I have attached the document with the questions. Please answer to the best of ability.

Econ 509 Fall 2024
Carlos Zambrana

Sports Economics

Exam #1 (100 Points + 5 extra points) Due October 25th, 2024 at 11:59pm

Instructions:

• You may NOT work together on this Exam.

• You may look at your notes, internet and textbook.

• All answers should be typed. Any mathematical derivations may be written by hand.

• Partial credit will be awarded to algebraic questions as long as your calculations are shown.

In 2016, following the reallocation of the St. Louis Rams to Los Angeles, the Rams owner Stan Kroenke stated that St. Louis does not have the market for three professional teams (St. Louis is also the home of the Blues and Cardinals); and that any team NFL that reallocated to St. Louis would be on track to financial ruin.

The Rams reallocation plan to Los Angeles included a deal with the Charges to build a new stadium (SoFi Stadium) and share the big Los Angeles market which didn’t have a NFL team since the 1995 season.

Moreover, while the Rams enjoyed big attendance ratings at the Los Angeles Coliseum (total capacity 78,467) with an average of over 80 thousand in 2016, 61 thousand in 2017 to mid-70 thousands in 2018 and 2019. the Chargers played at the much smaller StubHub stadium (Capacity 27,000) with near full average attendances every year; the problem was, most of the fans were supporting the visiting team.

This real-life example of teams making decisions to reallocate to different cities is very common in North American closed league, here are some questions I would like for you to answer based on the information given to you.

1. (10 points) Based on the Rams and Charges experiences:

1. 1. Explain why cities like New York and Los Angeles have more than a single team in a league like the NFL, NBA and MLB. (3 reasons)

The following website might be of help (Sports TV market size chart (NBA, NFL, MLB, NHL) - Sports Media Watch)

1. 1. Explain how the presence of multiple teams affects the monopoly power of those teams in their cities and how team success (short-run goals like win maximization) impacts the attendance of games and fan support. (2 arguments)

1. 1. Why are we likely not getting a third team (from the same sports league) in the LA or NYC market? Shouldn’t it be possible since London has 17 teams across the different divisions in the country. (2 arguments)

1. (10 points) In April 2021, the Soccer world was thrown into a turmoil as 12 of the biggest clubs in Europe came together to create the European Super League (ESL) in order to rival the UEFA Champions league (UCL) and their own national leagues. This decision resulted in several protests across Europe and resulted in 10 teams withdrawing from the league, with only Real Madrid and Barcelona as official members and Juventus still supporting with legal actions for the creation of the ESL.

The ESL predicted revenues of over 4 billion dollars, nearly double of the revenue the UCL (2.4B) generates with 32 teams playing at the group stage.

List of Clubs originally in the ESL

1. Arsenal (England / Premier League)

2. Chelsea (England / Premier League)

3. Liverpool (England / Premier League)

4. Manchester City (England / Premier League)

5. Manchester United (England / Premier League)

6. Tottenham (England / Premier League)

7. Ac Milan (Italy / Serie A)

8. Inter Milan (Italy / Serie A)

9. Juventus (Italy / Serie A)

10. Atletico Madrid (Spain / La Liga)

11. Barcelona (Spain / La Liga)

12. Real Madrid (Spain / La Liga)

1. 1. Why is it interesting for these teams to create a closed league system similar to the ones in North America both financially and competitively? What are their incentives? (3 arguments: 1 from fan perspective; 1 from owners’ perspective; 1 from the league overall)

   2. If the ESL indeed comes into fruition (unlikely, but still possible) what would be potential problems faced by the league and teams? (3 arguments: 1 from fan perspective; 1 from owners’ perspective; 1 from the league overall)

1. (10 points) Imagine you are called by the Brazilian National Soccer Team to solve one of their lineup issues. The team usually plays with three forwards. One of them is already set to be Neymar, the star of the team. The other Two Spots (Center Forward and Right Forward) are up for grabs between Three different players (Gabriel Jesus, Firmino and Richarlison). The rule of thumb is that your Center Forward should be the most efficient

at scoring goals, while the Right Forward should be the most efficient at assisting. The leftover player should start the game in the bench.

The cumulative statistics (as of 10/22/2024) of each player are as follows:

Firmino Stats: 599 Games, 180 Goals and 118 Assists

Jesus Stats: 397 Games, 143 Goals and 67 Assists

Richarlison Stats: 353 Games, 101 goals and 36 Assists

1. 1. Create a Table with their avg. goals and avg. assists per game. Who has the Absolute Advantage in Goals? What about Absolute Advantage in Assists?

   2. Create a Second table and calculate the comparative advantages. Who has the CA in goals? What about the CA in assists?

   3. Based on these stats, who should be CF, who should be RF and which player is going to start on the bench?

1. (10 points) Let’s look at the inverse demand for Lakers games against 3 different opponents (Clippers, Mavericks and Pistons)

Clippers: P = 410 – 7Q Mavericks: P = 260 - 10Q Pistons: P = 120 – 5Q

(The Staples Center can hold up to 20,000 fans and the MC is equal to 0 up until the point of full capacity.)

Using this information,

1. Calculate how much the Lakers can charge for their games by using variable ticket price technique. What is their Total Revenue?

2. Imagine the NBA passes a rule in which teams cannot charge different prices for their games. Calculate the average ticket price for these 3 games and show how much revenue the Lakers would lose.

3. Is there any pricing technique the Lakers could apply that would boost the attendance against the less desirable teams such as the Pistons? Which one would be a good choice and how should it be applied?

4. Now Suppose the Lakers will play those 3 teams on the last 3 games of the season. If they win all 3 games, they are in the playoffs. Thus, the Lakers will attempt to sell out Staples Center every game. What should be the price charged by the Lakers in each game? How much revenue are they giving up (how much revenue are they losing compared to VTP) in order to make it to the playoffs? And why can this strategy end up being more profitable if they manage to get into the playoffs?

1. (10 points) Suppose the University of Kansas only has two type of fans who are willing to come to the games. Alumni (who already graduated and are already working on the job market) and Students (Those still at school who have to make ends meet on a student budget). Both of them are huge of KU’s basketball team.

Furthermore, KU knows their demand for basketball games (given below)

Alumni:

Students:

Allen Fieldhouse’s capacity is 15,300 fans

1. 1. How many tickets would KU sell to each type of fan if it wants to maximize their revenues? (Also give me the Total Revenue)

   2. To deal with the issue found on the previous answer, KU has Student Sections which can only be purchased by current KU students for a price of 10 dollars per ticket. The student section can seat 4,000 fans. How many tickets is KU selling for each type of fan now? And how much Revenue is KU making?

2. (10 points) There are many comparisons and debates about which one of the following teams is better: the 1972 Dolphins and the 2007 Patriots. Let’s further this discussion; Use the Within Season Variation to calculate which one of these teams faced the most competitive Division, Conference and Overall League.

(Recall that the mean in football is equal to .5 -> used to calculate the Ideal deviation)

1972 NFL standings: https://www.pro-football-reference.com/years/1972/index.htm

2007 NFL standings: https://www.pro-football-reference.com/years/2007/index.htm

1. (10 points)

   1. Use the Herfindahl-Hirschman Index (HHI) and calculate the competitiveness of each Tennis Grand slam (Australian Open, Roland Garros, Wimbledon, US Open) between 2009 and 2019. Which Grand Slam is the most competitive? Champions:

1. 1. Calculate the HHI for Formula 1 Drivers and Constructor Championships over the same period.

1. 1. Over this past Decade, there were lots of complaints in regard to the dominant eras in Formula 1. RBR has captured the Championship over the last 4 years and Mercedes won the previous 7. Meanwhile the driver who won the championship also drove for the constructor’s champion.

You just calculated the HHIs for both Formula 1 and Tennis Grand Slams, how does the dominance compare between the two sports? Why don’t we hear more complaints about the dominance of certain tennis players while we often hear complaints about formula 1 drivers being so dominant? (4 arguments; Might want to do a little bit of research on each sports [tennis vs motorsport])

1. (10 points)

1. Below are bets placed at a bookie for each of these teams in the AFC. Calculate the fractional odds (round down to get integers), decimal odds and implied winning percentage. Show your calculations for partial credit if you make a mistake.

1. (10 points) What is the deadweight loss to consumers and the producer’s DWL from a $10 tax on a team’s ticket prices in the following scenario:

   1. The demand is given by and the supply is given by

1. (10 points)

1. 1. Suppose that the Los Angeles Kings (NHL) are considering a move to Kansas City. KC would need to build a new arena. How much would Kansas City be willing to pay to construct this arena if they are guaranteed returns of $40 Million per year over the first 10 years in which the Kings are in town. The interest rate is 2% per year.

1. 1. This increase in public spending could have a spillover effect on the city of Kansas city. If the Marginal Propensity to Consume (MPC) is equal to .9; and the Marginal Propensity to Import is qual to .4; how much of an impact will the construction of this arena help boost the Kansas City economy?

1. (5 points extra credit)

   1. Calculate the Lorenz curve from two European Soccer leagues of your choice from the year 2023/2024; Which league was the most competitive?

You can find the standings with the number of points by simply googling:

“German soccer league 2020/21 standings”

1. (5 points extra credit)

   1. Tell a story from your own life that inspired you to get into sports (regardless of whether it was to practice one or to watch it). I will share one of my own in class and will ask people to share theirs—as long as they are willing, of course.