tag:theconversation.com,2011:/au/topics/some-sports-economics-3327/articlesSome sports economics – The Conversation2012-07-13T07:09:36Ztag:theconversation.com,2011:article/82482012-07-13T07:09:36Z2012-07-13T07:09:36ZVIDEO SERIES: Some Sports Economics<figure><img src="https://images.theconversation.com/files/12962/original/hxzm3kxm-1342162848.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> </figcaption></figure><p>If you think that economics is all theory without real world applications, think again.</p>
<p>The Conversation has been running an excellent six-part series by La Trobe University lecturer, Liam Lenten called Some Sports Economics, where he explains common economic concepts using sporting analogies. </p>
<p>You can watch all six videos right here.</p>
<hr>
<p><strong>When scoring an own-goal is the only way to win</strong>: Liam explains how scoring against yourself can actually be a winning strategy.</p>
<p>“<em>Now, you would think a basic winning tactic in the round-ball version of football would be to kick the ball between the posts. Your opponent’s posts, that is</em>.</p>
<p><em>"However, the 1994 Caribbean Cup involved a first-round match between Barbados and Grenada, in which Barbados needed to win the match by two clear goals to advance to the knockout-stage. Even winning the match by merely one goal would see Grenada advance instead</em>.”</p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/1lpymvuZn2c?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Welcome to Liam Lenten’s Some Sports Economics.</span></figcaption>
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<p>Or read the transcript <a href="https://theconversation.com/when-scoring-an-own-goal-is-the-only-way-to-win-video-7982">here</a>.</p>
<p><strong>Full versus half-full stadiums in maximising profits</strong>: Liam gives insight into the demand equals supply truism by using ticket sales.</p>
<p><em>“Now, many people know the demand equals supply truism without having studied economics, but we need a little further insight from Economic Theory to solve more perplexing phenomena.</em> </p>
<p><em>"To this end, we can look at the market for tickets to a game (as in the figure), using our helpful friend, the traditional Keynesian-style diagram. Assume the home team is a monopoly (in its local market) at least in its own sport. Here, the profit-maximising quantity of tickets is where marginal revenue equals marginal cost.”</em></p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/CeovrxJKxOo?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Part 2 of Liam Lenten’s Some Sports Economics.</span></figcaption>
</figure>
<p>Read the transcript <a href="https://theconversation.com/full-versus-half-full-stadiums-in-maximising-profits-video-7984">here</a>.</p>
<p><strong>The economics behind inelastic ticket pricing</strong>: Liam explains why the mystery behind AFL doesn’t charge more to see games live - but stadium food costs a fortune. It’s called inelastic pricing and the concept of complementarities.</p>
<p><em>“Basic microeconomic principles tell us that a monopolist maximises profits when prices are where marginal revenue equals marginal cost (<a href="https://theconversation.com/full-versus-half-full-stadiums-in-maximising-profits-video-7984">See this explained in the previous video</a>)</em>. </p>
<p><em>A lot of research suggests that teams and leagues set prices in the inelastic part of the demand curve, and that these leagues would be better off by setting match ticket prices above current levels (that is. that ticket prices are lower than the profit-maximising level).</em></p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/-mv9-TqHnKc?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Part 3 of Liam Lenten’s Some Sports Economics.</span></figcaption>
</figure>
<p>Read the transcript <a href="https://theconversation.com/the-economics-behind-inelastic-ticket-pricing-video-7987">here.</a></p>
<p>Why did Jamaica’s decision not to run the world’s fastest man (Usain Bolt) in the final leg of the Beijing Olympics 4x100m relay final actually help them win the race? In <strong>The economics of comparative advantage and Usain Bolt</strong> Liam explains the concepts of absolute and comparative advantage.</p>
<p><em>”(Usain Bolt) was selected in the third leg, begging the question why, since he was clearly faster than Asafa Powell (who was picked as Anchor – the final leg)? The boring answer is that analysts will talk about how Bolt was a 200 metre specialist earlier in his career, giving him more experience at running the bends.</em></p>
<p><em>“The more interesting (that is, economic) answer, applicable to all sorts of similar problems in many industries, is based on the distinction between absolute and comparative advantage. In its purest form, it’s used as a means of explaining why countries engage in trade of goods and services, leaving everybody better off.”</em></p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/OU6U1cp8pt4?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Part four of Liam Lenten’s Some Sports Economics.</span></figcaption>
</figure>
<p>Read the transcript <a href="https://theconversation.com/the-economics-of-comparative-advantage-and-usain-bolt-video-7988">here</a>.</p>
<p><strong>Media broadcast rights and the Prisoner’s Dilemma</strong>: Liam looks at media broadcast rights in the sports industry and why it faces what is called the “Prisoner’s Dilemma”.</p>
<p>“So what causes media networks to bid ever-increasing amounts to secure the rights? Well, they believe these sports will help boost ratings and provide other benefits, but proceed down the chain by a level, and the funds come from advertisers who want to get you to consume their product. In that desire, these advertisers have been willing to throw more and more funds into advertising.”</p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/6loOUrx9RI0?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Part 5 of Liam Lenten’s Some Sports Economics.</span></figcaption>
</figure>
<p>Read the transcript <a href="https://theconversation.com/media-broadcast-rights-and-the-prisoners-dilemma-video-7989">here</a>.</p>
<p><strong>Why do governments fund sports?</strong> Liam runs a quick cost-benefit analysis over government spending on sports.</p>
<p><em>“Is a stadium a worthwhile investment for a city? The City’s revenue is sourced mostly from the rent paid by tenants (that is, the teams) – that could be a percentage of gross or flat fee plus maybe a share of revenue from complementarities.</em> </p>
<p><em>"Though, evidence from professional sports in North America is that teams invariably receive highly favourable lease agreements – in many cases, no rent or token rent (say, $1) is paid, but it’s often linked to attendance, usually it’s less than 10% of ticket sales. On the costs side: we have construction, depreciation and (if you borrow) interest. Also, think of opportunity cost – what else could have been done with those funds to improve other public facilities that (even if not as popular electorally) might have produced better social outcomes, such as roads, schools, hospitals?”</em></p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/jRF_g7HqogI?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Part six of Liam Lenten’s Some Sports Economics.</span></figcaption>
</figure>
<p>Read the transcript <a href="https://theconversation.com/why-do-governments-fund-sports-video-7992">here</a>.</p><img src="https://counter.theconversation.com/content/8248/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Liam Lenten does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If you think that economics is all theory without real world applications, think again. The Conversation has been running an excellent six-part series by La Trobe University lecturer, Liam Lenten called…Liam Lenten, Senior Lecturer, School of Economics , La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/79922012-07-13T04:18:47Z2012-07-13T04:18:47ZWhy do governments fund sports? (VIDEO)<figure><img src="https://images.theconversation.com/files/12527/original/7vjzdj6k-1341209063.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Liam Lenten explains why the government spends your money on sport.</span> </figcaption></figure><p><em><strong>Welcome to Some Sports Economics, a six-part video series explaining economic concepts through sport, by La Trobe University senior lecturer, Liam Lenten.</strong></em></p>
<p><em><strong>In the sixth and final part of this series, Liam looks at some of the reasons why governments choose to invest money in sports</strong>.</em></p>
<hr>
<p><em><strong>You can watch Liam explain the video</strong>.</em> </p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/jRF_g7HqogI?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Part six of Liam Lenten’s Some Sports Economics.</span></figcaption>
</figure>
<p><em><strong>Or read through the transcript below</strong>.</em></p>
<hr>
<p>In assessing the use of taxpayer’s funds in, let’s say, bidding for a major event (and financing it if successful), or building a new stadium, or even trying to secure a new license for a sports team, it helps to start with the basics. Public sector subsidies (in any sector, not just sport) involve both pros and cons. This is where the tool of cost-benefit analysis becomes handy. Remember, you may be a sports fan, but you’re also a taxpayer!</p>
<p>As for the benefits of having a team, event or facilities (let’s say the latter), without public facilities for professional sport, privately built facilities will develop if (and only if) team owners expect profits – that is, if net expenditure by fans on tickets and (if you recall clip 3) complementarities exceeds the cost of building and maintenance (and the pressure to maximise profit helps keep expenditures in check). However, this is not usually the case, and this apparent ‘market failure’ is often used by sports industry advocates as a justification for public sector involvement in building the stadium, and so if the local government decides to build it anyway (maybe they see it as a public good), team owners certainly won’t argue with that – they’ll simply agree to be a tenant.</p>
<p>Is a stadium a worthwhile investment for a city? The City’s revenue is sourced mostly from the rent paid by tenants (that is, the teams) – that could be a percentage of gross or flat fee plus maybe a share of revenue from complementarities. Though, evidence from professional sports in North America is that teams invariably receive highly favourable lease agreements – in many cases, no rent or token rent (say, $1) is paid, but it’s often linked to attendance, usually it’s less than 10% of ticket sales. On the costs side: we have construction, depreciation and (if you borrow) interest. Also, think of opportunity cost – what else could have been done with those funds to improve other public facilities that (even if not as popular electorally) might have produced better social outcomes, such as roads, schools, hospitals?</p>
<p>If profit is not possible, that doesn’t necessarily mean that government shouldn’t use your taxes to build it, but why then do governments subsidise sports teams and events? The answer is found in our concept here: the city considers both direct and indirect costs and benefits, whereas the private sector ignores the latter.</p>
<p>Let’s break this down. Direct benefits? Most are obvious, but question marks could be appended to most (or just about all) of them. So you can talk about new spending by fans, or in a regional context – for example, the Gold Coast AFL team: net exports (you increase exports of games to non-local fans; and reducing imports of games in Brisbane). But is expenditure really new or just a substitute for other local entertainment? Consider how Hollywood had a bumper last quarter of 1994, coinciding with the MLB players’ strike. Or talk about the expenditure of the coach and players – after all, they live locally. Another wet blanket here is that fundamentally, sports teams and events are relatively small businesses.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/12528/original/6yvfvnfr-1341210454.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/12528/original/6yvfvnfr-1341210454.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=513&fit=crop&dpr=1 600w, https://images.theconversation.com/files/12528/original/6yvfvnfr-1341210454.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=513&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/12528/original/6yvfvnfr-1341210454.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=513&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/12528/original/6yvfvnfr-1341210454.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=644&fit=crop&dpr=1 754w, https://images.theconversation.com/files/12528/original/6yvfvnfr-1341210454.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=644&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/12528/original/6yvfvnfr-1341210454.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=644&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In 2011, the Gold Coast Suns joined the Brisbane Lions as the second AFL team from Queensland.</span>
</figcaption>
</figure>
<p>Now, indirect – what the city also considers, costs and benefits on third parties (alternatively negative and positive externalities). Negative: things like congestion, noise and crime, but even then, it might be socially optimal to merely reduce the number of games, not eliminate them. Positive: this is the so-called ‘social impact’ of the event or team, giving a sense of identity as locals, also attracting people from all over the world (which can be used for future tourism marketing), but partially offset by locals leaving? Boosters also talk about ‘multiplier’ effects. Moreover, there’s the argument that it attracts other business, but there’s little (if any) evidence of this!</p>
<p>Politicians believe (or at least try to convince the public) that positive externalities easily outweigh the negative, invoking the wonderful (if over-used) quote from the motion picture Field of Dreams: “Build it, and they will come”! Nevertheless, on balance, the general consensus of Sports Economists is that governments tend to over-spend on sports, but to properly discuss the political considerations would require a whole other series of videos.</p>
<p>Anyway, the final whistle has been blown on this video series, so we’ll leave our coverage there. I hope you have enjoyed this take on some of the sport industry’s greatest mysteries, and that you’ve learnt a bit of Economics along the way, too! In the meanwhile, think economically –it may just help you win. I’m Liam Lenten, farewell for now.</p>
<p><strong>Watch previous videos from Some Sports Economics:</strong></p>
<p><a href="https://theconversation.com/when-scoring-an-own-goal-is-the-only-way-to-win-video-7982">When scoring an own-goal is the only way to win (VIDEO)</a></p>
<p><a href="https://theconversation.com/full-versus-half-full-stadiums-in-maximising-profits-video-7984">Full versus half-full stadiums in maximising profits (VIDEO)</a></p>
<p><a href="https://theconversation.com/the-economics-behind-inelastic-ticket-pricing-video-7987">The economics behind inelastic ticket pricing (VIDEO)</a></p>
<p><a href="https://theconversation.com/the-economics-of-comparative-advantage-and-usain-bolt-video-7988">The economics of comparative advantage and Usain Bolt (VIDEO)</a></p>
<p><a href="https://theconversation.com/drafts/7989/edit">Media broadcast rights and the Prisoner’s Dilemma (VIDEO)</a></p><img src="https://counter.theconversation.com/content/7992/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Liam Lenten does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Welcome to Some Sports Economics, a six-part video series explaining economic concepts through sport, by La Trobe University senior lecturer, Liam Lenten. In the sixth and final part of this series, Liam…Liam Lenten, Senior Lecturer, School of Economics , La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/79892012-07-11T20:37:15Z2012-07-11T20:37:15ZMedia broadcast rights and the Prisoner’s Dilemma (VIDEO)<figure><img src="https://images.theconversation.com/files/12523/original/yn56tyvw-1341206725.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Liam Lenten presents Part 5 of Some Sports Economics. </span> </figcaption></figure><p><em><strong>Welcome to Some Sports Economics, a six-part video series explaining economic concepts through sport, by La Trobe University senior lecturer, Liam Lenten.</strong></em></p>
<p><em><strong>In the fifth part of this series, Liam looks at media broadcast rights in the sports industry and why it faces what is called the “Prisoner’s Dilemma”.</strong></em></p>
<hr>
<p><em><strong>You can watch Liam explain the video</strong>.</em> </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/6loOUrx9RI0?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Part 5 of Liam Lenten’s Some Sports Economics.</span></figcaption>
</figure>
<p><em><strong>Or read through the transcript below</strong>.</em></p>
<hr>
<p>One of the most amazing phenomena in the sports industry over the last generation has been the seemingly unabated ‘rise and rise’ of the value of broadcast rights. Indeed, in 1999 top Sports Economists Rod Fort and James Quirk wrote: ‘It’s a no-brainer…Over the past 20 years, from 1980 on, the most important single factor responsible for the wild explosion in franchise prices and in player and coaching salaries is the huge increase in pro sports’ television income’. And in the last decade or so, we’ve seen more of the same. With reference to the AFL, from 1988, the rights deals increased in successive waves from $30 m to around $80 m to $150 m to $500 m, then to $780 m over the period 2007-11. And just when you think they’ve plateaued, they manage to pull yet another rabbit out of the hat – the most recent rights sold for a staggering $1.253 b, and the experience is similar in the NRL, not to mention many other analogous stories across European football and the North American Major Leagues.</p>
<p>So what causes media networks to bid ever-increasing amounts to secure the rights? Well, they believe these sports will help boost ratings and provide other benefits, but proceed down the chain by a level, and the funds come from advertisers who want to get you to consume their product. In that desire, these advertisers have been willing to throw more and more funds into advertising.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/12526/original/fmzd3dj3-1341208624.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/12526/original/fmzd3dj3-1341208624.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/12526/original/fmzd3dj3-1341208624.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/12526/original/fmzd3dj3-1341208624.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/12526/original/fmzd3dj3-1341208624.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/12526/original/fmzd3dj3-1341208624.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/12526/original/fmzd3dj3-1341208624.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">How much are media networks prepared to pay to secure broadcasting rights?</span>
</figcaption>
</figure>
<p>Let’s try to drill down into this aspect, by modelling firms and advertising choice. The ‘worth’ of advertising is related to its marginal revenue product. But what if advertising’s impact falls directly on brand switching (not really on overall consumption increases)? Then, the net result depends not only on how much advertising we do (firm X), but also on how much our rivals do (firm Y). We can write this formally as:</p>
<blockquote>
<p>MRPX(AX,AY,Z) = MPX(AX,AY) × MRX(Z)</p>
<p>where: AX,AY = amount of advertising by firms; Z = level of sales of product advertised</p>
</blockquote>
<p>Marginal revenue product equals marginal product, which is a function of the amount of advertising by both firms, multiplied by marginal revenue (a function of level of sales of the advertised product), meaning that marginal revenue product is a function of all three variables.</p>
<p>We can use Game Theory – a field of economics somewhat popularised by the portrayal of joint 1994 Nobel Laureate John Nash in the Oscar-winning film, A Beautiful Mind. OK, let’s take a duopoly for a product ‘thingamyjigs’, assume both producers, X and Y, start with $50m each. Consider the following (one-shot) game – both face a simultaneous choice; and $10 m cost of advertising, but if they advertise and the other does not, they succeed in switching $15m worth of consumption from their rival. The full set of payoffs are summarised in the grid, and the initial status quo is the bottom-right cell.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/12403/original/tysh9v72-1340936531.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/12403/original/tysh9v72-1340936531.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=193&fit=crop&dpr=1 600w, https://images.theconversation.com/files/12403/original/tysh9v72-1340936531.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=193&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/12403/original/tysh9v72-1340936531.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=193&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/12403/original/tysh9v72-1340936531.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=242&fit=crop&dpr=1 754w, https://images.theconversation.com/files/12403/original/tysh9v72-1340936531.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=242&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/12403/original/tysh9v72-1340936531.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=242&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>Consider what the best strategy is for Firm X (Lentex): If Firm Y were to increase, we get $40m if we had increased, $35m if we did not. If Firm Y were not to increase, we get $55m if we had increased, but only $50m otherwise. Therefore, the conclusion is Firm X should increase irrespective of Firm Y’s action (it’s called the ‘dominant strategy’). However, using the same reasoning, Firm Y’s dominant strategy is likewise to increase. The upshot – both end up with $40m. Note of course that both would prefer $50m.</p>
<p>This outcome is a concept known as Prisoner’s Dilemma, or perhaps here an advertising dilemma, it’s applicable not only to many scenarios in sport, but also many other phenomena, even an international arms race. </p>
<p>All this spending does neither firm any good, so how to “escape” the ‘dilemma’? Well, you can’t collude with the other firm (that’s illegal in most developed industrialised nations), so without outside intervention, your only hope is to come to some kind of tacit understanding not to advertise, at least at the same time – that is, if it’s a repeated game, (let’s say advertising for the AFL Grand Final, which is every year), each firm might just be able to work out over time what the other is going to do. </p>
<p>With outside intervention, however, it’s easy – if we take the government-imposed ban on tobacco advertising on television in the 1970s, firms no longer had to worry about preserving sales in the face of rival advertising, and subsequently profits skyrocketed (albeit temporarily). </p>
<p>In summary: one thing for certain is that media rights are here to stay, and probably to rise even further still.</p>
<p><strong>Watch previous videos from Some Sports Economics:</strong></p>
<p><a href="https://theconversation.com/when-scoring-an-own-goal-is-the-only-way-to-win-video-7982">When scoring an own-goal is the only way to win (VIDEO)</a></p>
<p><a href="https://theconversation.com/full-versus-half-full-stadiums-in-maximising-profits-video-7984">Full versus half-full stadiums in maximising profits (VIDEO)</a></p>
<p><a href="https://theconversation.com/the-economics-behind-inelastic-ticket-pricing-video-7987">The economics behind inelastic ticket pricing (VIDEO)</a></p>
<p><a href="https://theconversation.com/the-economics-of-comparative-advantage-and-usain-bolt-video-7988">The economics of comparative advantage and Usain Bolt (VIDEO)</a></p><img src="https://counter.theconversation.com/content/7989/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Liam Lenten does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Welcome to Some Sports Economics, a six-part video series explaining economic concepts through sport, by La Trobe University senior lecturer, Liam Lenten. In the fifth part of this series, Liam looks at…Liam Lenten, Senior Lecturer, School of Economics , La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/79882012-07-11T04:48:39Z2012-07-11T04:48:39ZThe economics of comparative advantage and Usain Bolt (VIDEO)<figure><img src="https://images.theconversation.com/files/12497/original/bmgzndzb-1341203287.jpg?ixlib=rb-1.1.0&rect=0%2C15%2C638%2C425&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Welcome to Part four of Liam Lenten's Some Sports Economics.</span> </figcaption></figure><p><em><strong>Welcome to Some Sports Economics, a six-part video series explaining economic concepts through sport, by La Trobe University senior lecturer, Liam Lenten.</strong></em></p>
<p><em><strong>In the fourth part of this series, Liam explains the economic concepts of absolute and comparative advantage - and how Jamaica’s decision not to run the world’s fastest man (Usain Bolt) in the final leg of the Beijing Olympics 4x100m relay final helped them win the race.</strong></em></p>
<hr>
<p><em><strong>You can watch Liam explain the video</strong>.</em> </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/OU6U1cp8pt4?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Part four of Liam Lenten’s Some Sports Economics.</span></figcaption>
</figure>
<p><em><strong>Or read through the transcript below</strong>.</em></p>
<hr>
<p>As fans, we often get frustrated when our team loses – it’s natural to blame someone…often the coach?</p>
<p>We ask questions, such as: ‘why the hell does the coach play player X there’? The following is an elegant case study for an Olympic year. We need think back no further than the last Olympics in Beijing, 2008, for an illustration.</p>
<p>The example? In relays, the traditional sequence of runners in a team is picked from slowest to fastest. Selectors of the Jamaican Men’s 4×100 metre relay team confronted this very conundrum. Jamaica faced some hot opposition (fortunately for them, Great Britain was disqualified in their semi, while USA dropped the baton in theirs) leaving Caribbean rivals Trinidad and Tobago qualifying first for the final by five one-hundredths of a second, but Jamaica were still hot favourites for gold, because they had ace up their sleeve, with Usain Bolt (missing in the semi) to come back into the line-up for the final, but where… in what position?</p>
<p>He was selected in the third leg, begging the question why, since he was clearly faster than Asafa Powell (who was picked as Anchor – the final leg)? The boring answer is that analysts will talk about how Bolt was a 200 metre specialist earlier in his career, giving him more experience at running the bends.</p>
<p>The more interesting (that is, economic) answer, applicable to all sorts of similar problems in many industries, is based on the distinction between absolute and comparative advantage. In its purest form, it’s used as a means of explaining why countries engage in trade of goods and services, leaving everybody better off.</p>
<p>Let us imagine that the grid below outlines times selectors expect both to run their splits. From this, it is clear that Bolt has the absolute advantage over Powell in either position, but since there is only one Usain (not four), you can only run him in one position – so which? In short, comparative advantage tells us in which position Bolt should run.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/12399/original/y8nvc2mt-1340935032.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/12399/original/y8nvc2mt-1340935032.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=196&fit=crop&dpr=1 600w, https://images.theconversation.com/files/12399/original/y8nvc2mt-1340935032.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=196&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/12399/original/y8nvc2mt-1340935032.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=196&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/12399/original/y8nvc2mt-1340935032.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=247&fit=crop&dpr=1 754w, https://images.theconversation.com/files/12399/original/y8nvc2mt-1340935032.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=247&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/12399/original/y8nvc2mt-1340935032.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=247&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>Note also from the grid that both run the straight quicker than either runs the bend, which my experience in athletics some time back tells me is completely logical.</p>
<p>Anyway, how to work this out? That old economic chestnut – opportunity cost (defined simply as: best opportunity forgone).</p>
<blockquote>
<p>Opportunity Cost:</p>
<p>OC (Bolt at Third-leg) = 9.74 - 9.65 = 0.09</p>
<p>OC (Powell at Third-leg) = 9.85 - 9.73 = 0.12</p>
</blockquote>
<p>Now, if we run Bolt in third, we obtain a time from him of 9.74, but in doing so, we forgo running him as Anchor, hence subtract 9.65 from this, leaving us with nine one-hundredths of a second. Using the same logic, the opportunity cost of running Powell in third is twelve hundredths of a second.</p>
<p>The objective is to: minimise opportunity cost (ultimately, it is a cost) – so, select the runner with the lower opportunity cost in that position. Conclusion: Run Bolt in the third-leg.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/12502/original/64km244x-1341203492.jpg?ixlib=rb-1.1.0&rect=8%2C96%2C556%2C424&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/12502/original/64km244x-1341203492.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=677&fit=crop&dpr=1 600w, https://images.theconversation.com/files/12502/original/64km244x-1341203492.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=677&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/12502/original/64km244x-1341203492.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=677&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/12502/original/64km244x-1341203492.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=851&fit=crop&dpr=1 754w, https://images.theconversation.com/files/12502/original/64km244x-1341203492.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=851&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/12502/original/64km244x-1341203492.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=851&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Usain Bolt returns for the relay final, but in what position?</span>
</figcaption>
</figure>
<p>But that’s not quite the end of the story; we need to know that the true also works in reverse.</p>
<blockquote>
<p>Opportunity Cost:</p>
<p>OC (Bolt at Anchor-leg) = 9.65 - 9.74 = -0.09</p>
<p>OC (Powell at Anchor-leg) = 9.73 - 9.85 = -0.12</p>
</blockquote>
<p>Contrapositively to before, running Bolt at Anchor produces 9.65 but imposes forgoing 9.74, leaving an opportunity cost of negative 0.09 seconds, and via equivalent reasoning, .12 seconds is the opportunity cost of Powell as Anchor.</p>
<p>Conclusion: Run Powell in the anchor-leg. This story has a happy ending! Jamaica won the final, astonishingly by almost a full second, smashing the 15-year old World Record in the process – a Tour de Force of rational economic decision-making in sprint team selections.</p>
<p><strong>Watch previous videos from Some Sports Economics:</strong></p>
<p><a href="https://theconversation.com/when-scoring-an-own-goal-is-the-only-way-to-win-video-7982">When scoring an own-goal is the only way to win (VIDEO)</a></p>
<p><a href="https://theconversation.com/full-versus-half-full-stadiums-in-maximising-profits-video-7984">Full versus half-full stadiums in maximising profits (VIDEO)</a></p>
<p><a href="https://theconversation.com/the-economics-behind-inelastic-ticket-pricing-video-7987">The economics behind inelastic ticket pricing (VIDEO)</a></p><img src="https://counter.theconversation.com/content/7988/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Liam Lenten does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Welcome to Some Sports Economics, a six-part video series explaining economic concepts through sport, by La Trobe University senior lecturer, Liam Lenten. In the fourth part of this series, Liam explains…Liam Lenten, Senior Lecturer, School of Economics , La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/79872012-07-10T20:16:28Z2012-07-10T20:16:28ZThe economics behind inelastic ticket pricing (VIDEO)<figure><img src="https://images.theconversation.com/files/12471/original/c4c6y6w8-1341197411.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> </figcaption></figure><p><em><strong>Welcome to Some Sports Economics, a six-part video series explaining economic concepts through sport, by La Trobe University senior lecturer, Liam Lenten.</strong></em></p>
<p><em><strong>Ever wondered why the AFL doesn’t charge more to see games live - but stadium food costs a fortune? It’s called inelastic pricing and in the third part of this series, Liam looks at this strategy as well as the concept of complementarities.</strong>.</em></p>
<hr>
<p><em><strong>You can watch Liam explain the video</strong>.</em> </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/-mv9-TqHnKc?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Part 3 of Liam Lenten’s Some Sports Economics.</span></figcaption>
</figure>
<p><em><strong>Or read through the transcript below</strong>.</em> </p>
<hr>
<p>Sports fans out there might be aware of the <a href="https://theconversation.com/afl-boss-andrew-demetriou-we-are-trying-to-control-as-much-as-we-can-control-2812">casual observation</a> that ticket prices tend to be lower than might otherwise be expected (the AFL is a really good example). This brings to light the strategy of pricing in the inelastic region of the demand curve. Price elasticity, our tool here, is defined as:</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/12397/original/py8bym2j-1340934814.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/12397/original/py8bym2j-1340934814.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=303&fit=crop&dpr=1 600w, https://images.theconversation.com/files/12397/original/py8bym2j-1340934814.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=303&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/12397/original/py8bym2j-1340934814.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=303&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/12397/original/py8bym2j-1340934814.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=381&fit=crop&dpr=1 754w, https://images.theconversation.com/files/12397/original/py8bym2j-1340934814.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=381&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/12397/original/py8bym2j-1340934814.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=381&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>The percentage change in quantity demanded owing to a change in price, divided by the percentage change in price that gave rise to that change in demand.</p>
<p>Basic microeconomic principles tell us that a monopolist maximises profits when prices are where marginal revenue equals marginal cost (<a href="https://theconversation.com/full-versus-half-full-stadiums-in-maximising-profits-video-7984">See this explained in the previous video</a>). A lot of research suggests that teams and leagues set prices in the inelastic part of the demand curve, and that these leagues would be better off by setting match ticket prices above current levels (that is. that ticket prices are lower than the profit-maximising level).</p>
<p>This is a puzzle (I mean, don’t these guys care about optimisation?). The question arises: why is this so?</p>
<p>Well, if marginal cost was zero (as assumed in the previous video), then the profit-maximising solution is at unit elasticity (as depicted in the top panel). If we relax this assumption (arguably more realistic – after all, we need more venue staff as the crowd grows in number) to allow marginal cost to be non-zero (albeit small), then the profit-maximising solution is at a slightly lower quantity, and subsequently in the elastic part of the curve. The new equilibrium price is actually higher, not lower! This reinforces the puzzle, so the explanation has to be something else.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/12395/original/gsbzp4n6-1340934441.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/12395/original/gsbzp4n6-1340934441.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1019&fit=crop&dpr=1 600w, https://images.theconversation.com/files/12395/original/gsbzp4n6-1340934441.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1019&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/12395/original/gsbzp4n6-1340934441.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1019&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/12395/original/gsbzp4n6-1340934441.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1281&fit=crop&dpr=1 754w, https://images.theconversation.com/files/12395/original/gsbzp4n6-1340934441.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1281&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/12395/original/gsbzp4n6-1340934441.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1281&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>So, what is it then? One possibility (a likely candidate) is revenues from sources other than the gate (as shown in the bottom panel) – car parking, food, merchandise etc. We’ve left it late this time, but the underlying concept here is that of complementarities – there are analogies in many other industries, like how concerts in the music industry have become relatively more expensive over time because of the diminished ability of artists to extract complementary revenue from recorded music.</p><img src="https://counter.theconversation.com/content/7987/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Liam Lenten does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Welcome to Some Sports Economics, a six-part video series explaining economic concepts through sport, by La Trobe University senior lecturer, Liam Lenten. Ever wondered why the AFL doesn’t charge more…Liam Lenten, Senior Lecturer, School of Economics , La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/79842012-07-09T20:35:58Z2012-07-09T20:35:58ZFull versus half-full stadiums in maximising profits (VIDEO)<figure><img src="https://images.theconversation.com/files/12467/original/xzfytgwm-1341195961.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> </figcaption></figure><p><em><strong>Welcome to Some Sports Economics, a six-part video series explaining economic concepts through sport, by La Trobe University senior lecturer, Liam Lenten.</strong></em></p>
<p><em><strong>In the second part of this series, Liam gives insight into the demand equals supply truism by using ticket sales</strong>.</em></p>
<hr>
<p><em><strong>You can watch Liam explain the video</strong>.</em> </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/CeovrxJKxOo?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Part 2 of Liam Lenten’s Some Sports Economics.</span></figcaption>
</figure>
<p><em><strong>Or read through the transcript below</strong>.</em></p>
<hr>
<p>Now, many people know the demand equals supply truism without having studied economics, but we need a little further insight from Economic Theory to solve more perplexing phenomena. To this end, we can look at the market for tickets to a game (as in the figure), using our helpful friend, the traditional Keynesian-style diagram. Assume the home team is a monopoly (in its local market) at least in its own sport. Here, the profit-maximising quantity of tickets is where marginal revenue equals marginal cost.</p>
<p>The marginal revenue curve could be drawn as below. Those of you with some micro theory under your belt will know it is twice as steep as the demand curve (and if you don’t, you’ll just have to take me on blind faith). To complete the picture, assume that marginal cost equals zero (that is to say, there is a negligible additional cost of one extra person coming in at the gate). But at capacity, marginal cost becomes vertical (here, to fit just one more person in, you literally have to bulldoze the stadium and build a bigger one).</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/12393/original/n93y22mx-1340933918.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/12393/original/n93y22mx-1340933918.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=489&fit=crop&dpr=1 600w, https://images.theconversation.com/files/12393/original/n93y22mx-1340933918.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=489&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/12393/original/n93y22mx-1340933918.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=489&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/12393/original/n93y22mx-1340933918.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=614&fit=crop&dpr=1 754w, https://images.theconversation.com/files/12393/original/n93y22mx-1340933918.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=614&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/12393/original/n93y22mx-1340933918.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=614&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>Related to this, let’s explain the comparison between sell-outs versus half-full matches. For this, we’ll contrast two Melbourne-based teams in different sports (both are local monopolies, at least at the time of filming).</p>
<ul>
<li><p>Melbourne Storm (in the NRL) – they play at Rectangular Stadium, with a capacity of 29,000; and</p></li>
<li><p>the NBL’s Melbourne Tigers, who play at the State Netball Hockey Centre (capacity 4,000).</p></li>
</ul>
<p>Assume demand and hence MR is identical for both sports (Basketball and Rugby League, which could be imagined to be plausible).</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/12391/original/gsbf677n-1340933821.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/12391/original/gsbf677n-1340933821.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=316&fit=crop&dpr=1 600w, https://images.theconversation.com/files/12391/original/gsbf677n-1340933821.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=316&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/12391/original/gsbf677n-1340933821.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=316&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/12391/original/gsbf677n-1340933821.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=397&fit=crop&dpr=1 754w, https://images.theconversation.com/files/12391/original/gsbf677n-1340933821.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=397&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/12391/original/gsbf677n-1340933821.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=397&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>The critical point of contrast between these two capacities is where on the marginal cost curve the marginal revenue curve intersects – the horizontal section in the Storm case, and the vertical section in the Tigers case, producing very different price-quantity equilibria.</p>
<p>The conclusion here? The Tigers games sell-out every single time and in the absence of being able to shift the demand curve outwards are happy with the status quo, whereas the Storm are likewise perfectly content to have only 10,000 turn up to their games.</p>
<p>Related to this was the rather odd case in the A-League: where for some home games in 2009, Gold Coast United capped attendance at 5,000 (in a stadium that holds 27,000) – the answer to such apparently bizarre behaviour by chairman Clive Palmer lies in an extended version of this very model.</p><img src="https://counter.theconversation.com/content/7984/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Liam Lenten does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Welcome to Some Sports Economics, a six-part video series explaining economic concepts through sport, by La Trobe University senior lecturer, Liam Lenten. In the second part of this series, Liam gives…Liam Lenten, Senior Lecturer, School of Economics , La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/79822012-07-09T04:23:58Z2012-07-09T04:23:58ZWhen scoring an own-goal is the only way to win (VIDEO)<figure><img src="https://images.theconversation.com/files/12419/original/4jzz2b8z-1340954331.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Liam Lenten presents Some Sports Economics, a six-part video which uses sporting analogies to explain common economic concepts.</span> <span class="attribution"><span class="source">YouTube</span></span></figcaption></figure><p><strong>Welcome to Some Sports Economics, a six-part video series explaining economic concepts through sport, by La Trobe University senior lecturer, Liam Lenten.</strong></p>
<p><em>Liam says: “I am motivated to better explain basic microeconomic concepts – in such a way to appeal more to the sensibilities of my third-year undergraduate students. That is, using a frame of reference that they can easily relate to, in a more naturalist approach. This video series is the culmination of these initial efforts.</em> </p>
<p><em>"I hope that by making them available on The Conversation, members of the general public can also benefit by gaining a new appreciation of the dismal science. I trust that these videos can play a small role in convincing you, too, that economics is about so much more than just interest rates and current account deficits.”</em></p>
<p><em><strong>In this first video, Liam explains the link between the concept of perverse incentives and the 1994 Caribbean Cup match between Barbados and Grenada</strong>.</em></p>
<hr>
<p><em><strong>You can watch Liam explain the video:</strong></em> </p>
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<figcaption><span class="caption">Welcome to Liam Lenten’s Some Sports Economics.</span></figcaption>
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<p><em><strong>Or read through the transcript below.</strong></em></p>
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<p>Hi, I’m Liam Lenten…your host! Sport is full of apparent anomalies. We’ll raise a handful of them in this video series. But usually there’s an economic reason why we observe what we observe. Each of these six videos will introduce an economic concept (which you may or may not know) and will also introduce a tool by which the concept will be applied – all in an effort to explain these anomalies.</p>
<p>And what better way to commence the series than by way of the concept of incentives (in this case, perverse) and strategies in economics, and also the policies used as the tools to optimise outcomes.</p>
<p>Now, you would think a basic winning tactic in the round-ball version of football would be to kick the ball between the posts. Your opponent’s posts, that is. </p>
<p>However, the 1994 Caribbean Cup involved a first-round match between Barbados and Grenada, in which Barbados needed to win the match by two clear goals to advance to the knockout-stage. Even winning the match by merely one goal would see Grenada advance instead.</p>
<p>Simple enough so far, but the governing body of the tournament stipulated a very quirky rule (supposed to reward teams for winning close matches, but laden with potential for perverse incentives) that drawn games would proceed to extra-time, in which goals would count double. And, by virtue of addition of sudden-death, there could be only one. This supposedly simple rule created a horribly weird match.</p>
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<figcaption><span class="caption">1994 Caribbean Cup between Barbados and Grenada.</span></figcaption>
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<p>With less than ten minutes remaining in regulation time, Barbados led 2-0 (exactly the lead they required) and began to play very defensively, as one might expect. However, in the 83rd minute, Grenada pulled one back, making the score 2-1 (enough to send them through instead). Barbados once again proceeded to attack, but was thwarted at every turn. With only three minutes left, the Barbados players contemplated their options. </p>
<p>To advance, they still needed to score an extra goal allowing them to win by two, but they had another less obvious option afforded to them by virtue of the idiosyncratic rule mentioned earlier, which (you might have guessed by now) they chose instead – they scored a deliberate own-goal, levelling the game at 2-2 intended to send the game to extra-time, where they would have an additional 30 minutes to score, and because of that rule yet again, one goal (counting as two) would be enough to kill the contest immediately in their favour.</p>
<p>This is not even yet the most peculiar phase of the match. Now, Grenada (initial shock abating) realised that what they needed to do next was score a goal—at either end—to, on one hand win the game, or on the other lose by one but at least avoid extra-time – both of these means would be equally sufficient to achieve the ends, and so the Grenada players turned around from the re-start and headed for their own net. From here, the comedy really intensified as the Barbadians had anticipated this move and half their players rushed forward to defend the Grenada goal—while the other half stayed back to defend their own (successfully, might I add) until the end of injury time.</p>
<p>Ultimately, Barbadian ingenuity was rewarded, as one of their strikers scored the winning goal four minutes into extra-time, sending Barbados through to the following phase. It’s worth noting that no penalties were handed down by FIFA to the Barbados Federation on the grounds that they were genuinely trying to achieve the best outcome in the overall context of the tournament. As expected, the Grenadians were not amused – manager James Clarkson was furious. “I feel cheated; the person who came up with these rules must be a candidate for the madhouse”.</p>
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<figcaption><span class="caption">Tacitly collusive football between Austria and (then) West Germany.</span></figcaption>
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<p>For those with an interest in the World Game, your “assignment” is to go on-line and find out as much as you can about an infamous 1982 FIFA World Cup match between Austria and the then West Germany, which produced more than an hour of tacitly collusive goalless football (not to mention utterly boring) and see if you can understand the perverse incentives at play in that case. Needless to say, policies were altered thereafter to ensure that the final pair of first round matches in the same group, would be played simultaneously to help circumvent such incidents in future.</p>
<p>Anyway, all this sounds the warning of the Law of unintended consequences. Governments have to be mindful of these possible perverse incentives in formulating all sorts of policy, from taxation to health to education. Yes, this stuff is undeniably important to the bigger-picture of governance and society.</p><img src="https://counter.theconversation.com/content/7982/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Liam Lenten does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Welcome to Some Sports Economics, a six-part video series explaining economic concepts through sport, by La Trobe University senior lecturer, Liam Lenten. Liam says: “I am motivated to better explain basic…Liam Lenten, Senior Lecturer, School of Economics , La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.