper for Sport indicated that, in 2004, sport generated value added of 407 billion euros, accounting for 3.7 per cent of EU GDP (EU, 2007). The Superbowl--the annual culmination of competition between American football teams--is the single most watched television event in the world, with the last Superbowl attracting 114 million viewers in the USA and many more outside the USA. Second, sport employs a lot of people. Across the EU, fifteen million people are employed in sports and related activities, equivalent to 5.4 per cent of the labour force (EU, 2007). Third, sports matters quite a bit to participants and supporters. Empirical work has established that sporting success at national level increases citizens' sense of life satisfaction and wellbeing (Kavetsos and Szymanski, 2010) and that sports participation can be beneficial in terms of individuals' health and wellbeing (Lechner, 2009). Encouraging citizens to increase physical activity, often via sports, is among the most pressing policy issues many countries face.

The fourth reason for studying sports is that it can shed light on fundamental economic questions. As a consequence more and more sports papers are appearing in the highest ranked economic journals. It is perhaps worth mentioning some contributions to illustrate the value of sports economics to our understanding of the way labour markets and firms operate:

* using data from baseball, Goff, McCormick and Tollison (2002) show how teams came to recognise their underutilisation of black players' ability, resulting in the gradual diffusion of black players into Major League Baseball and with it a non-biased valuation of black and white players' skills;

* using Spanish football data Garicano and Palacios-Huerta (2005) show how teams of workers respond to an exogenous change in the incentive to win. Using a difference-in-difference estimator comparing Cup games with League games, their analysis uncovered unintended consequences of awarding 3 points for a win--a change which was intended to encourage attacking play which, in fact, led teams to play more defensively having taken the lead;

* the effects of prizes and rewards on incentives have been examined by Ehrenberg and Bognanno (1990) for golf professionals and by Fernie and Metcalf (1999) for horse race jockeys. Using golf as their setting, Brown (2011) identifies adverse effects of competition with superstars on players' effort; Pope and Schweitzer (2011) find that players exhibit loss aversion while Knittel and Stango (2014) highlight the risks to sponsors attached to using celebrities for endorsements.

This special issue of the Review on sports economics contains five additional papers contributing to this literature.

The first paper by Richard Burdekin and Michael Franklin tackles the knotty issue of money spent on football players in the English Premier League. Growing concern about wealth inequality across clubs and its potentially damaging implications for competitive balance has led football authorities in Europe to institute 'financial fair play' rules which aim to limit the amount clubs can spend on transfer fees and on their wage bills. It is currently unclear what these rules might do to the quality of the football spectacle but this paper gives us some clues. It shows that spending on transfers in the English Premier League has indeed risen quite dramatically and that there is a very marked gap between the talent that can be attracted by the 'haves' and 'have-nots'. This is unsurprising. But what is interesting is the extent to which these expenditures have improved on-field performance. Spectators see much better football as a result. The clubs offer this increasing quality at the expense of their own profitability, indicating that win maximisation takes precedence over profit maximisation in today's Premier League.

Professional football in England is also the setting chosen by Andy Barlow and David Forrest for their paper. But the clubs they focus on are a million miles removed from those in the Premier League. Instead, they focus on two small town professional football clubs--Luton Town and Bury--whose very existence in the bottom tier of English professional football was in jeopardy at the time of the study. They consider whether the activities of these clubs generate benefits to the local community over and above those they can recoup in the form of ticket sales. The valuation of the clubs is based on local residents' willingness-to-pay for the survival of the clubs through taxation. In both cases they find the community is willing to pay well in excess of the value of ticket sales. They suggest that, based on such evidence, there could be a case for local governments to consider intervention in circumstances where a club's survival is in question.

The third paper by Colin Green, Fernando Lozano and Rob Simmons, like the first, considers investment decisions made by football clubs. The authors make use of a nice exogenous change in the incentives to invest namely the number of Champions League slots up for grabs in the following season--to identify changes in investment decisions by clubs. They find that marginal clubs in particular--namely the ones who are most likely to be in the mix for the following season--are very responsive to such changes.

The setting for our fourth paper is professional basketball in the USA and Spain. The theme is discrimination, one that features heavily in the sports economics literature, in part because data on player performance are so good compared to data for other labour market settings. As the authors David Berri, Christian Deutscher and Arturo Galletti point out, they have exceptionally good data on the on-field performance of each professional basketball player in their data. This is normally the basis for an analysis of wage discrimination, but the authors do something a little different. Instead they focus on the time players are on the court. Having controlled for other factors, they identify a differential in playing time between US-born players and other players, a differential they attribute to potential discrimination on the part of coaches in their treatment of non-US born players. Although, as they readily admit, they cannot definitively rule out one or two other potential sources of the differences, the finding is certainly consistent with the idea that US-born players are credited with ability over and above that which they possess by virtue of the strong identification of basketball as an American sport.

Our final paper, by Peter Lunn and Elish Kelly, contributes to the burgeoning literature on the effects of sports participation on health and labour market outcomes. The authors focus on the impact of participation in extra-curricular sport at secondary school in Ireland on what people choose to do on completing compulsory education. They establish that those who choose to participate in sport in the last years of secondary schooling are more likely to continue formal education after leaving secondary school, as opposed to joining the labour market, compared to those who dropped out of sport earlier in their schooling. The finding is robust to various attempts at comparing 'like' individuals in the two groups of ex-students. The authors suggest that, because college offers further opportunities to pursue sport, this may entail a consumption value of further education which, ultimately, brings dividends in the labour market.

What these papers have in common is an approach to economic inquiry which uses the rich data available in sports to explore and test theoretical propositions that are of general interest to economists. A handful of papers can in no way do justice to the array of contributions that can be made by economists when using sports data but we do think this collection nicely illustrates why more and more economists are, or are thinking of, embracing sports economics in their research.

REFERENCES

Brown, J. (2011), 'Quitters never win: the (adverse) incentive effects of competing with superstars', Journal of Political Economy, I 19, pp. 982-1013.

Ehrenberg, R. and Bognanno, M. (1990), ,The incentive effects of tournaments revisited: evidence from the PGA tour', Industrial and Labor Relations Review, 43, pp. 74-89.

European Union (2007), European Commission White Paper on Sport, COM/2007/0391 final http://europa.eu/legislation_summaries/ education_training_youth/sport/135010_en.htm.

Fernie, S. and Metcalf, D. (1999), 'It's not what you pay, it's the way that you pay it and that's what gets results: jockeys' pay and performance', Labour, 13, pp. 385-411.

Garicano, L. and Palacios-Huerta, I. (2005), 'Favoritism under social pressure', Review of Economics and Statistics, 87, pp. 208-16.

Goff, B., McCormick, R. and Tollison, R. (2002), 'Racial integration as an innovation: empirical evidence from sports leagues', American Economic Review, 92, pp. 16-26.

Kavetsos, G. and Szymanski, S. (2010), 'National well-being and international sports events', Journal of Economic Psychology, 31, pp. 158-71.

Knittel, C. and Stango, V. (2014), 'Celebrity endorsement, firm value and reputation risk: evidence from the Tiger Woods scandal', Management Science, 60, pp. 21-37.

Lechner, M. (2009), 'Long-run labour market and health effects of individual sports activities', Journal of Health Economics, 28, pp. 839-54.

Pope, D. and Schweitzer, M. (2011), 'Is Tiger Woods loss averse? Persistent bias in the face of experience, competition and high stakes', American Economic Review, 101, pp. 129-57.

Rottenberg, S. (1956), 'The baseball players' labor market', Journal of Political Economy, 64, pp. 915-30.

NOTE

(1) These are the Journal of Sports Economics and the International Journal of Sport Finance.

Alex Bryson, National Institute of Economic and Social Research, CEP and IZA. E-mail: [email protected].

Bernd Frick, University of Paderborn. E-mail: [email protected].

Rob Simmons, University of Lancaster. E-mail: [email protected].