Emory Report

April 5, 1999

 Volume 51, No. 26

Professional sports provide economics lesson for students
Over the years sports have become a national and international obsession. Atlanta experienced the thrill of sports power when the Falcons made it to this year's Super Bowl. We also felt the frustrating effects of the 1994 baseball strike that ended the season in August and labor disputes that delayed the start of this year's National Basketball Association season. And, of course, the 1996 Olympic Games in Atlanta were a gold mine for sports aficionados.

Sports dynamics have stretched far past the playing field to encompass all sorts of other concerns. Economic interests involve contracts, media, game formatting and scheduling, and territorial rights. Why do some games get broadcast only on TBS and others on NBC? How can teams maintain a competitive balance? What would be the difference in income if an athlete played baseball as opposed to basketball? What's the market value of a winning coach?

Students at Emory looking for answers to such questions might enroll in Callaway Professor of Economics Richard Muth's course, "The Economics of Sports." For Muth, an economics professor at Emory since 1983, it's a pleasure to explore sports commerce.

"Two years ago Jamie Hagerbaumer, who is now writing a senior honors thesis on the National Collegiate Athletes Association, came to me and asked for a reading course. She told others about it, and last fall I had six juniors and seniors take the class. It struck me that the course might make an interesting freshman seminar." The class filled up completely. This spring 30 students are diving into sports economics.

Remember the upstart team that defeated the Falcons in the Super Bowl? Star quarterback John Elway was the first student to take Muth's reading course at Stanford, where the economics professor taught from 1970 to 1983. "I'd like to think that my course was at least partly responsible for the fact that he signed a then-record contract with the Denver Broncos, but in all honesty, I'm sure the reason was his football ability."

Muth finds his students' interest in sports a great vehicle for teaching some important economic theories. Sports have their own issues that make them interesting economically--leagues, labor issues, public stadiums and the relation of collegiate sports to fund raising. Muth believes the economics of football and other sports relies on the fact that athletics are services, not goods. Like opera and ballet, sports involve performance and are produced primarily with human labor.

So what ever happened to just playing ball? The sports infrastructure has become complex, Muth said. Where teams used to "barnstorm"--traveling from place to place, making brief stops for games--now full season schedules and a championship format have developed, presumably because the demand for tickets is greater under such conditions.

According to Muth, maintaining a competitive balance among teams is really a league matter. "They arrange for sharing revenues between home and visiting teams, establish rules regarding television broadcasts, scheduling and conduct," he said. "The National Football League and Major League Baseball, for example, have very different rules. The NFL provides for a 40 percent share of revenues for the visiting team, versus 15 percent to 20 percent equal sharing of television revenues from contracts negotiated by the league, versus largely individual arrangements by teams for their home games."

Muth acknowledged that the business of signing players is labor intensive. "For instance, NFL league teams often negotiate with high draft choices made in April well into the training camp and preseason periods in July and August. In the NBA, team selections are made using different systems that include a lottery drawing among the non-playoff teams."

As to how the net worth of a player or coach is calculated, Muth has figured that "the upper limit to the amount a team would pay a player or manager is its estimate of how much the individual concerned would add to their ticket revenues. The actual amount may depend upon factors such as bargaining strength and rules determining allowable competition from other teams."

The economics professor is captivated by all these dynamics. "I've always enjoyed sports; my parents once told me that I learned to read at age 4 so I could read the baseball box scores in the paper. I've been fascinated by economics almost as long. But I never put the two together until I was asked by a colleague to be on the PhD dissertation committee of Henry Demmert, who was doing his research on what subsequently became the first book on professional sports teams in economics literature."

And Muth's predictions for the future of sports? "In coming years relations between players and teams are likely to continue to dominate the news of professional sports, as owners and players continue to battle over who shall receive the financial benefits from the special abilities of talented athletes," he said.

--Cathy Byrd

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