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| A public good is a good that can be enjoyed by all. Sports are a public good as one cannot be excluded from being a sports fan and is able to support a team without ever spending a dollar on that team. |
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| Inelastic demand refers to a good with a demand curve that is not affected by the general economic outlook. The demand curve is vertical. Sports is unique as one team cannot meet this demand, so leagues are necessary. |
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| The current CEO of the Boston Red Sox. Larry was at the forefront of the transformation of sports business. He moved Camden Yards to downtown Baltimore and revolutionized "luxury" stadiums. |
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| The first person to organize baseball players into a labor union and in 1972 he was at the head of their first strike. |
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| Sherman Anti-Trust Act (1890) |
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Definition
| The Act prevented contracts that unreasonably restrained trade, forbid monopolization, and enforces this via a court's judgement of reasonability. |
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| Former commissioner of the NFL. He made the argument that the NFL is a single entity, since no one team can produce the entire product. As of 2010 American Needle baseball cap ruling the NFL is still not considered a single entity. |
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| American Needle vs. NFL (2010) |
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Definition
| American Needle sued the NFL over its exclusive contract with Reebok. The Supreme Court ruled that the NFL was not a single entity and could not make such a deal. |
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| MLB Anti-Trust Exemption (1922) |
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Definition
| The MLB received an anti-trust exemption in 1922 due to the league's connection with President Taft. The Supreme Court has twice ruled the initial ruling invalid, but has not overturned it given the number of decisions made on this ruling. |
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| Sports Broadcasting Act (1961) |
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Definition
| The SBA called for collective television contracts for sports leagues that included equally distributed money for competitive balance. In 1966, the AFL and the NFL as well as the NBA and the ABA were allowed to converge. |
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| Non-Statutory Labor Exemption |
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Definition
| This allows a player union to bargain away free labor market in exchange for other benefits. Players are forced to join players unions before joining the league. Player unions bargain for age restrictions to limit supply of players to the league. |
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| This states that two goods that are unrelated can appear to be substitutes when the price of good 1 rises so far that it is a monopoly price, therefore forcing consumers to consume good 2. |
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| If a firm is able to raise its price by 5% or more without decreasing profits then the firm is a monopoly. Courts have generally found major sports leagues to be monopolies according to this test. |
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| The player wanted to be traded to the LA Rams to be close to his father. He quit the team and was later blacklisted from the NFL. Case established MLB as only anti-trust exempt league. |
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| The Act was established in 1998 and excluded baseball's anti-trust exemption in issues concerning labor. Curt Flood was traded from St. Louis to Philadelphia in 1969 and refused to report to camp. This law allows players to become free agents and provides them with another negotiating weapon in addition to strike. |
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| In free agency, the owner who overvalues a player (will pay he or she the most) gets the player. |
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Definition
| His owner violated his contract (he did not receive annuity payments) and he was ruled to be a free agent. |
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| Dave McNally and Andy Messersmith |
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Definition
| They both sat out the year in 1975 to become free agents. Baseball owners rebelled, but Peter Seitz, head of the players union, allowed them to reach free agency in a year's time. Reserve clause only lasted for a year from then on. |
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Term
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Definition
| Produce where marginal revenue is equal to marginal cost. Monopolies produce less and charge more. Leagues control the quantity of teams and keep it low, so that they can leverage the cities that don't have teams against those that do. |
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Definition
| Ticket prices are manipulated to have full stadiums which increase ticket demand and helps to maximize other revenues (concessions, merchandise, etc.). New players are used raise ticket prices, but this only makes sense if they actually shift demand function. |
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Term
| Barriers to Entry of Leagues |
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Definition
| Facilities and stadiums, brand names, television deals, minor leagues to develop talent. |
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Term
| Baseball Free Agency (1976) |
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Definition
| Free agency has improved competitive balance. The only difference between the reserve system and free agency is that the players receive the excess capital. |
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Term
| Argument against free MLB markets |
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Definition
| Teams in larger markets will have more revenue, owners who can use players for synergies will bid more, winner's curse, players overvalue themselves due to media hype, auction game. |
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Definition
| Looks at the final two contract offers between the players and owners and the arbitrator must pick one. Negotiations that are far apart usually agree to deals that are closer together to avoid risk on both sides before arbitration date. Arbitrators are supposed to compare player to others with similar ability. |
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Definition
| After the implementation of corporate dollars (club suites, advertising, etc.) teams with modern stadiums increased revenue. CBS tv deal that paid each team $16m fell through and MLB started a network that paid each team $4m. Big owners did not want revenue sharing and small owners threatened local tv deal agreement. |
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Term
| MLB Strike (1994-1995, cont.) |
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Definition
| Owners presented salary cap and revenue sharing in 1994, but the PA would not sign off on the salary cap. Players went on strike and owners hired strike breakers. Players sued and won their lawsuit. |
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Definition
| Established industry growth fund with 50/50 contributions from owners and players, 34% and 35% luxury tax on difference between your payroll and the average of the 5th and 6th highest payrolls, introduced revenue sharing, attempted to introduce salary floor, but was rejected by Don Feer of the PA. |
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Definition
| Luxury tax applied to those over a threshold at 40%, debt of teams is limited, teams must pay deferred compensation in 18 months, 40% revenue sharing constrains contracts (player worth $10m is signed at $6m). |
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Term
| Idealized Standard Deviation |
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Definition
| Shows the standard deviation of a league if all talent is distributed equally. Randomness has a larger impact on leagues with shorter schedules. Solved as (0.5)/(Sq. Root # of games). |
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Term
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Definition
| Equal to a league's actual standard deviation divided by its idealized standard deviation. The lower this ratio, the greater the league's competitive balance. |
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Term
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Definition
| Player movement is similar under free agency as it is prior to free agency. |
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Term
| Why has competitive balance grown in baseball? |
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Definition
| Population has outgrown the team growth, introduction of African-Americans and foreigners, greater talent dispersion in the early 1900s. |
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| Commissioner of MLB. Navigated the strike of 1995 and only allows people to make deals with him and only him. There have been no strikes since. |
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Definition
| Luxury tax is tweaked, debt rule is the same, local revenue tax down to 31%. |
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Term
| Posting System of Japanese Teams (1998) |
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Definition
| Agreement on the transfer of players from Japan. Japanese teams post a player and US teams make bids on exclusive negotiation rights. Red Sox bid $51m to talk to Daisuke Matsuzaka. Bid is not calculated into luxury tax number. |
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Definition
| Red Sox signed him prior to him turning pro in Japan. The Japanese were extremely angry as they felt this betrayed the posting agreement (although it did not). Baseball is subsidized in the US and not in Japan, thus giving the MLB an unfair advantage. |
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| When NBA/ABA merger talks began, he sued the NBA on antitrust grounds and won. The players allowed the merger to happen on the grounds that they were allowed free agency. |
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Definition
| The rule requires teams that acquire a free agent to compensate the team that lost the player as determined by the commissioner (usually draft picks). It is used in the NBA and the NFL. The introduction of the Rozelle Rule in the NFL after the league lost the Radovich vs. NFL (1957) case reduced the efficiency of free agency as it decreased incentive to acquire a free agent. |
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Definition
| Players agreed to a salary cap because they believed that the owners were losing money. Initial cap was set between 48%-53% of defined gross revenue. Bird Exception was added to the CBA. |
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| Defined as the national and local media money plus gate revenues. Defined gross revenue makes up over 80% of NBA revenue. |
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Definition
| This stipulates that a team can re-sign one player that puts the team over the salary cap. The intention was to allow small market teams to retain their players. Players can still become free agents, but their initial team can pay them more. |
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Term
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Definition
| Weakened the Bird Exception, so that a player had to have spent 3 years with a team to qualify, got rid of the Mid-Level Exception, implemented 7 year max on contracts and restricted year by year increase of pay to 20%. |
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Term
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Definition
| DGR broadened to Basketball Related Income, salary cap set at 48% of BRI, Bird Exception stayed, Mid-Level Exception reinstated, implementation of Escrow System. |
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Term
| Basketball Related Income |
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Definition
| Was implemented in the 1999 NBA Strike Deal. Is defined at defined gross revenue+40% luxury box revenue+40% of signage+40% personal seat licensing. |
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| A method to regulate the player's salary in the NBA and the NHL. The NBA introduced it to turn a soft cap into a hard cap. A portion of a player's salary is witheld at the beginning of each season and a certain percentage is kept depending on the share of the player's salary in the league income. It is also used in the NHL to keep salary in the correct range, effectively ending the need for luxury tax. |
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| An action taken by the players of a league if they want to sue the league based on antitrust grounds. Brown vs. NFL (1976) showed that players can't be equally protected by labor laws and antitrust laws. This happened for the first time in the NFL in the 1980s when the players, led by Freeman McNeil, sued the NFL and reached the first CBA in 1993. Decertification can be challenged by the owners as a sham, however. |
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| Incorporated free agency and salary cap based on DGR, franchise tag, and transition tag (average of top 10 salaries at position). |
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Definition
| Pay people based on marginal revenue product. Lowest player wage without FA is opportunity cost and the highest is the marginal revenue product both with and without FA. |
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Definition
| Used to determine a player's worth. It is extremely difficult to solve this function for an athlete as it is near impossible to assign percentage worth to given stats, wins, etc. |
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