Bird Exception

Rozelle: any team that signed a FA had to give compensation back as determined by commisioner

Right of first refusal: meant that the team losing a player could match any offer. kept FA bids low as teams didn't want other teams driving up prices

Salary cap set b/n 48-53% of DGR..players agreed because thought owners were losing money

and the Bird Exception

defined growth revenue

national and local media money + gate revenues (more than 80% of NBA revenues)

1. DGR broadened to Basketball related income (BRI = DGR + 40% of luxury box revenue + 40% of signage + 40% of personal seat licensing).

2. Salary cap 48% of BRI

3. Bird exception stayed, mid level reinstated (each team could have one player for each per year)

4. Implementation of Escrow System. intention was to turn the soft salary cap (because of exceptions) into a hard cap

1. teams withheld 10% of every player's salary which would be kept by owners, shared, or returned to players' depending on players share of BRI

Example: say BRI is 3 billion (100 mill/team), cap is 48 million (48% of team's BRI), the escrow level is 55 mill and luxury tax at 61.1%

Escrow level raised from 55% to 57%, contracts max lowered to 6 years for bird players and 5 for everyone else. 

Labor strife now because owners want 35% reduction in players' salaries and there is almost no revenue sharing. 6 million is the max amount.

(look into developments here)

CBA had a salary cap and FA. salary cap based on DGR (gate revs +media + spillover. stadium revenues were excluded.

2. spillover is how much greater the ratio of Expected DGR/total revenue is from one year to the next (take additional percentage of EDGR and add to salary cap)

3. salary cap fluctuated based on ratio of player compensation/DGR, it would increase if ratio was below .6 and increase if it was above .67...salary cap steadied out at around 62/63% (no team allowed below 50%).

franchise tag, team gets right to resign free agent if they pay the player the average of the top 5 salaries at his position

2. transition tag, sign player for average of top 10 salaries at his position.

1. owners now want firm rookie scale (pay according to draft pick

2. nfl doesn't guarantee contracts...nfl players get signing bonuses instead...signing bonuses can be manipulated so that the cap hit for one year is diminished

3. players only get medical benefits for 5 years after retiring, do not want to extend to 18 game season...to qualify for medical benefits, have to be in league for 3 years

4. owners get 5% off top for league costs, and players give owners a credit to build stadiums.

1. DGR + spillover turned into total revenue

2. player's share reduced to 57% then 59%, then increase above 59%, any team that went above had to give back the next year...trigger system

3. overall, players got a little more money and owner's had more security

4. owners still want to reduce revenue base by 18%, dislike "trigger system"

1. national media and licensing distributed whole league

2. gate sharing 2/3 to home team; 1/3 for league

3. supplemental revenue sharing (SRS) money given from rich to poor

4. about 75% of all revenue is shared in the NFL

5. low market teams feel hurt by '06 agreement, because increase in revenue of large teams (cowboys/ny's stadiums) result in a salary increase for small teams....want more sharing.

1.balanced leauge with highest sharing, also: reverse draft, no extra revenue for making playoffs, bad teams get lighter schedule, tight cap

2. No relation between payroll and win percentage

3. additional trouble: owners against revenue sharing as some teams get public funding, while others build own franchise with private money(i.e. Kraft vs. Cinncinnati)...agree on reducing players' base by 18%

4. revenue does not equal profit!!!

5. currently: 5% off immediately, stadium subsidies and players if building new stadium, 1 billion taking off top

NHL 

Historically had FA for players in league 10 years or older than 31

in 1980...

was NHL commssioner (released figures of players' salaries for arbitrators)

Followed by two lockouts...eventually reached an agreement in July 2005

New agreement in July 2005 which lasts through 2012

all salaries reduced by 24%

Teams offer longer and longer contracts because of competitive nature teams took out insurance policies on players. Insurance companies realized they were exposed after 9.11 and the steriod era (people getting hurt easier) started to offer less covereage----teams did not see it reasonable to insure a lot of players why leagues don't self insure-would benefit teams with most expensive and longest contracts. 

Solution: make teams contribute to fund based on contract lengths---no salaries would allow teams to take more risk. 

pay people based on MRP

lowest salary with no free agency--reservation wage of player (opportunity cost)

highest salary with no FA = MRP

highest salary with FA = MRP

lowest salary with FA-$1 more than the next highest offer from another team...MRP is easiest to tell in baseball. 

TR of MLB = f(win%, win%t-1, market size, facility)

you can calculate the marginal value of a win and then you can dertermine how much each person contributes to that win

pitfalls of measuring MRP:

1) have to select best measurement of each category

2) imprecision in stats, because doesn't account for performance of other players + situational events (e.g. player's health, team chemistry)

3) relationship between categories may not be linear, hard to capture non-linearity of sports

1) owner's discrimination--paying minorities less, have discr. coefficients (would be better off if not discriminating)

2) co-workers discrimination -- dissipates over time

3) customer discrimination -- minorities offer less MRP, and therefore get paid less, no market pressure that can get rid of this type of discrimination. 

Wage disrcimination in 70s/80s of about 20% eliminated in 90s

french canadians in hockey seemmed to be discriminated

other possible discrimination: length of contracts (no study yet), exit and retention rate

Stacking? positional discrimination? blacks under represented in positions that require more thinking??

1) compare results to previous year-forbes

2) look at previous 3 years--elias

3) run regression (win% on off. -def. perf) and compare to league, but lots of noise (e.g. health, team chemistry) seems to be the best method though.

MLS limited to 3 foreigners

EPL limits each to 3 non-european players

objective to develop strong national players

fan discrimination--fans would rather see people form own country

tennis: women used to get less prize money, no partially equal

justified?: TV ratings, lenght and strength of games, history of game, highlights, sexuality

Golf: men have more prize money, what if there is customer discrimination?

have to look at revenues!!!

In some sense, a vicious circle.

Competitive Balance

What is it?

Measurements  of competitive balance:

Standard deviation of win pct. 

idealized standard deviation

actual/ideal ratio standard deviation

1. (sqrt[sum{[WPi - WPav]^2}/n)...the smaller it is the less disparity in the leauge

2. standard deviation of perfect equality divided by # of games = .5/sqrt(n)

3. allows for comparison across leagues (=RSD)

competitive balance:

NBA has the highest standard deviation...league has low revenue sharing, soft salary cap, easier for one player to dominate

NFL has lowest SD

another measurement method for comp. balance

general definition: A/(A+B)

Example: income distribution in the US:

the higher the coefficient (i.e. the higher area A, the more inequality exists

correlation b/n wins and payroll:

high correlation in EPL

94% of variation in win % is explained by diff. in payrolls

EPL has no restrictions in labor market

MLB has

highest correlation among american sports leagues, others have a very low correlation

NHL, if doing well, payroll increases before trade deadline

Competitive Balance MLB:

2002, MLB decided to increase revenue sharing:

each team taxed 35% on its net defined local revenue (tickets, local TV, advertising, minus stadium expenses)

funds from local revenue constitute straight pool systemL distributed in equal parts among teams

Revenue from national, international TV, internet and licensing is distributed via a split pool syste:

teams below the average revenue receieve funds

supposed to benefit poor/hurt rich

BUT CLIFF PROBLEM

CLIFF PROBLEM:

lowered the straight pool rate

based split pool system on four year avg. 

hurt teams that did well in past four years (red sox)

decreased: one particular reason is a talent compression, the talent difference used to be very high (babe ruth)

the trend stopped in 1990 and the standard deviation increased despite the introduction of revenue sharing...

payroll coefficient of variation increased instead of getting compressed

2.having teams consistently at the top is not necessarily undesirable: adds incentinve to beat them, they might be in a larger market...

MLB 2010 revenue was 6.5 billion (.0005% of US GDP)

but important to Amerians...public good, can't exlucde, can stil enjoy a team without ever paying a dime or going to a game. 

sports create a sens of community

demand for sports is inelastic, meaning it price is insensitive and has a vertical demand curve

Are sports isolated from economic downturns...no not completely, attendance strong, although NFL has cut jobs and secondar market ticket prices have dropped. 

TOM Hicks filed for bankruptcy (used to own half of Liverpool)

Larry Luchino at forefront of movement

moved camden yards to downtown baltimore...people would go after work, businesses would buy suites, spend dough...businesses are now more willingly to spend a lot on in stadium ads.

NFL is different b/c of the fact that there is only one game a week. 

Luchino is important --zimbo has a hard on for him, the suites at stadiums are often the first things businesses cut

assume that firms maximize profits...what is an owner's objective function?

win a championship and remain fiscally sound (winning restricted by breaking even), positive popularity (increase in ego), owning a sports team is fun, buesiness contacts and building brand strength,