# Project #33134 - Sports Economics

Sports Economics
Homework #3
1. (10 Points) Using data from professional baseball, the following estimates were
obtained for the marginal revenue of various production statistics:
Hit \$28,852.60
Home Run \$208,285.00 (in addition to the value of the hit)
Offensive Walk \$36,165.40
Offensive Strike Out -\$23,956.20
Using these numbers, estimate the marginal revenue product of the following
baseball players. You will need to get player production statistics, available at
baseballreference.com (or a similar baseball archive) and obtain the following
information for each player: hits (H), homeruns (HR), walks (BB), and strikeouts
(SO).
Year Player Team Salary Estimated
MRP
Owner
Rents
2013 Evan Longoria Rays \$6,000,000
2013 Mike Trout Angles \$510,000
2013 Troy Tulowitzki Rockies \$10,000,000
2013 Paul Goldschmidt Diamondbacks \$500,000
2013 Jay Bruce Reds \$7,541,667
2013 Dustin Pedroia Red Sox \$10,250,000
2012 Ryan Braun* Brewers \$7,000,000
* Note that 2012 was used for Ryan Braun instead of 2013 since he was suspended for a
significant portion of the 2013 season.
a. For each player, calculate the estimated total value to team owners and the
rents each player generated for their team (i.e., \$Rents = \$Est. MRP -
\$Salary). Enter your calculations in the table above.
b. Given your calculations, do you think baseball player salaries are too
high? Explain.
c. Thinking about MRP and your calculations above, why are NBA players
paid more than athletes in other sports?
d. What will the impact on player salaries be if a professional sports league
with free agent players decided to relocate one of its teams? Think in
2. (2.5 Points)
a. There are two groups of baseball players, white and non-white.
Describe the implications of the economic model of employer
discrimination for the labor market outcomes of the two groups if
employers discriminate against the non-white group.
b. Under what circumstances would an owner be able to practice employer
discrimination over a long period of time?
c. How can there be discrimination against African-American baseball
players when they make 20% more on average than white players?
3. (2.5 Points) Under a salary cap system, who benefits from a lid on rookie
compensation? Given this, when would you expect union leaders to agree to
rookie compensation lids in collective bargaining? Is your explanation consistent
with the idea that union leaders concentrate benefits on politically powerful union
members and disperse the cost over the rest of the rank and file? Explain.
4. (5 Points) Observers of pro sports leagues have lamented over competitive
imbalance in one league or another at different points in time. Without
exception, these observers point to payroll imbalance as the culprit. Test this
claim by doing the following:
a. The NBA salary cap was in place for the 1983-84 season. Using the NBA
winning percent data (available at
tml), produce a spreadsheet with the following columns: team name,
winning percent for each team for the six years prior to the year the cap
was in place (up to and including 1982-83), winning percent for each team
for the six years after the cap was in place (from 1983-84on). Calculate
the standard deviation of winning percent for each of the 12 years in your
spreadsheet (typing =STDEV(___) where ___ is the year column of
winning percentages). Then calculate the average of your standard
deviation calculations before and after the cap was in place.
b. The NFL salary cap was in place for the 1994 season. Using the NFL
winning percent data (available at the same location as above), produce a
spreadsheet with the following columns: team name, winning percent for
each team for the six years prior to the year the cap was in place (up to and
including 1993), winning percent for each team for the six years after the
cap was in place (from 1994on). Calculate the standard deviation of
winning percent for each of the 12 years in your spreadsheet. Calculate
the average of your standard deviation calculations before and after the
cap was in place.
c. What conclusions can you draw regarding the impact of salary caps on
competitive balance based on your analysis in parts a and b?
d. Are there any other factors changing during this period which cause you
caution in your analysis of the impact of salary caps on competitive
balance?
5. (2.5 Points) Suppose that the NCAA followed the Blue Ribbon Panel 2000
suggestion and ended eligibility for college baseball players entering the
draft. Would teams in MLB be better off? Why? Would college players be better
off? Why? Would there be any impact on competitive balance? Explain
6. (2.5 Points) Suppose you took players who were up for a new contract and then
compared their efforts before and after their new contract. Further, suppose their
performance fell after their new contract. Would you be able to tell from this
outcome if these players were strategic in their effort? Explain.
Here are some suggested things to collect for your paper due at the end of the term (not
due with your homework, just a suggestion to make the actual “writing” of the paper at
the end easier):
• Determine the competitive balance of your team’s division (AL West, NFC
South, etc) by looking at the years between division championship for each team.
• Explore the composition of your team’s payroll by calculating your team’s yearly
mean salary, median salary, and the percentage of their payroll that goes to their
highest paid five players.
• See whether you can find any evidence that your chosen franchise has or is
currently discriminating in the labor market in any of the ways we discussed in
(Hint: you are probably going to have to argue your point here and back it up with
supporting evidence).
• Plot your chosen franchise’s winning percentage for the 5 years prior to free
agency and the five years after free agency (in their league). Did free agency
appear to help or hurt your team? Explain.
• Examine your team’s draft position and winning percentage over time…does the
reverse order draft appear to help improve their team quality?
• Estimate how much money your team “lost” during the last work stoppage in their
league by multiplying the price of tickets the year prior to the stoppage times the
attendance the year prior to the stoppage.

 Subject Business Due By (Pacific Time) 06/16/2014 09:00 am
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