Introduction to Symposium on Sports Economics

Abstract

The professional team sports industry is characterized by five major peculiarities. First, there are hardly any opportunities for productivity gains in this industry. On the output side, the number of championships that can be produced is limited. On the input side, the room for productivity gains is limited as well. In soccer, for example, clubs cannot increase their productivity by playing without their left defender even if this allowed their opponents to cut their right wing, eliminate one linesman, and so forth. Second, competition in professional team sports exhibits significant externali ties. Since output in terms of team rankings is limited, each team cannot improve its output (ranking) without the externality of worsening the rank of at least one opponent. Third, there are probably more monopolies in professional team sports than in any other industry. Teams often enjoy local monopolies. Competing leagues usually do not survive for longer periods. Either one league becomes too dominant and drives out its competitors or the competing leagues merge to form a monopoly. Due to its peculiarities and perhaps its popularity, the professional team sports industry enjoys several exemptions from common antitrust regulations. For example, salary caps, transfer restrictions, and centralized marketing by league-monopolies would not be tolerated in other industries. These exceptions result in very interesting labor market peculiarities within professional team sports. Fourth, the so called uncertainty of outcome hypothesis suggests that competitive balance increases fan demand. In other industries, firms prefer weak competitors. In professional team sports, weak opponents cannot draw large crowds and are therefore economically unattractive. Fifth, professional team sports creates various satellite markets which may generate even larger revenues than the primary sports market. A typical example of such a satellite market is the betting market. These peculiarities make the industry of professional team sports an interesting research field for economists. Since the industry is organized differently across the world and we even can often observe different institutional arrangements within a given country, professional team sports is an interesting source of natural experi ments. Moreover, the industry is rich in easily accessible data. This symposium of three selected papers has been assembled from two sessions on sports economics at the 2006 annual conference of the Eastern Economic Associa tion in Philadelphia. The first paper by Brandes and Franck empirically analyzes the uncertainty of outcome hypothesis. According to this hypothesis, fan demand