Friday, July 4, 2014

NLRB: Brief of Sports Economists & Professors of Sport Management

At invitaion of the National Labor Relations Board (NLRB) a group of more than thirty sports economists and professors of sport management have submitted an Amicus Brief in support of the Collegiate Athletes Players Association (CAPA) petition on behalf of Northwestern University football players. The entire document is available at the following link.
Amicus Brief 

Thursday, February 20, 2014

A Comcast-TWC Merger will Matter to Sport Fans

Comcast and Time Warner cable are both major players in the sports television market. Comcast is the parent of NBC and its holdings include NBCSN (The NBC Sports Network) the Golf Channel and numerous regional sports networks (RSN) across the country. TWC is also becoming a  player in the RSN market, importantly in Los Angeles. For my take on this merger see Temple U economist: Why the Comcast-TWC merger is bad for the public in the Philadelphia Business Journal. Or, check out my radio interview on the same subject on WPHT 1210, CBS Philadelphia's Chris Stigall Show.

The sports angle in indirect, but sports programming  is very important to the cable TV industry and viewers choices are sure to be affected one way or another. The price to watch and access to sports on TV are not all that matters. Franchise values and player salaries are also impacted by what happens.

Thursday, September 12, 2013

Antitrust Law & Live Streaming of Games over the Internet

As documented in the last post, Major League Baseball Advanced Media (MLBAM) consolidates all team web sites and other Internet activities including the live streaming of games under the league’s umbrella. The NBA and NHL likewise control all clubs’ Internet services and streaming capabilities. The NFL is at least as restrictive in turning over live streaming exclusively to its broadcast partners. No heed is paid antitrust law’s conceivable application to collective league action of this sort. This was the case with American Football League, which sold broadcast rights collectively on start-up in 1960, jumping the gun by two years on the Sports Broadcasting Act, and likely helping the NFL convince Congress of the Act's necessity. There is of course nothing in the 1962 SBA that explicitly recognizes league control of live streaming games via the Internet. Moreover, the Act is very specific in limiting its application to television broadcasts of professional football, baseball, basketball, and hockey only. League control of Internet and website services has been challenged by individual clubs. However, last year the television and Internet blackout policies of MLB and the NHL each became the subject of class action antitrust lawsuits filed by customer groups. In December of 2012, a motion by the leagues to dismiss the now consolidated cases was rejected by US District Court Judge Shira Scheindlin; the case proceeds.

The plaintiffs allege that the leagues have violated the Sherman Antitrust Act by unfairly restricting fans' ability to watch local broadcasts through internet streaming or satellite television in two ways. First, consumers must purchase a package that includes all out-of-market broadcasts. For example a St. Louis Cardinals baseball fan living in New York City cannot simply purchase the feeds of Cardinals games, but a more (presumably) expensive package that includes all but the games of the Mets and Yankees. Second, the packages blackout any games broadcast locally via a CATV regional sports network (RSN). Customers cannot use Internet or mobile phone feeds to watch their local team play, but must instead purchase a cable subscription and watch televised games from an available RSN. This obstruction is particularly acute in areas with no well-defined local team, such as Las Vegas. Rather than making all games available, the area is instead designated by MLB as a local market for all six California and Arizona teams. Up to forty percent of the games played on a given night can be blacked out in Las Vegas…although that city is rumored to have other entertainment options. This is likewise the case in Iowa, parts of which is assigned by MLB as the home market for the several Midwest teams from the surrounding states (and which, after the state fair packs up, has slightly fewer entertainment choices than Vegas). The complaint charges that the exclusive broadcasting policies enable the RSNs to charge monopoly prices for their much sought after sports programming and to raise the subscription fees for cable consumers. The outcome of these lawsuits is critical to the access and costs of live sports programming for consumers. The failure by the plaintiffs to have the cases dismissed means the current situation will be checked to a degree. However, the lawsuits will likely be settled by negotiation before a court ruling is ever made. MLB and the NHL will most likely be forced to yield on the most extreme of their restrictions, like those described above; yet the rights to central control, and to  blackout in a more reasonably defined local market, are likely to remain.

As noted above, live Internet streaming is available to all but local market subscribers. Yes, that’s right, exactly the subscribers who should most desire live streaming! Like the fears from way back in radio days, that broadcasts would dampen live attendance, the substitution chance between Internet and the RSNs that deliver baseball and hockey to local markets, drives the leagues’ policy. The stakes are high and growing as RSN contracts for broadcast rights become increasingly more lucrative. With consumers switching to new delivery options for television shows and movies, live sports programming is the last stronghold of appointment television viewing, and this is driving rights values and contract commitments for live sports programming through the roof. However, these values are predicated on the considerable monopoly power of RSNs, often under joint ownership with their broadcast partner clubs (e.g The Yankees and the YES network). Statutory or court ordered weakening of the league-team-RSN monopolies likely bursts the broadcast rights bubble, and the leagues will dig in to protect their cash cow.

Notwithstanding, root of this problem is the allowance of league controlled streaming rights, which should be considered violation of antitrust law, and certainly are not protected by the SBA. This policy is unquestionably bad for consumers and there is no valid reason permit league controlled streaming and the accompanying restrictions on the product's delivery. Moreover, leagues have and will restrict broadcasts exactly to the level that they are allowed by law. Witness the NFL whose restrictions on Sunday free-to-air broadcasts often leave their customers with little choice and only unattractive games. Deadspin now rightly takes the league to task over this weekly. To evaluate what is taken from consumers, simply compare the availability of NFL games to NCAA football, which is not protected by the SBA on the basis of  the 1984 US Supreme Court decision (NCAA v. Board of Regents of the University of Oklahoma).  All the big NCAA games, and then some, are readily available to all markets. Consequently, without aggressive action by the courts, MLB and NHL fans and more will be able to watch their local team only with an RSN cable subscription, which will become increasingly expensive—good for the leagues, not the fans.

Sunday, September 8, 2013

Is Baseball the New Football?

Thirteen years ago Major League Baseball’s thirty teams collectively fronted a $75 million investment and launched a vehicle incorporating all individual team’s web sites and other Internet activities under the league’s umbrella. All content delivery, including developing live steaming capabilities, became part of Major League Baseball Advanced Media (MLBAM) assets, and their format has been essentially copied by all the rest. At the turn of the millennium the Internet could be described as roughly at the same early stage of development as television technology when the Colts-Giants 1958 NFL championship game triggered the transformation of football into America’s TV game. Since, and primarily simply due to the nature of the game, baseball has been regarded by many as a dinosaur because of its (relative to football) lack of adaptability to television broadcasts. Yet now the Internet, and the associated technology and devices, is rapidly changing viewing options, as did television offer an alternative to live event attendance. Perhaps, in much the same way that the NFL thrived because of its adaptability to television broadcasts, a baseball renaissance is mounting because of the sport’s suitability to the Internet.

The Internet through its access flexibility, available through an increasing array of mobile devices, provides an environment that allows consumers to partake in other activities, sport related and otherwise, while at once viewing/consuming a game. In this case, the nature of baseball may make it the sport most apt for multi-dimensional consumption. Besides standard broadcast delivery for viewing and listening though live streaming—available to all but local market subscribers (more on this to come) on since 2003—customers can access news, schedules, standings, and statistics from around the league and detailed information on each of MLB’s teams. Additionally, comes the opportunity to create and play in fantasy leagues. As consumption options have expanded beyond the simple and passive viewing of a game, baseball's deliberate pace, a liability for old fashioned broadcast TV, seems tailor-made for complimentary consumption options, and particularly for baseball because it is arguably the team sport whose fans are most consumed by supplemental statistics and information. 

MLBAM’s impact on MLB’s revenues was quick and clear. In 1999 MLB revenue totaled a little more than $3.6 billion, similar though about one-half billion more than the NBA at the time. By 2006 MLB revenues had nearly doubled to more than $6 billion, nearly keeping pace with the TV-rich NFL who returned $6.5 billion that year; meanwhile NBA revenues had grown only a bit, to just exceed $3.5 billion. Baseball business analyst Maury Brown wrote in late 2005 that MBLAM had become a money machine, and profitable in less than three years. USA Today reported revenues reached $380 million annually by 2006. Pete Toms revealed that by 2010 MBLAM annual revenues were excess of $500 million and the estimated value of the subsidiary enterprise was $2 - $3 billion. The MBLAM subscription price in 2013 topped out at $130 for all-year, full service accessThe NBA and NHL followed MLB’s lead and each offer similar full service websites that include live broadcasts to subscribers for out–of –market games. These products are likewise popular and similar to MBLAM, and are able to charge annual subscription prices of  $150 per year, though both attract fewer subscribers than MLBAM.

The dinosaur this time around may be the NFL, ever cautious and always effective at limiting consumer viewing access for profit. Like its peers, the league maintains control over team websites and content. However they've left live steaming options to their contracted broadcast networks. For example ESPN is able to live steam Monday Night Football, but will do so only for its cable subscribers. Because of the volume of cash turned over by the networks for rights, there is for the NFL a more delicate relationship than the other league’s have with their TV partners; the networks collectively pay the NFL substantive rights fees—over $20 billion in 201112, and that amount will nearly double to $40 billion per year beginning in 2014—far and away the highest in sports.  At present, the surge in traditional broadcast revenue has kept the NFL on at the top of the heap in terms of revenue generation- as they are now nearing $10 billion in annual revenues as number two MLB approaches $8 billion. But the NFL trails the pack in internet delivery. NBC offered the first ever live steaming of the Super Bowl in 2012, but the decision on steaming in the future will be determined by the network holding the broadcast rights. General access to live steaming is controlled by the NFL’s satellite television partner DIRECTV, and before 2011 access had been limited to those only homes where that service was not available and then only to those with specific mobile devices. Live streaming of NFL games became available universally to all devices for the first time in 2012, and at a hefty subscription price of $300 for the full service package.

Traditional broadcast markets are still thriving and keep the NFL at the top in terms of revenue and value. However assuming that Internet technology develops in the next twenty years at least as dramatically as did television technology from the 1960s onward, MLB is the league best prepared to capitalize. 


Thursday, September 5, 2013

Broadcast Revenue and Competitive Balance in the NFL

The NFL receives much credit for achieving the highest degree of competitive balance among American team-sport leagues. This is after all the league that shares all television broadcast revenue equally among its teams and strictly enforces a hard salary (actually payroll) cap. Any number of methods used to assess competitive balance confirm the competitive balance superiority of the NFL relative to the other major American team-sport leagues. Yet after further review, the two primary reasons just given for the league’s success at maintaining a relatively even distribution of talent across clubs do not hold water. This post will discuss the sharing of broadcast revenue, with the salary cap’s effect to be evaluated in a future post.

Much credit for the level of competitive balance, and the assumed corresponding financial success, in the NFL is given to the decision to sell collectively and share equally all television broadcast revenue. The financial advantage is certainly the case as the league controlled sales generate considerable market power and price is manipulated by regulating output; monopoly profits result. Commissioner Bert Bell realized the economic advantages of monopoly limits on the availability of televised games through league controlled rights the 1950s. However, he was thwarted by federal antitrust law. League sale of broadcast rights was ruled a violation of the Sherman Antitrust Act prior to the enactment of the Sports Broadcasting Act of 1961. Nonetheless the upstart challenger American Football League, formed in 1960, boldly sold their broadcast rights collectively, and without a successful legal challenge. Facing a competitive disadvantage the NFL, through recently appointed Commissioner Pete Rozelle, aggressively lobbied Congress to enact the SBA as a statutory exemption to federal antitrust laws. Under the Act antitrust laws do not apply to any agreement allotting broadcasting rights made by a professional league comprising only the sports of football, baseball, basketball, and hockey. Though not required by the law the NFL and the other three major American sports leagues have chosen to split league collected revenues equally among clubs. Only the NFL has assumed full ownership of television broadcast rights at the league level.

With NFL broadcast revenues equalized across teams beginning in 1962, the first year of league sales and equal revenue sharing, conventional wisdom suggests that the distribution of talent would also have leveled as the advantages of media market size were significantly curbed. However, the examination of two key dimensions of competitive balance does not support this position. The frequent claim is made is that the league’s broadcast revenue distribution allows the smallest markets to compete on an even playing field with the largest.  However from inception in 1922 to 1961, the Green Bay (WI) Packers, representing the NFL’s smallest media market through all except the very early part of this history, accumulated more league championships, at seven, than any other club. (The Packers were league champions in 1962 as well.) Green Bay and other smaller market clubs have accumulated titles since, but small market success hardly parallels the sharing of broadcast revenues. Championships in the before SBA period, as they have been since, were quite well distributed. From the largest markets the Chicago Bears earned six titles and the New York Giants four championships. Among the rest, the Detroit Lions won four championships, while the Philadelphia Eagles and the Cleveland Browns claimed three titles each. For those clubs with significant membership tenures in the league during this period, only the Pittsburgh Steelers and San Francisco 49ers were denied titles.

Economists prefer a more scientific approach for evaluating the distribution of talent, with the standard deviation of win percent each season commonly employed. (Standard deviation is adjusted to account for the number of scheduled games per season by creating an actual to ideal ratio of dispersion, the RSD. The closer to one the ratio, the better the competitive balance.) Again using the more specific metric, the claim that the SBA and collective rights sales improved balance is specious. Comparing the adjusted standard deviations averages of the before and after SBA periods in their entirety does reveal modestly better balance in the latter period. The RSD averages 1.74 for forty years before and improves to 1.57 for the fifty years after the Act’s passage. However a closer look, comparing the shorter periods directly before and after passage, reveals a different story. For the eleven preceding years, 1950 to 1961—the period beginning with the merger of the NFL and AAFC—RSD for the NFL was 1.53. RSD for the eleven years, 1962-1973 following the Act’s passage measures 1.74.  Competitive balance actually became worse in the immediate aftermath of the SBA!

Of course there are several factors that potentially influence the distribution of talent across teams in a sports league. Moreover, much besides the enactment of the SBA will likely differ between any arbitrarily compared eras. Included are shifting demographics, collective bargaining provisions, league expansions and mergers, changes in post season opportunities, etc. Notwithstanding, there is no evidence that the equal sharing of the proceeds from national television broadcast rights sales improved competitive balance in the NFL.

Thursday, August 29, 2013

Ranking FBS Coaches

The college football season kicks off this weekend; every squad has a clean slate and most fans have rosy expectations regarding the fate of their favorites. However as the season progresses many teams will disappoint and the head coach will be forced to face the music. In fact it’s likely that as many as twenty of the current group of one-hundred twenty-five FBS head coaches will be replaced before next season. The volatile labor market begs the question, what factors determine success and failure in this extremely well paid but highly competitive occupation?

Head football coaches must be proficient in two primary areas. First they recruit talent, the primary input to success. Just as important, the talent on hand must be utilized to produce wins. The head coach, much like a corporate CEO, assembles a staff responsible for both of these aspects. A fair evaluation of a head coach's performance accounts for execution in both of these areas. My paper, just published in the Journal of Sports Economics“Efficiency and Managerial Performance in FBS College Football to the Employment and Succession Decisions, Which Matters the Most, Coaching or Recruiting?”, examines coaches' performance in both realms and ranks the full set of FBS coaches each year from 2005-2011. The quantification of “talent” is derived from the annual recruiting class rankings. Efficiency is defined as how well each coach uses his resources relative to the average of his peers for each given year.

There are few surprises among the group that most efficiently utilizes talent (see the paper's table 3); Alabama’s Saban, TCU’s Patterson, Boise State’s Peterson, and Oregon’s Kelly are consistently represented in the top ten for the most recent years. More surprising are those comprising the bottom ten each year. This group is typically populated by coaches at premier programs, and thus able to recruit top talent, but whose teams were coning off mediocre or worse seasons, Texas’ Brown, Georgia’s Richt, Tennessee’s Dooley, and Neuheisel at UCLA, make multiple appearances among this group. Note that a frequent presence toward the bottom of the list typically leads to dismissal, e.g. Michigan’s Rodriguez, Dooley, and Neuheisel.

For the purposes of evaluating recruiting, the efficiency tests control for the football program’s reputation and resources. Even with the controls, coaches at high resource schools rank at the top of the yearly recruiting efficiency lists (table 5). However, that is not a surprise as there are some intangible factors that push blue chips toward these schools and effective coaches in recruiting as well as winning—those are highly correlated—move up to these highest paid positions at high resource programs. LSU’s Miles, Ohio State’s Tressel, and Oklahoma’s Stoops were regulars at the top of the recruiting efficiency list list during the sample period. Likewise some of those who fared poorly in talent utilization, like Richt and Neuheisel, are also frequently near the top in recruiting efficiency. The bottom groups in recruiting efficiency reflect an odd mix; some are coaches from high resource schools who had an unusually low-ranked recruiting class, Iowa's Ferentz  for example. However, coaches of successful lower resource programs, like Peterson and Patterson, are well represented here. Likely those who employ a nontraditional style of play are less interested in the blue chips, those players who are rated highly by the recruit ranking services. Instead they successfully recruit lesser ranked high school and junior college players who fit their particular style of play. Most revealing was the examination of individual coaches' performances over time. The key finding is the trend among all coaches for recruiting efficiency to wane over their tenure, and this decline leads to eventual dismissal. 

Both efficiency factors matter to firing and hiring, although talent utilization carries more direct weight in those decisions. Nonetheless, as recruiting efficiency falls of so does winning, which leads to dismissal. Interestingly, a consistent finding is that the new hires who best use the predecessor’s talent most likely go on to become the most successful coaches.

(The paper’s tables report the top and bottom ten coaches in each category for 2009 -2011 and the full set of rankings are available in the appendix.)

Thursday, August 22, 2013

What Drives Selig's Hard Line on PEDs?

Bud Selig is crazy…crazy like a fox. The bumbling car peddler managed his way to the head of the owners’ table and put together a coalition of merry men who engineered the biggest transfer of wealth since Lenin's crew. With the Steinbrenners and their ilk long since conquered, now it seems his sights are focused on the other group with whom he must share the proceeds of his profitable sport, the MLBPA, and he has a big stick. 

Major League baseball players face a Catch-22 on demands from their union. On the one hand they want the drug cheaters exposed and punished, if not ousted altogether. There are fewer than one thousand major league jobs and earning one and keeping it is brutally competitive and entirely performance driven. Players pumped up from PEDs literally threaten the jobs of those who choose to play by the rules. Conversely, players need the assurance of reasonable rights to privacy, and due process in any and all disciplinary actions. It is likely that right now the rank and file better understand, or at least are more responsive to, the former—it’s an emotional issue. But union leadership, distinctly in the tradition of Marvin Miller, understood that without the latter the owners via the Commissioner’s office could and would run roughshod over them—for a case in point witness Goodell’s NFL. The MLBPA has long maintained solidarity on nearly every issue, mostly falling in lock step with leadership’s propositions. That has served them well, especially when comparing their negotiated outcomes to the other sport unions. Nevertheless, PEDS policy may come to be the divisive issue. More importantly is the Commissioner’s push toward increasingly hard line policies motivated by a desire to split and bust the union? That’s what Miller thought—he viewed the drug testing frenzy as a “witch hunt” (H/T Edge of Sports).

Nonetheless, if the players want a “clean”  game they have the right to it and what constitutes banned substances should be at their collective discretion and really no one else’s. One should not feel pressured to imbibe to get or hold a job, especially when the substance is potentially dangerous and life threatening. Indeed, when it comes to banned substances, isn’t safety the only legitimate concern for what is and is not allowed? The problem is, with few exceptions, there is no clear and known line between the safe and unsafe. Substance policy at all levels instead follows a ridiculous pattern of taxonomy: if the substance is like medicine and heals one back to normal… no problem. However, if the junk is like a drug that makes a person better than normal, or to feel that way, it must be outlawed. No matter that a single substance, anabolic steroids or marijuana for example, can do both depending on the situation. But even if it could be known with certainty what substances should be, or need not be banned, the enforcement process becomes the worst sort of quandary. Nowhere are privacy rights and due process in more jeopardy than with drug testing. Yet, without testing the proscriptions have no teeth at all. On what side then does an athlete come down?  If  your career and livelihood are at stake it’s a dilemma, and one that can be exploited. Why is the hysteria over Biogenesis so baseball specific, when athletes from other sports were implicated too? As a union busting strategy, it fits all too well a familiar pattern of divide and conquer.  An unpopular antihero emerges to be the public face of the scandal, the other fingered desperados fit nicely along a vulnerable racial and ethnic divide—from Biogenesis all but two found culpable are Dominican. As Dave Zirin points out, it is white US-born players who are the most aggressively outspoken regarding their disapproval of PEDS. 

Perhaps Selig’s hardline is all about his legacy and reversing his image from being remembered as the  “steroid Commissioner” to the righteous savior of the game from drugs. But seriously, this is a man who seems to care nothing for his public image in any other context.  Every move he has made as Commissioner has been motivated by shifting the wealth of others his way, and that’s exactly what will result from a diminished union.