This Document Contains Chapters 4 to 6 Berri Chapter 4 The Competitive Balance Defense Objectives • To understand what competitive balance is and why it is desirable for a sports league. • To examine the institutions adopted by sports leagues to promote competitive balance. • To be able to calculate and interpret the measurement of competitive balance. • To compare and explain the level of competitive balance observed in sports leagues. • To contrast sports leagues’ desire for competitive balance with that of fans. Outline I. The competitive balance argument II. The reserve clause III. The reverse-order draft IV. Simon Rottenberg defends the free market V. Salary caps, luxury taxes, revenue sharing, oh my! a. Payroll caps b. The individual salary cap c. The luxury tax d. Revenue sharing VI. The Noll–Scully measure of competitive balance VII. A simple snapshot of league institutions VIII. Two competitive balance stories IX. Balancing evolution X. Do leagues want competitive balance? Teaching Tips The competitive balance argument Creating Student Interest • In the movie Patton, General Patton tells his troops, “America loves a winner and will not tolerate a loser.” If you are a Yankees fan and they won every game by more than 10 runs would you still watch? If you are not a Yankees fan would you still watch when the Yankees played? After that has been discussed, ask them if America would still love a team if it won every game. Would fans get bored? Presenting the Material • Introduce the concept of competitive balance and discuss why leagues would think that this is important to their success. Then present the tools used by leagues to promote competitive balance. Is competitive balance the same thing as a close game? How does this relate to the uncertainty of outcome hypothesis? The reserve clause Creating Student Interest • Ask a few students to name a company they might like to work for after they graduate. Ask them to then imagine that this firm is the only one they can work for. If another firm wanted to offer them a promotion and raise, they wouldn’t be allowed to accept it. How would they feel about this inability to pursue opportunities elsewhere? Presenting the Material • Begin with the history of the reserve clause and clarify how this implied that players could only work for one team their entire career. Cover why MLB would think this would help with competitive balance. The Supreme Court decision of 1922 is important to understanding future decisions made by MLB. Challenges to the NFL and NBA were successful because they did not enjoy that court exemption. Still, the MLPA led by Marvin Miller was successful in challenging the reserve clause and defeating it in baseball. Collective bargaining was introduced. The reverse-order draft Creating Student Interest • Go back to the students who had earlier named a company they would like to work for. Tell them now they won’t be able to work for that firm because another firm was chosen to hire them. That firm is now the only one that can hire them. Now add that the location of the firm is undesirable (desert, cold, or remote). Ask how they would like working for that company in that town. If they were paid a lot of money, shouldn’t that mean that they had no right to complain? Presenting the Material • Students may enjoy the history of the creation of the reverse-order draft in the NFL. The impact the draft had on football player Jay Berwanger, when it was implemented, illustrates the impact the draft had on a player entering the league. Mention how the draft process expanded into the other leagues and is now a staple in efforts to bring competitive balance to leagues. Simon Rottenberg defends the free market Creating Student Interest • What if we found out that something we thought was true actually wasn’t? Galileo proposed that the earth revolved around the sun and not the sun around the earth. It was a big controversy in its day. In sports, the common belief was that the reserve system helped ensure competitive balance. Rottenberg told us that the reserve system wasn’t needed and that market forces would lead to the same distribution of players. Would this have been a big controversy in its day? Presenting the Material • Rottenberg leads us to the conclusion that in a certain market, the marginal cost of a player could be greater than the marginal revenue of that player, and so the player would be more valuable to another team. While students may think that a large market team could afford to add another expensive player to its roster, the problem for that team would be that adding another star on the team wouldn’t add much in ticket sales. The effect of this is that an unrestricted market will see the same distribution of players as one with the reserve clause. Rottenberg therefore points out that the reserve clause is unnecessary. Salary caps, luxury taxes, revenue sharing, oh my! Creating Student Interest • Ask your students to think back to when they were young, say, four or five years old. If they had been given $20 back then, what would they have spent it on? What would they have done if they had been given an additional $20? Some may say they would buy more of the same thing (candy, toys, etc.). Could it be argued that parents not letting them spend that money protected them from wasting it? What if they were 40 or 50 years old and owned a professional sports team? Would the league be acting like their parents in preventing them from spending their money on players? How would the owners feel about that? How would the players feel? Presenting the Material • Restricting player pay has been a tool used by leagues in an effort to achieve competitive balance and also maintain profitability for the member teams. This section explains team payroll caps, individual salary caps, and luxury taxes. These limits and amounts are not determined only by team owners; they are negotiated though the collective bargaining process. The Noll–Scully measure of competitive balance Creating Student Interest • If we’re going to have a goal, then we’re going to need a measurement to see if we’re meeting that goal. For example, we want the economy to grow. In order to know if it is or not, the measurement of Gross Domestic Product was created. That number can be compared from one time period to another to see if things are getting better, worse, or staying the same. Ask your students to name some measurements of other goals (learning and grades, jobs and the unemployment rate, inflation and the Consumer Price Index, etc.). Likewise, to find out if a league has competitive balance, we need a way to measure that. Presenting the Material • Display Table 4.3, which shows the disparity between teams in the MLB in 1932 in terms of winning percentage. Explain how standard deviation could be used to show this range for each league, and tie this into Table 4.4. The question becomes, what should it look like? We need a standard to compare it to. Those numbers can be found in Table 4.5. Explain how Noll and Scully put the actual and the ideal numbers in a ratio to determine competitive balance for each league. Ask students to interpret what they see in Table 4.6. Which league has the most competitive balance? Which has the least? A simple snapshot of league institutions Creating Student Interest • Now that we have a measurement of competitive balance, it can be used to determine if changes made by leagues have helped, hurt, or made no difference in achieving that goal. Presenting the Material • Table 4.7 summarizes major changes in leagues’ efforts to improve competitive balance. Ask students to interpret the table by asking, which change made the most difference (AL reverse-order draft)? Which made the least statistically significant changes (NHL payroll cap)? Which did the opposite of what was intended (NBA payroll cap)? Two competitive balance stories Creating Student Interest • The next step is to try to determine why some leagues have more competitive balance than others. Time is one of the suspected variables. Ask your students why time may make a difference. Can they think of another instance where time becomes an equalizer? Presenting the Material • The two variables discussed are time and the number of players on a team. Since football has more players than basketball, the impact of one player in football is not as great, which would lead to more competitive balance. It is presented that baseball has become more balanced over time. Balancing evolution Creating Student Interest • Ask your students to think about a student named Kelli. She went to a small public high school and was clearly the best and brightest student there. Kelli was accepted to Yale. When she got to Yale, she found she was not the best and brightest student there. She was just an average student at an outstanding college. Ask your students to relate that to their athletic careers. How hard is it to dominate a sport in high school? How much harder is it to dominate a sport at the collegiate level? What does that say about pros who are superstars in their leagues? Presenting the Material • Begin by comparing where baseball used to get its players with where players come from now. Point out that as the population of players increased, the pool of exceptional players grew. The result is that it is harder to dominate a sport than before, which is why it has been so long since there has been a .400 hitter. In baseball, players are no longer competing against the best of the country; now they are competing against the best of the world. In basketball, the increase in the pool of talented tall people has not been great enough to move toward competitive balance in the NBA, even with efforts by the league. Do leagues want competitive balance? Creating Student Interest • After having looked at theoretical reasons why a league would want competitive balance and statistical ways to measure it, we have not looked at the evidence of whether competitive balance makes a difference to leagues. Ask the students: if it is found that competitive balance does not matter, what should a league do? Should it allow one or two teams to dominate the league? Should it promote one or two teams and not the others? Presenting the Material • Display Table 4.14 and point out the decrease in attendance for the Yankees even as they continued to play very well. Ask if the drop in attendance was from a lack of competitive balance. Could there be other factors? In studying baseball, and using several different statistical methods, it was shown that competitive balance does make a difference, just not a very big one. It was also shown that winning is not worth the same to teams across a league. All this leads to the question of why salary caps and reverse-order drafts exist if they don’t help competitive balance. This presents a transition to the next chapter on labor economics in sports. Common Student Struggles This chapter discusses payroll caps, salary caps, reverse-order drafts, and luxury taxes. These topics may be familiar to sports fans but may only be topics students have heard about previously and not really understood what they were or how they worked. Organizing their thinking in this chapter will be important as they discover what these topics are, how they are measured, and how to interpret results. While many of your students will have taken a course in statistics, there is the possibility that some have not or may have taken it years ago. These students may struggle with the concept of standard deviation, which is critical to understating competitive balance. A few minutes spent reviewing standard deviation, as found in appendix 4A, will probably be to the benefit of the entire class. Several different measurement techniques are used in discussing competitive balance in the chapter: Noll–Scully, Gini coefficient, and the Herfindahl‒Hirschman index. The professor should point out the benefits and shortcomings of each measure. This may best be accomplished by giving students actual win-loss data over time and within seasons, from a league such as the NHL or NFL. Additional Resources Bondi, F. (2008). Tip-off: How the 1984 NBA draft changed basketball forever. Boston, MA: DaCapo Press. Fort, R., & Maxcy, J. (2003). Competitive balance in sports leagues: An introduction. Journal of Sports Economics, 4(2), 154–160. Grading the NFL draft: http://www.nfl.com/draft/2017 Groot, L. (2008). Economics, uncertainty and European football: Trends in competitive balance. London, England: Edward Elgar. Humphreys, B. R. (2002). Alternative measures of competitive balance in sports leagues. Journal of Sports Economics, 3(2), 133–148. Késenne, S. (2000). Revenue sharing and competitive balance in professional team sports. Journal of Sports Economics, 1(1), 56–65. NBA draft: http://www.nba.com/draft Handout 4-1 Date_________ Name____________________________ Class________ Professor________________ Go online and find the winning percentage for each NBA team from the last completed season. Using Excel, find the standard deviation for the league for that season. Using those data and the formula shown on page 122, calculate the Noll–Scully competitive balance measurement. How does your answer compare to that presented in the text in Table 4.6? Has competitive balance in the NBA improved, gotten worse, or stayed the same? If there has been a change, what may have caused it? Answer: Since students will be comparing only one year’s data to the nine-year sample shown in the text, we can expect a difference. If the students’ Noll–Scully measurement is drastically different, it is most likely due to an error in calculation. Small changes could be attributed to a smaller sample size, a new collective bargaining agreement that may have taken place, player movement during free agency, or other possible causes To calculate the Noll–Scully competitive balance measure for the NBA, you'll need the winning percentages of all teams from the last season. The standard deviation of these percentages and the ideal standard deviation (based on a perfectly balanced league) are used in the Noll–Scully formula. 1. Collect the winning percentages for each NBA team. 2. Calculate the standard deviation of these percentages. 3. Use the Noll–Scully formula: Competitive Balance = (Actual SD / Ideal SD). Compare your result with Table 4.6 in the book to see if the NBA's competitive balance has improved, worsened, or stayed the same. Changes could be due to various factors such as player trades, injuries, or shifts in team strategies Handout 4-2 Date_________ Name____________________________ Class________ Professor________________ In the NBA, if a player has a 10-year career, it is generally accepted as being a long career. To have a long career, a player has to be productive. The NBA draft gives weaker teams a chance to select more productive players earlier in the draft. As the chapter points out, this is to help create competitive balance in the league. Look up the top 15 players selected in the 2007 NBA draft, look up the career information on those players, and fill out the following table: 2007 NBA Draft Selection Number Player Name Number of Years in the NBA Team Drafting Player Current (or Last) Team Career Points per Game Career Rebounds per Game Career Assists per Game 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 a. How many players had a long career? b. Were some players selected later in the draft more productive than those chosen earlier? What factors could explain that? c. Could mistakes made on draft day end up hurting competitive balance in the NBA? Give an example from your data. Answer: The 2007 NBA draft had general managers facing a tough decision. Should they select 7’0” Greg Oden, who had the potential to be a star at the center position, or should they take Kevin Durant, a thin 6’9” player who preferred to shoot jump shots? A compounding problem was that Oden had a microfracture in his knee and recovery time was unclear. Portland ended up taking Oden as the #1 pick and his NBA career was short, while Durant, selected as #2, went on to be a star all-NBA player. Your students may notice other draft busts and players who probably should have been selected higher. This can lead to a conversation about the effectiveness of the draft in helping achieve competitive balance. Berri Chapter 5 Labor Negotiations in Sports Objectives • To understand how the theory of value explains why both players and ordinary people are paid vastly different sums of money. • To gain an appreciation for the 19th-century debate about labor markets and theories on exploitation. • To identify the power of labor in negotiations and work stoppages. • To analyze the lack of power for fans in labor matters concerning sports. Outline XI. Differing views on the overpayment of professional athletes XII. Unrestricted and restricted labor markets XIII. The economics of labor conflict XIV. A history of making fans angry XV. Why can’t fans hold a grudge? Teaching Tips Differing views on the overpayment of professional athletes Creating Student Interest • Ask your students how much they would pay their employees if they ran a business on campus? How would they determine the amount? What if an employee made their business much more money than the others? How much would they pay that employee? Why? How many employees would they hire? How would they know when to stop hiring? Next, ask your students why an NBA team does not have 50 players on it. If they respond that league rules do not allow it, ask them why such a rule would be put in place. Follow up by asking about the additional value to a team of having that 50th player on the roster. Let them know that economic theory has provided a way to help determine the worth of players to a team. Presenting the Material • Begin with the concept of marginal product and extend that to marginal revenue product (MRP). Point out that MRP will be helpful in determining the demand for players and also in determining if the players are underpaid or overpaid based on their productivity. Unrestricted and restricted labor markets Creating Student Interest • Ask if any students have part-time jobs. Ask if one student wouldn’t mind telling the class how much he or she gets paid. Let’s say the student gives a figure of $10/hour. Ask the class if they think that he or she earns the business more than $10/hour through his or her productivity. If so, would they say that the student is being exploited? If they say that the student is exploited, ask if they think Karl Marx would agree with them. Presenting the Material • Begin with the historical argument between Marx and Clark over whether capitalism, by its nature, exploits labor. Be sure the students understand the term “monopsony” and how it would create market power for the teams hiring the talent of players. Rottenberg’s work ties these concepts together. The economics of labor conflict Creating Student Interest • Ask your students why work stoppages occur? Ask them why the market cannot resolve how the pie is to be divided between owners and players? Ask students what factors determine who wins at the bargaining table? Next, ask them to differentiate between a lockout and a strike. Display Table 5.5 and ask if it really matters whether it is the players who walk out or the owners who lock out the players. To the fans, does it make a difference? Presenting the Material • Discuss how the power of labor unions is displayed in stoppages of play in sports. The Marvin Miller history of influencing labor activism in baseball may be of interest to students. The Hicks bargaining model shown in Figure 5.2 is useful in describing the incentives of the two parties and how long a potential work stoppage will last. A history of making fans angry Creating Student Interest • The Writers Guild of America is the union for screenwriters who write the scripts for television shows. In 2007 the Guild went on a strike that lasted for 22 weeks. During that time, productions of shows were shut down and networks were forced to show reruns. Ratings fell by 6.8%. Ask your students what they thought happened to the ratings after the writers returned to work and new episodes were produced. Is there a similarity in how consumers responded to the writers’ strike and how they respond to strikes and lockouts in sports? Presenting the Material • This section includes a history of stoppages of play in professional sports. Using Figure 5.3, show the students that in the NFL, fans resumed going to games once the playing of games resumed. Using Figures 5.4, 5.5, and 5.6, show that this pattern of fans returning to games is found with the other leagues as well. So while fans may be mad during a lockout or strike, they seem to quickly forgive the teams and return to going to games. Why can’t fans hold a grudge? Creating Student Interest • Ask your students if, when they were small children, their parents ever threatened them with something that they did not carry out. An example would be a parent getting mad at a child and saying he or she will never buy the child ice cream again. Did the child believe the parent when the threat was made? Should teams believe the threats of their fans when they say they won’t return to games after a strike or lockout is over? Presenting the Material • Using the theories of marginal utility and disutility, present the equation whereby a fan would attend a game. Describe the theory of a credible threat. Ask: After a strike or lockout is over, why would fans return to games? Ask if this speaks to the credibility of the earlier threat to stay away from games. Common Student Struggles This chapter begins with many numbers concerning player salaries. Students will need to be reminded that the key to the data is finding trends. Have them try to identify which leagues have the biggest salary range and the largest salaries compared to median household income. You may want them to compare those numbers to the leagues that have had the most stoppages of play and see if they find a possible connection. As always, when talk begins about player salaries, it is easy for students to fall into normative arguments about the value of players. This chapter introduces MRP, the methodology for determining player worth in the marketplace. The analytics of players’ values are detailed in the next chapter. Since many of your students will have been born after the majority of strikes and lockouts in sports have happened, you may need to go over the history of those events more closely. Some students may be surprised, for instance, to learn that one year there was no World Series because of labor issues or that an entire season of hockey was once lost. Additional Resources Kahn, L. M. (2000). The sports business as a labor market laboratory. The Journal of Economic Perspectives, 14(3), 75–94. Nine most significant strikes and lockouts in pro sports history: http://www.totalprosports.com/2011/11/03/9-most-significant-strikes-and-lockouts-in-pro-sports-history/ Pluto, T. (1995). Falling from grace: Can pro basketball be saved? New York: Simon & Schuster. Pro sports lockouts and strikes: http://www.cnn.com/2013/09/03/us/pro-sports-lockouts-and-strikes-fast-facts/ Schmidt, M. B., & Berri, D. J. (2004). The impact of labor strikes on consumer demand: An application to professional sports. The American Economic Review, 94(1), 344–357. Scully, G. W. (1996). The business of Major League Baseball. Chicago: University of Chicago Press. Sports lockouts and labor disputes: http://www.nbcsports.com/sports-lockouts-and-labor-disputes Zimbalist, A. (1994). Baseball and billions: A probing look inside the big business of our national pastime. New York: Basic Books. Handout 5-1 Date_________ Name____________________________ Class________ Professor________________ 1. In September 2004, owners of NHL teams locked out the players, officially delaying the start of the 2004–2005 season. Write a press release on behalf of the owners explaining the economic issues at stake and why delaying the start of the season was deemed necessary. Then, write another press release, this time from the point of view of the NHL Players Association explaining its view of the economic issues. Answer: The NHL was paying a higher percentage of its revenues to the players than other sports leagues. The owners wanted to constrain these costs through the use of a salary cap. The need for a cap can be argued both ways by students and should be included in their press releases. Handout 5-2 Date_________ Name____________________________ Class________ Professor________________ The date is now February 16, 2004. The labor negotiations between the NHL owners and the NHL Players Association have failed to bring about a new collective bargaining agreement. Write a press release on behalf of the NHL explaining why the season is being canceled. Write another press release, for the NHL Players Association, about the season being canceled. Answer: These press releases should include arguments about implementing a salary cap. Expect answers to have a more somber tone as a result of the season being canceled and also to point blame at the other side for rejecting offers made during the negotiation process. Berri Chapter 6 The Economic Value of Playing Talent Objectives • To understand and explain methods to measure the marginal productivity of a baseball player. • To understand and explain methods to measure the productivity of players in a “complex invasion sport.” • To interpret ways that attempt to measure the economic value of an athlete. Outline XVI. Measuring the productivity of a hitter in baseball XVII. Measuring the productivity of a pitcher in baseball XVIII. The “ERA problem” in hockey XIX. Measuring worker productivity in a complex invasion sport: The basketball case study XX. The Scully approach to measuring MRP XXI. The promise and reality of the Scully MRP measurement XXII. A simpler approach XXIII. The free-market approach XXIV. Back to Marx and Clark Teaching Tips Measuring the productivity of a hitter in baseball Creating Student Interest • Ask your students who won the last NBA championship. Then ask them to imagine themselves, considering their current basketball skill level, as a player on that team. Ask who was the MVP of that team. Ask: Can we conclude that the student is as valuable to the team as the MVP player they mention? Why not? Weren’t both members of a championship team? Isn’t it all about the team? The need to separate the player from the team quickly becomes apparent. Next, ask your students what they remember about Moneyball. Keep asking questions about different statistics until you can get them to see that not all statistics measure what is important for winning. Presenting the Material • Show the development of baseball analytics by beginning with batting average and moving to slugging percentage. In baseball, the next measurements shown are the on-base percentage and batting run average. Explain that there have been many attempts to measure productivity in each sport. Table 6.1 shows a comparison between the types of measurements. Runs Scored per Game is a model that includes many variables in trying to explain player productivity. Remind students of the basics about regression statistics. Explain what a T-statistic and and R-square mean and how they are used in a multiple regression. Measuring the productivity of a pitcher in baseball Creating Student Interest • Ask your students who the best pitcher in baseball is. Ask them how they know that. Most likely some student will reference a statistic. Some students may compare ERAs for pitchers. Ask how we can know if ERA is the best measurement to compare pitchers. Could there be others? Presenting the Material • Compare the ERA measurement with the strikeout-to-walk ratio. Using Table 6.3, ask your students to compare the two measurements. According to the text, the problem with statistics for pitchers is that they are not consistent from year to year. This indicates either that the pitchers are wildly erratic from year to year or that the measurement is flawed. Regarding consistency, the K/BB measurement was more stable from year to year. Ask your students why consistency in a measurement would be important. The “ERA problem” in hockey Creating Student Interest • Extending the conversation to hockey, ask your students who the best goalies are in hockey. Again, ask them how we know this. What measurements can we use to determine who is best? Presenting the Material • Present the variables used to measure goalie productivity. Explain how these measurements have the same issues that ERA displayed in baseball; that is, the measurement is not consistent from season to season. Measuring worker productivity in a complex invasion sport: The basketball case study Creating Student Interest • As the discussion now turns to the measurement of basketball player productivity, ask your students who they think is better—LeBron James or Stephen Curry. Ask them to support their choice. What types of measurements can be used to determine who is the best? Presenting the Material • Point out that in sports where many actions are going on simultaneously, it becomes difficult to measure the productivity of each player. Show the Gerrard approach to breaking a basketball game down by looking at how both teams’ shooting contributes to winning games. Studies of the game have led sports economists to consider the possession of the ball, and how that takes place, as a critical element in winning games. A key point of this section is that both deductive and inductive reasoning are needed and that often more than one equation is needed to look at one sport. The Scully approach to measuring MRP Creating Student Interest • If possible, show a YouTube clip of Reggie Jackson highlights. Many students will never have heard of Jackson, nor will they appreciate his talent or his personality. Ask who would be a comparable player today. Presenting the Material • Display Table 6.13 to show Jackson’s productivity in various aspects of the game. Help the students link the number of runs scored by Jackson to the team revenue. Show Table 6.16, which shows Jackson’s production of runs, his MRP, and his salary. The last column helps demonstrate the years when Jackson was underpaid and when he was overpaid. Point out the year that Jackson became a free agent, and examine the change in the gap of his overpayment. The promise and reality of the Scully MRP measurement Creating Student Interest • Ask to students to reconsider the notion that America loves a winner. Has the love of winning diminished over time? Because winning is a measurement, then answering that question can be approached quantitatively. Presenting the Material • Table 6.18 shows the Wins variable as being significant in each league. It appears that America does love a winner. However, when we apply Scully to an entire team, the total value doesn’t seem to add up. The MRP-to-revenue ratio seems too small. This ratio is shown for each of the leagues. Part of the reason for the difficulties with the Scully method is revenue sharing, especially in the NFL. A simpler approach Creating Student Interest • Ask your students if they think that the percentage of revenue earned by English soccer players would be higher or lower than the percentage paid in U.S. sports leagues. Why do they think so? Presenting the Material • Display Table 6.24 and discuss the differences in revenues paid to players before and after free agency came into existence. Then, display Table 6.25 and compare the percentage paid to the English Premier League players. Discuss economic forces, such as competition for players between teams, to examine the pay differences between leagues . The free-market approach Creating Student Interest • Since leagues now have free agency, it does not mean that all players are free agents. Ask your students if they expect that non-free agents are paid less than free agents. Ask them by how much. Presenting the Material • Display Table 6.27. Since, in a competitive market, salary should be equal to MRP, the differences between apprentices and journeymen can be examined. Consistent with economic theory, the wage differences between restricted and unrestricted players is evident. Note the improved market power of starters over utility players. Back to Marx and Clark Creating Student Interest • Ask students to restate the debate between Marx and Clark. After studying this chapter, which one do they think was right? Presenting the Material • Discuss how both Marx and Clark are correct, depending on the circumstances. In a restricted labor market, players’ MRP is less than salaries, supporting Marx. Once veteran players can enter free agency, their salaries are much closer to MRP, thus supporting Clark. Common Student Struggles Students who shy away from numbers may be overwhelmed by this chapter. Also, students who are not too familiar with the sports discussed in the chapter may get lost in the details of measuring the performance of players. It may be best to assume that there are some students who simply don’t know what an assist is in basketball or a sacrifice is in baseball. If you are going to mention these, it may be worth taking a moment and explaining what they are before launching into their statistical significance. After going through most of the chapter, students may be discouraged when the Scully model in Section 6.6 seems to be inaccurate. As with most of the chapter, you will need to keep stepping back and making sure the students see the forest from the trees. At the same time, don’t lose track of the trees, because they are what make up the forest. Students may have questions about the tables and how to interpret the results. They may need to understand some of the ratios presented, such as Runs Created per Game. Likewise, there may be questions about the levels of statistical significance as seen in Table 6.18. Additional Resources Advanced analytics of college basketball: http://www.kenpom.com/ Advanced football analytics: http://advancedfootballanalytics.com/ Alamar, B. C. (2013). Sports analytics: A guide for coaches, managers, and other decision makers. New York, NY: Columbia University Press. Basketball statistics and analytics: http://www.basketball-reference.com/ Berri, D. J., Schmidt, M. B., & Brook, S. L. (2006). The wages of wins: Taking measure of the many myths in modern sport. Palo Alto, CA: Stanford University Press. Késenne, S. (2000). The impact of salary caps in professional team sports. Scottish Journal of Political Economy, 47(4), 422–430. Krautmann, A. C., Von Allmen, P., & Berri, D. (2009). The underpayment of restricted players in North American sports leagues. International Journal of Sport Finance, 4(3), 161. NHL analytics: https://puckalytics.com/#/ Oliver, D. (2004). Basketball on paper. Washington, DC: Potomac Books. Quirk, J. P., & Fort, R. D. (1997). Pay dirt: The business of professional team sports. Princeton, NJ: Princeton University Press. Handout 6-1 Date_________ Name____________________________ Class________ Professor________________ Imagine that you are the general manager of a hockey team that is in contract negotiations with one of your players. In a meeting with the player’s agent, the agent shows you the results of the following model and wants to use it to determine the pay for his player’s next contract. He wants to take the coefficient values and multiply them times the player’s productivity in those categories from last season, add them, and make that the amount of the contract. Using an economic analysis of models, which variables of the model would you agree with, and which would you be skeptical about? In general, would you accept this model to determine the player’s pay? Variable Coefficient t-statistic p-value Goals scored 45,327 24.65 0.000 Shot attempts 24,781 14.83 0.010 Assists 15,687 26.41 0.000 Time in Penalty Box –2,785 –1.25 0.012 Note: R2 = .31. Answer: The variables make sense for hockey productivity, but students should question what areas were left out of the model. How would this work for a player who was a defensive specialist? There is no inclusion of team play or what others on the team are doing. The Penalty Box variable is not significant, so whether it should be included in the contract negotiations should be discussed. As is pointed out in the chapter, the link between player productivity and marginal revenue product is important. It’s not clear with this model that this link has been made. Students may also question the R2 value. Would they trust a multimillion-dollar contract on a model with that level of explanatory power? Handout 6-2 Date_________ Name____________________________ Class________ Professor________________ In the inner management circles of an NBA team, some executives have expressed a desire to trade away all players once they reach the age of 30. Their reasoning is that these players have already hit free agency, and so their contracts are expensive. In addition, once players hit that age, their skills begin to deteriorate. So, they argue, we are overplaying the player. What do you think of this reasoning? How would you go about testing it? Answer: The text points out that, at least in baseball, veteran players may be overpaid. The NBA management argument could therefore be valid, but it would need to be tested. Students may suggest several types of models, but they will most likely need to include variables of player productivity, salaries, and age. Instructor Manual for Sports Economics David Berri 9781319106157
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