The Role of Economics in Sports

explanatory Essay
5002 words
5002 words

"Money makes the world go 'round." Sports could not exist without the presence of money. You have high paid athletes asking for multi-million dollar contacts, while at the same time you have doctors not even making close to that amount. There are corporations buying out sports teams, buying stadiums, and buying everything that has to do with sports. Someone may ask why they do this. Sports are one of the most profitable industries in the world. Everyone wants to get their hand on a piece of the action. Those individuals and industries that spend hundreds of millions of dollars on these sports teams are hoping to make a profit, but it may be an indirect profit. It could be a profit for the sports club, or it could be a promotion for another organization (i.e. Rupert Murdoch, FOX). The economics involved with sports has drastically changed over the last ten years. In the United States, we spend about 13% of all money on sports and entertainment. Sports has obviously done its job; entertained and drained money out of our pockets.

A young boy goes up to his mother and says, "Mommy! I want to be a baseball player!" If this was said in 1930, the boy's mother probably would have told the boy, "That's not future for you! You need to get a real job and make good money." If this was said in 1999, the boy's mother probably would have said, "Let's go to the store and buy you a baseball glove so you can start to practice." It is visible to every sports fan that in the past few decades, sports has undergone a whole new renovation. It isn't just an activity that is played for fun. It is a business in which owner and players attempt to coincide. It is a business where TV controls fan interest. It is also a business that affects many people's lives, both monetary and living aspects. There are many aspects that are involved with the economics of sport. Each one having unique qualities that adds to the greatest source of entertainment.

Economics is the study of how best to allocate scarce resources throughout an entire market. Economics affect our lives on a daily basis, whether it is on a business level or a personal level.

In this essay, the author

  • Opines that sports are one of the most profitable industries in the world. the economics involved with sports has drastically changed over the last ten years.
  • Explains that sports has undergone a whole new renovation in the past few decades. it isn't just an activity that is played for fun.
  • Explains that economics is the study of how best to allocate scarce resources throughout an entire market. sports have become a business entity rather than an entertainment industry due to the strong economic impression of the overall industry.
  • Explains that sport is a business, which relies heavily on the involvement of society, and business within to be successful. there are several areas and economic factors that must be taken in to consideration when looking at the outstanding success of sports
  • Explains that economics is the study of how best to allocate scarce resources among competing uses. it is concerned with the production and use of goods and services.
  • Explains the limits of technical knowledge, productive resources available, organizational patterns, behavior, and law imposed by social custom and more. the ability of an economy to satisfy the gals of its members within the constraints set by these constraints depends on efficiency.
  • Explains that scarcity creates the necessity of making choices among alternatives, which is one of the central themes of economics.
  • Explains that most behavioral situations involve play. workers compete for higher paying positions, groups of individuals form teams (firms) and compete against other teams for consumers' dollars.
  • Explains that sporting events qualify as play, but the importance of play as fundamental economic behavior changes this perspective. sports become an arena of pure economic activity.
  • Explains that the pga has a unique pay structure when it comes to athletes. many critics in the past said that this structure was going to fold.
  • Opines that finchem admits that competing for the sports dollar long-term is much more challenging now than it was five years ago.
  • Explains that only the top players in each individual tournament receive pay and there happened to be different players almost every time. last years only six of the 326 players on the pga tour money list-made more than $1 million.
  • Explains that there are a few economic problems within the sports industry. one major problem is called competitive imbalance.
  • Explains that competitive imbalance is an economic problem because a team can't afford to pay the big dollars required to sign star players. this is evident in baseball, where the top 20 percent of major league teams won an average of 93.7 games.
  • Explains that attendance in all four major sports has gone down over the past few years due to more sports programming available on free or cable television. however, ticket prices are too high.
  • Explains that the minnesota twins' payroll for this year is only around $18 million, so it is almost impossible for them to compete with teams like the new york yankees who's payroll is around $75 million.
  • Opines that to solve competitive imbalances, there must be higher revenue sharing and luxury taxes for teams with payrolls over a certain amount. to solve the problem of falling attendance, the obvious answer is to lower ticket prices.
  • Explains that sports is a profitable industry and that sponsorship is profitable for both the sponsors and the team.
  • Explains that merchandising is another way to make a profit in sports. it includes everything from clothing and apparel to books and video games.
  • Explains the third way to make a profit in sports is through broadcasting rights. television and radio networks pay to have the rights to broadcast certain teams, which benefits both the team and the broadcaster.
  • Explains how the new york yankees made a lot of money from their 93 million dollar contract with adidas. they also made over $20 million from yankee merchandise sales.
  • Explains that sport can be a very profitable industry for sponsors, merchandisers, and television broadcasters and for professional teams.
  • Explains that television has been the primary way that sports fans can gather information about their favorite sports. the neilsen ratings tell how popular the program is and how many people are watching it.
  • Explains that the decline in popularity of watching sports on tv began in 1994. baseball was in the midst of one of the greatest seasons it had in a long time. the expos were dominating baseball with an amazing record.
  • Explains that the strike lasted into the march of 1995, canceling the world series for the first time since 1903. the fans were not as forgiving as the teams expected.
  • Explains that baseball had resurgence in popularity in 1998, when the all-star game came around, there were two players who had the opportunity to break the single season home run record.
  • Analyzes how the super bowl, nba finals, and world series will be affected by a decrease in advertising.
  • Explains how the nba's biggest star, michael jordan, had much to do with its success. with his presence, tv ratings skyrocketed.
  • Explains that when dealing with college sports tv ratings, people can easily get confused. local stations will continue to show local college coverage, but large stations such as nbc and cbs will cover big names.
  • Opines that if there were a decrease in tv ratings, it probably wouldn't affect the fans and their perspective of college sports.
  • Opines that the trend of a decrease in ratings in the long run can hurt the sports industry not so much on the college level, but in professional level sports.
  • Explains that in sports, management is responsible for the success of individual organizations and leagues or associations, and disseminates rules and regulations to individuals to ensure smooth transition from loss to profit.
  • Explains that in sport, there are several types of labor costs, which discourage a manager from making an easy logical decision to make an economic business decision.
  • Explains that player's salaries are the largest expense which organizations have to deal with. the increase in profits is due to the structure of the negotiations processes for each league.
  • Explains that travel costs are another large cost for teams to incur. the nba will cost less to travel than the nhl, and there are also coaches, equipment, trainers and sometimes family.
  • Explains that a team must also factor in game day expenses, such as field maintenance, security, ushers, facility management, and facility rental fees.
  • Explains that player development is a key tool in professional sports. the nhl, mlb, and mls all have minor league systems, which they fund.
  • Explains that the average administrative cost per team is approximately $3 million. without the players, there would be no need for an administrative team.
  • Explains how management offsets costs and turns them into profits, and how corporate sponsorships, partnerships, mergers with other businesses and media generate new revenues for professional sports.
  • Explains that the average media revenue is anywhere from $7 million in tv contracts and $8.5 to $13.4 million per team for national media. the dallas cowboys logo sells far more than the cincinnati bengal's.
  • Explains that ticket sales generate 25.9% of baseball revenues, 18.3% in the nba, 16% in nfl, and 22.3% of nhl average revenues. media generates 20.7% of all sports revenue, while stadium revenues are minimal.
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