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 Some Sports Economics, where he explains common economic concepts using sporting analogies.
You can watch all six videos right here.
When scoring an own-goal is the only way to win: Liam explains how scoring against yourself can actually be a winning strategy.
“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.
"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.”
Or read the transcript here.
Full versus half-full stadiums in maximising profits: Liam gives insight into the demand equals supply truism by using ticket sales.
“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.”
Read the transcript here.
The economics behind inelastic ticket pricing: 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.
“Basic microeconomic principles tell us that a monopolist maximises profits when prices are where marginal revenue equals marginal cost (See this explained in the previous video).
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).
Read the transcript here.
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 The economics of comparative advantage and Usain Bolt Liam explains the concepts of absolute and comparative advantage.
”(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.
“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.”
Read the transcript here.
Media broadcast rights and the Prisoner’s Dilemma: Liam looks at media broadcast rights in the sports industry and why it faces what is called the “Prisoner’s Dilemma”.
“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.”
Read the transcript here.
Why do governments fund sports? Liam runs a quick cost-benefit analysis over government spending on sports.
“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?”
Read the transcript here.