Everyday Economics - Bank of America

I've challenged my Principles course to find economics in their everyday life. For the most part, they've all done an excellent job, even if some of them have worked in backwards. To make sure I wasn't asking too much, I tried it myself, and it didn't take long (granted I'm getting a PhD in this, so it's a little easier). As I went to the bank today to withdraw money from the ATM, this note was pinned to the teller window:

Last week we discussed monopolistic competition and how firms try to differentiate themselves from their competitors through various means. One of the results of many monopolistically competitive firms is the excess capacity generated by trying to achieve the lowest average total cost. In the case of Bank of America, it appears that they are attempting to lower their average total cost by discontinuing the drive-thru service. Not long before the date above, a new bank opened in Pullman, implying there must be some short-run profit in the banking industry. Perhaps this is a ploy by BOA to maintain their profits through cost reduction.

Ranked Nationalities Gets Help From the Toronto Star

I'm on the cusp of submitting my first research article to the Journal of Sports Economics, and came across an article in the Toronto Star from October 28, 2012 regarding the foiled attempt by Major League Soccer to sign Swedish superstar Olof Mellberg. Toronto and Mellberg came to an agreement that the Swedish defender would play for Toronto (one of the least successful teams this year) for $3 million over 2 years. Once submitted to the league, it was rejected because the league is in charge of all player's salaries and felt that it's best to consider the longterm health of the league when signing designated players.

Reporter Cathal Kelly believes that if finical reasons weren't to blame, it had to be for two other possible reasons. Mellberg is a Swede, who appeals to none of MLS's ethnic target markets or because he's a defender and not a flashy forward. The belief still follows that the league must not find Swedish players marketable to the MLS audience, which is exactly the finding I investigated when examining ranked nationalities. Only the top countries in Europe received wage premiums relative to their English counterparts, which suggests that owners/fans prefer (and our willing to pay for) players from England, Germany, Italy, or France for example, but not "lower tiered Europeans" like the Swedes.

What convenient timing for my research and poor timing for Olof.

The Day After Halloween Treats

Talk about supply and demand: Every year following major candy holidays (Valentines Day, Easter, & Halloween) most major retailers mark their candy down by 50% or more! Why though, isn't it the same candy it was the day before?

It's all about supply and demand. Most candy is themed for the particular holiday, or broken into fun size packaging. The demand for this particular type of candy ends the day after the holiday. An decrease in demand will mean lower prices and lower quantities sold. It's no surprise that the stores dump all of their candy from storage out and mark the price in half:

This means HUGE payoffs for people willing to open individual packages to get at their favorite candies. It's not surprising either that chocolate candies are the first to vanish. Think of this as a market with a price ceiling, the store has decided that all candy will be sold at the same price, which results in a shortage of chocolate candy:

Incentives and Cheating

People amaze me when they talk about not understanding why athletes cheat. Many of them think they play for the love of the game (even the beautiful game), but few realize that they are responding to incentives. If undergraduates (and graduate students) are willing to cheat in order to gain 5 extra bonus points, then athletes will surely cheat to gain a few million dollars. Each sport has some economist (myself included) that try to estimate the value of different productivity measures. For soccer, goals and assists are valued heavily (paper forthcoming). In baseball, you may recall the phrase "chicks dig the long ball," and it's true!

So when you hear stories of steroids, blood doping, or oxygenation, just remember it's because sports consumers (you!) value these things. The large tv and incentive based contracts all revolve around a simple 101 lesson: incentives. If you think sports are immune, look around your own life.

Classes Start Soon

My first Fundamentals of Microeconomics starts on Tuesday next week, and I think the best preparation for incoming freshman may be to read this article:

Classroom Etiquette 101

It basically points out classroom etiquette that most instructors notice, but students never come out and say. The best part of this article is that it's written by a student to other students. If you're a college student, please take the time to read this and think about your actions.

It will be interesting to see how the things I've learned from teaching Sports Economics translates into a principles course.

Econ of Sports: Course Evaluations

I taught Sports Economics during the first summer session at Washington State University, and I finally got the comments back from the course evaluations. Overall, I was very happy with how the class ended, so I was really looking forward to the evaluations. Here are some of the comments from the report:

"He was excellent in offering whatever the students needed help or questions about. Always in a good mood and ready [sic] does love teaching this course, it shows in his performance."

"Jadrian was able to explain simple econ concepts in a way that is understandable. This course is a great supplement to econ majors."

"His interaction with the students and wanting them to learn and ask questions. He knew his stuff so if we did have questions he would break it down to make it easier to understand."
 

Olympic Medalists & Their Tax Bill

Little known fact, it turns out that Olympiads returning with a medal will finish the year with an extra bump in their tax burden. Why you might ask? Well, along with the medal, the IOC also awards honorariums depending on how an athlete finishes.  According to one source, the prize for a bronze medal will give the Olympiad a $10,000 bonus, but the government will take its share of 35%.

Unfortunately, that would be true if the Olympiad was already at the highest tax bracket (such as the USA Men's Basketball Team), but for true amateurs participating in the sport (say, Judo?), they will unlikely be forced to pay the full tax rate. When I was a student on an assistantship, I had made a whopping $16,000 one year, with an effective tax rate of 2%. Needless to say, most Olympic athletes are not paying the full 35%.

But wait, there's a savior in this "mess." Florida senator Marco Rubio (R), who's really a Tea Party candidate disguised with an (R) after his name, has made remarks of having this tax removed from Olympiads' tax bill. While it sounds all fair and well, it's highly illogical, and purely political. For the true amateurs, they aren't paying the full burden, and most likely have other jobs and/or sponsorships to help cover this costs. For the professional athletes at the Olympics (cough, Lebron James), they need less reasons to pay taxes. For those who complain about the tax code being too complicated (which Rubio also admits), this is just one more article in that hefty 73,608 book.

Economics of the Olympics

Many people around the world are jumping for joy at the proceedings of the 30th Olympiad, and for good reason! This marks the first time in Olympic history that every country participating has sent at least one female representative, as well as the first time that females outnumber the male participates for the USA (LA TIMES). These countries include Brunei, Qatar, and Saudi Arabia. In my mind, it's still interesting that Qatar bid for the 2016 Olympics considering that women would need to compete and the country is only just now sending female participants.

But I digress. If you're interested in seeing the effects of the Olympics on countries' GDP, most would be surprised to find that it either has no effect or negative effects. Why you ask? Well, government spending increases substantially prior to the actual games with the building of stadiums, road improvements, and even security. However, once the games are over, the government cuts back substantially. This shock sometimes sends countries into a frenzy. For an interesting look at the "Post Olympic Effect," check out this piece by the Federal Reserve Bank of San Francisco (PDF). Oh, and Go Team USA!

Why Would the Rams Give Up A Home Game?

You hear about it in college sports all the time. The reason the power house conference schools (Texas A&M, LSU, Ohio State, Stanford) schedule schools from the FCS is for an additional home game. But why, you ask? Well, these schools often pay the FCS teams in the neighborhood of $125,000-$400,000 to come play at their FBS stadium. Teams wouldn't do that unless they thought there were economic rents to be captured.

FBS teams are saying, we can pay this FCS school $250,000 to come play us at home, where we'll sell at least 40,000 tickets at $20-$60 each, concession stands sales, parking passes, and suites. FBS schools don't want to give up home games because it means it will cost them money.

But what about in the NFL, is the same thing true? Check out this article by Yahoo! Sports:
Rams to Play NFL games in London for 3 years
So why would a professional sports team give up a home game for 3 years to play overseas? The same reason FCS teams give up a home game to go play FBS schools for a paycheck. It's all about the money.

It's no surprise that St. Louis ranks 31st (out of 32) in league attendance this past year, drawing an average of roughly 56,000 fans, which fills only about 85% of the Edward Jones Dome. The 5 games that have been played in London have drawn roughly 82,000 fans, and that's regardless of the teams playing, since they change each year. The fact is, more NFL fans in London would rather show up and watch ANY two teams play then the fans in St. Louis who actually have a home team.

While the details are not clear of the financial payout for the Rams for going over to London instead of hosting a home game, you can bet that a 3 year deal to be the home team means they're making more money playing a home game in Europe than they do playing a home game in St. Louis. At the end of the day, sports are still a business, and the dollar still matters more.

Does Defense Win Championships?

A great post from the guys over at Freakonomics:

http://www.freakonomics.com/2012/01/20/does-defense-really-win-championships/

The answer may surprise you!

Sports Economics

What a growing field! The field has emerged as a fast growing discipline, and has a unique group of followers who love to answer questions related to human's favorite pastime, sports. While very few universities offer a degree in sports economics, most offer at least a class, where common theories related to economics are applied to the sports world.

Is there an advantage to playing at home?

Are referees biased toward foreign players

What factors influence salaries


These questions and more are explored in the world of sports economics. So what's the purpose of this blog? It's purpose is to bring you both academic and real-world reporting of sports economics. If an academic paper pops up that isn't heavy in econometrics, we'll pass it along. If a news article discusses economic related issues in an article about sports, it'll be posted here.

Feel free to comment and recommend articles as you find them. Together, we'll grow a large collection of sports related papers. If you have questions about graduate degrees in sports economics, we'll try to help pass along important information!

Cheers!