A Primer on the Economics of Sport

By Robert Butler

The purpose of this ebook is to guide readers interested in the economics of sport, using practical examples. It is by no means intended to be a textbook but rather as a means to view the world of economics through the lens of sport. More accurately, it is an analysis of issues in sport from someone with an economic perspective. The information provided in each of the cases is intended to be food for thought, to engage the reader with sports economics and related issues. It is hoped that the examples used throughout can demonstrate how useful sport can be in explaining complex economic issues.

• Language: English
• Publisher: Oak Tree Press
• Release date: Aug 19, 2019
• ISBN: 9781781194041

Robert Butler

Dr Robert Butler is an award-winning teacher, recognised nationally and internationally as a sports economist, and editor and founding member of sportseconomics.org

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Divisions

INTRODUCTION

The purpose of this ebook is to guide readers interested in the economics of sport, using practical examples. It is by no means intended to be a textbook but rather as a means to view the world of economics through the lens of sport. More accurately, it is an analysis of issues in sport from someone with an economic perspective.

The information provided in each of the cases is intended to be food for thought, to engage the reader with sports economics and related issues. It is hoped that the examples used throughout can demonstrate how useful sport can be in explaining complex economic issues.

Many of the issues addressed were stimulated from watching sport and considering the economic effects of decision-making. Credit for the inspiration and for their assistance should go to colleagues of mine, particularly John Considine, John Eakins and David Butler. Others who have been very supportive include Ed Valentine and Michael Butler.

The information you will read has appeared previously on www.sportseconomics.org and, in some cases, has been updated to include new data or events.

1: COMPETITION STRUCTURE & BALANCE

Competitive Balance: The Champions League Draw

The need for unexpected outcomes is what makes sport so enthralling. Economists call this ‘competitive balance’. Competitive balance can be applied to a single match, to assess how likely a particular outcome is, or employed over an entire season to consider how well a league is balanced.

Rottenberg (1956), regarded as the first ever application of economics to sport, wrote that attendance at baseball games was:

… a negative function of the…dispersion of percentages of games won by the teams in the league.

This quote is at the heart of what is known as the Uncertainty of Outcome hypothesis.Since Rottenberg (1956), competitive balance has been extensively examined for a wide variety of sports.

The 2013/2014 Champions League Quarter Final draw is an important moment for understanding competitive balance in European football.For the first time since the competition moved to its current format in 2003 / 2004, the draw comprised the eight seeded teams from the last 16 draw. In other words, all eight group winners from the group stages were still in the competition. The concentration of group winners reaching the quarter finals had never been 100% before. Five of these were Pot 1 seeds in the original Group Stage.

The eventual winners in 2014 were Barcelona. In fact, the winners of the Champions League have come from Pot 1 every year since 2006! Liverpool was the last team to break this trend. Given that Real Madrid has won four titles since 2013, including a three-in-a-row, the competition is in danger of becoming predictable. Uncertainty is vital and needs to be protected.

More recent changes to the competition structure may not be doing this. The big four leagues of Spain (1), Germany (2), England (3) and Italy (4) arenow guaranteed four places in the Group Stage of the competition.

Fans of the Premier League will be familiar with the 4th placed team having to navigate a sometimes tricky, play-off round at the start of each new season. For example, during the 2017/2018 season Liverpool had to overcome German club Hoffenheim in a two-leg playoff before entering the Group Stages.

Since 2009 / 2010, this route has been more difficult than before, as clubs from the bigger leagues must go down the ‘League Path’ to qualify. This is different to the ‘Champions Path’. The Champions Path is for clubs that win their respective leagues but do not automatically qualify for the Group Stages. By definition, these are weaker clubs from weaker leagues, but have the advantage of playing one another in order to qualify. This is largely the reason that clubs from Cyprus, Hungary and Slovakia have reached the last 32 of the competition.

However, the new competition structure is reducing the number of teams that can qualify from the Champions Path from five to four. This is particularly bad news for clubs in smaller UEFA leagues and also for UEFA leagues ranked 11 and 12 (currently Czech Republic and Switzerland) as the champions of both leagues, normally guaranteed qualification to the last 32, will now need to come through a play-off.

It seems as if the bigger leagues are fighting back, and concessions made in 2009/2010 are in reverse somewhat.

ATP World Tour Competitive Balance

In recent years, I have watched more tennis because I believe we are lucky enough to be witnessing a golden generation. As of September 2018, Roger Federer (20), Rafa Nadal (17) and Novak Djokovic (14) have won 51 Grand Slams between them.

Since Federer won his first Grand Slam in 2003 (Wimbledon), only seven others (excluding Nadal and Djokovic) have won a Grand Slam title: Andy Roddick, Gastón Gaudio, Marat Safin, Juan Martín del Petro, Andy Murray (3), Stanislas Wawrinka (3) and Marin Cilic.

Between them,Federer, Nadal and Djokovic have won more than 82% of all Grand Slams since Wimbledon 2003, out of a total of 62 Slams! While these three players have dominated tennis for more than a decade, there is still uncertainty of outcome when it comes to them playing one another.

Many sports fans are often critical of champions who are ‘too dominant’ and suggest that they are beating a sub-standard level of opponent. World Heavyweight Boxing Champion Wladimir Klitschko comes to mind. The former WBA (Super), IBF, WBO, IBO and Ring World Champion was unbeaten in 22 fights from October 2004 to November 2017. However, ‘Dr. Steelhammer’, as he was known, was often criticised for the standard of opponent he faced. Surely, this wasn’t his fault? All he could do was beat what was put in front of him.

Great boxers are often remembered not because they won every fight but because they were part of a golden generation that fans of the sport were privileged to be part of. Sugar Ray Leonard, Roberto Duran, Marvin Hagler and Thomas Hearns are still considered some of the greatest boxers ever to enter the ring. All were defeated. However, each fought against one another in what many consider to be a golden generation of middleweight boxers.

Fans of equine sport will recall the titanic battles between Kauto Star and Denman from 2007 to 2010. The great Arkle, regarded by most commentators and, more importantly, by the National Hunt handicapper as the greatest National Hunt horse of all time, had to overcome the almost equally great Mill House. One could argue Messi and Ronaldo are locked in an equally great struggle to be crowned the greatest football player of all time.

It seems sports stars become legends when they are faced with an equally great opponent, and are not just defined by their own ability, but the ability of those around them. Federer, Djokovic and Nadal are very lucky in that regard. Each is surrounded by greatness on two sides.

The trio held a monopoly on Grand Slams from Wimbledon 2004 until the 2009 US Open when 6th seed Juan Martín del Petro shocked Federer in the final, winning by three sets to two. Remarkably, del Petro was victorious despite the fact Federer, Nadal and Djokovic all reached the semi-final stage. However, the monopoly quickly resumed and was only broken again in 2012 – again at the US Open, when Andy Murray overcame Djokovic in the final.

In 2005 and 2006 ,Federer and Nadal held the top two ATP world ranking positions. Djokovic joined them in 2007 and the three remained in the top three spots until the end of 2011. The 4th spot has been filled by various players over the years, including Lleyton Hewitt (2005), Andy Murray (2007; 2009-2011) and even Nadal (2012).

Such dominance by these players led to a sharp reduction in competitive balance in the sport.

From 2013 to 2016,Roger Federer did not claim a Major title. Competitive balance started to improve and it is no coincidence that two new Major champions were crowned: Stanislas Wawrinka and Marin Cilic. However, normal service hassince resumed. The