Thursday, July 1, 2021

The NFL Market for Damaged Goods

While lots of discussion has gone into the diagnosis, treatment, prevention, and abatement of concussions in the National Football League, little attention has been given to the financial losses experienced by the injured player. 

Is it possible to measure the cost of a concussion? I tackled this topic once before but I admittedly fumbled my way through it. Now it's time to push this idea over the goal line.

Nearest-neighbour matching is a rather simple process in which each observed item can be pared with its closest nieghbour. For example, home-lenders will use nearest-neighbour matching to collect prices on recently sold houses, known as 'comparables,' to assess the appraisal value for the home they are underwriting a loan for. They consider all sorts of observable information, such as number of bedrooms, bathrooms, square footage, attached/detached garages, etc.

Similarly, we can use nearest-neighbour matching to assess similar National Football League (NFL) quarterbacks. We can consider everything from the athletes' age, experience, passer rating (or quarterback rating), etc. Once we have a set of pared quarterbacks, we can calculate the impact small differences can have on the future salary of a free-agent quarterbacks.

For example, it's logical to say that two quarterbacks who each played in 9 games and threw for roughly 2,000 passing yards and 11 touchdowns would be very similar individuals. In fact, one would imagine that two such individuals, such as 2013 Matt Cassel and Jason Campbell, should be in line for a very similar compensation in free agency: See the table below to see how similar these two quarterbacks faired in the 2013 season.

Matt Cassel
Jason Campbell
2013 Year 2013
31 Age 32
9 Games
1,807 Yards 2,015
11 TDs 11
81.6 Rating 76.9
2 Years
1 Year

But what if I told you that one of the two aforementioned free-agent quarterbacks received seven times as much money as the other? Is there some other variable we have not considered that can explain why Matt Cassel would be valued at $9 million more than Jason Campbell?

That's right - in 2013, Jason Campbell had a concussion!

Despite Jason Campbell's concussion keeping him out of NFL action for only one game, it appears that NFL executives may have viewed him as 'damaged goods.' In fact, repeating this exercise for all the free agent quarterbacks with concussions from 2012 to 2015, leads to similar findings: Jimmy Clausen played a lot like Ryan Mallet in 2014 but missed one game due to concussion and subsequently received less than one-third what Ryan Mallet made in 2015; similarly, Brian Hoyer and Ryan Fitzpatrick were very similar in 2015 but a 3 game absence from a concussion led to Brian Hoyer making only 17 percent of what Ryan Fitzpatrick did in 2016 (despite Brian Hoyer being younger and arguably better when he was healthy).

Unfortunately (but for their sake, fortunately) there are not many quarterbacks entering free agency after a concussion: consider that only nine quarterbacks suffered a concussion prior to free agency while one of them, Johnny Manziel, never played again in the NFL (but perhaps a concussion was the least of his issues). The lack of concussion events makes it difficult to assess how general this finding is. 

Assuming these findings are true, however, presents a new type of arbitrage: since some studies have found that performance after a concussion is comparable to pre-concussion levels, bargain-hunting teams may be able to sign post-concussion free agents below market value. Consider that after his concussion in 2015, Brian Hoyer went on to throw an average of one touchdown per game with a passer rating of 98, all while making just $2 million for the 2016 Chicago Bears; at the same time, Ryan Fitzpatrick re-upped with the New York Jets for $12 million and threw for 0.86 touchdowns per game with a passer rating of 70. 

Again, while anecdotal, this could be evidence that some teams are taking advantage of the damaged goods, just dented cans at the grocery store.

Tuesday, June 15, 2021

Have I got news for you!

An exciting announcement: some of my recent research was the subject of a news article on where I was interviewed for some sounds bites.

Wednesday, June 2, 2021

New Published Articles

Dear readers,

I have taken a short break (as I am wont to do from time-to-time) to focus on some research. I am happy to now announce the fruit of this labour:

First, "Doping in Sports: A Compliance Conundrum" has been included as a chapter in the textbook The Cambridge Handbook of Compliance. It is chapter 65 of 69, which leads me to believe they followed the age-old adage, 'save your best for [almost] last.' (I will update the link with a version of the text if/when I can find one).

Second, "Stadium Giveaway Promotions: How Many Items to Give and the Impact on Ticket Sales in Live Sports" has been published (online) at the Journal of Sport Management. Avid readers will find it takes a familiar spin on the bobblehead topic I have been taking about ad nauseum

Thank you for all your support and stayed tuned for more research updates and (most importantly) future posts on Sports and Economics (in that order).


Tuesday, March 9, 2021

Ale-lasticity: How price sensitive are MLB beer drinkers?

TLDR: A recent poll came out stating that Chicago White Sox fans drink the most beer during baseball games. While also showing the number of drinks per attendee for each MLB team, this poll helps reveal something about the demand for beer and the relationship between fans and teams. 

I find the price elasticity of beer, or the ‘ale-lasticity,’ is -0.1. This means that a 10% increase in the price of a beer at the ballpark would result in a 1% decline in beers sold, making the demand for in-stadium beer relatively inelastic.

This inelasticity also means teams are not pricing beer at profit-maximizing levels: read on to find out why.

As Major League Baseball ramps up its Spring Training, we head towards a fresh start for the 2021 regular season. It now appears, unlike last year, most teams will be allowed to host reduced numbers of fans in their respective stadia.* 

After a financially rough 2020, it has been reported the 30 teams of MLB lost a collective $3.1 billion. Looking to recoup these losses, teams may now be faced with decision to alter prices on tickets or concessions even with fewer fans.

* As an aside, the last time the Chicago White Sox played a game in front of fans at Guaranteed Rate Stadium was back on 29 September 2019. That same day, while sitting in the stands, I received an email from my boss with a clip of Jason Benetti calling me out for 'man-splaining' to my then-girlfriend/now-fiancĂ©e (I guess she didn't mind hearing about the finer points of baseball, Jason).

Back to economics: one way to sell larger quantities of an item is to lower its price - this isn't too difficult of a concept to understand. However, if I were to say that I lowered the price of an item by one dollar and sold three more units, you may or may not say, 'so what?' This would be an impressive feat if the items in question were, say, cars, but not if they were cans of corn.

Instead, a better measure would be to see the percent change in sales resulting from a percent change in price. This is known as the elasticity of demand (it applies to price increases just as it does with price decreases).

For example, if the price of an item increases by 10% and its sales decrease by more than 10%, the demand is considered to be elastic. There is a disproportionate reaction by consumers to the change in the price of a good causing some to stop buying and substitute to another good or wait until the price declines to something more reasonable.

Conversely, if the price of an item increases by 10% and its sales decrease by less than 10%, the demand is considered to be inelastic. When the percentage price increase has the exact opposite percentage decline in quantity sold, the demand is considered unit elastic. This is the point at which a seller cannot raise the price any higher without sacrificing profits through lower sales. It also cannot lower its price without leaving money on the table. Costs aside, pricing at the unit elastic point of the demand curve achieves profit maximization.

So, with all this in mind, we can calculate the change in the quantity of ballpark brews in response to a change in price and answer the question of are teams profit maximizing?

I take the price of beer per ounce for each MLB team from Team Marketing Report's Fan Cost Index and the average number of beers per fan from the survey published by NJ Online Gambling and calculate the elasticity of demand using a log-log OLS regression. I find the price elasticity of beer, or the ‘ale-lasticity,’ is -0.1. This means that a 10% increase in the price of a beer at the ballpark would result in only a 1% decline in beers sold, making the demand for in-stadium beer relatively inelastic.

So, if teams could raise beer prices and still not lose too many sales, why don't they?

Well, research has shown time and time again that teams intentionally don't profit maximizing on every sale at a ballpark. Whether to avoid the consumer backlash from perceived price-gouging or to leave money on the table (also known as consumer surplus) for fans, teams often choose to invest in fan goodwill. In fact, a forthcoming co-authored paper of mine called "Stadium Giveaway Promotions: How Many Items to Give and the Impact on Ticket Sales in Live Sports" discusses how some teams give away promotions, like bobbleheads, to everyone just to avoid not giving a bobblehead to anyone. The teams that are most generous with their bobbleheads also have the most devote fans (e.g., Philadelphia Phillies, St. Louis Cardinals, San Francisco Giants, etc.).

And fans are certainly aware of the full cost of attending a live sports event. For example, an owner of a now-defunct soccer team, San Francisco Deltas, from a now-defunct league, North American Soccer League, issued a plea to his fans to continue coming to games and supporting the team. A survey revealed that 10% of Deltas fans did not return to the soccer matches due to the price of tickets and concessions. However, the comment section of the linked article above would suggest that 10% likely understates the actual size of the group feeling priced-out of the market (or maybe that its just a very vocal minority).

So, there you have it. MLB teams are doing you a favour by keeping beer prices lower than profit-maximizing levels. Therefore, if you are fortunate enough to attend a live baseball game this upcoming season and can do so safely, make sure you thank your team by purchasing a drink or two or three.

After all, beer doesn’t have much vitamins, that’s why you need to drink lots of it. 

Tuesday, February 9, 2021

Super Bowl Party or Super Spreader Event?

TLDR: All the medical professionals have been urging people to avoid large crowds but would Americans abide by the rules and avoid Super Bowl parties?

I calculate the size of the average Super Bowl party by dividing the estimated number of viewers by the estimated number of TVs watching the Big Game. The results show that the average party was the lowest it has been since 2007, reversing a trend of growing party sizes.

Although it is still likely higher than the medical professionals would have liked and large parties likely still occurred, there are signs that some individuals did heed some warning and avoided the large crowds.

Everyone's aunt's favourite heart-throb, Dr. Fauci, and medical professionals alike, have asked everyone to stay home, wear masks, avoid crowds, etc., etc. – I think we all know and are near our wit's end with the terms 'social distancing,' 'unprecedented,' and 'normalcy' (technically, unless we are taking about geometry, normalcy is not the correct word... it should be normality). 

But despite all these warnings, would Americans forgo gathering on what some see as the holiest of days of the year - Super Bowl Sunday?

The Nielsen Company, famous for its research into the television viewing habits of Americans, actual can provide insight into this question. Every year, Nielsen provides the ratings—the estimated number of televisions watching the Super Bowl—and the total number of viewers. Nielsen is a trusted source on this topic and I have talked about them ad nauseum on this blog... (like here for football, or baseball, or even basketball).

As a quick summary, a television program's ratings are calculated as follows:

Rating = 100 × (# TVs tuned to the Program) / (# of TVs)

For example, when Nielsen says a television program had a rating of 5, that means 5% of all TVs in the designated marketing area were watching that program. The remaining 95% could be watching a different program or turned off entirely.

While the typical Super Bowl attracts both large ratings (+40% of all TVs in recent years), it also attracts large crowds at Super Bowl parties. Aside from the gut-wrenching series finale of M*A*S*H, the Super Bowl makes up the top 30 most-watched American television programs. Nielsen also provides an estimate on how many people are watching the game. If we multiply the number of people watching by the number of TVs, we can get the average number of people watching the same TV which we can think of as the average Super Bowl party size. It can be calculated as follows:

Super Bowl Party Size = Estimated Audience / [Rating × (# of TVs)]

So, using the formula above how did the US do? Below, I plot the average Super Bowl party sizes for the last 15 years:

What we see is a stark reversal in an otherwise increasing trend of larger Super Bowl parties. For the first time since 2007, less than two individuals gathered to watch the Super Bowl. (For those of you who think an average Super Bowl party of 2.25 people is lower than you anticipated, consider that for every massive party there are likely numerous households with one individual watching plus all the people following Shania Twain's rule of having a party for two).

While there were lots of concern that Super Bowl parties would turn into super spreader events, it appears some have heeded the advice of the experts and opted for a smaller crowd or avoided parties altogether. While this likely meant that there were still the same crowded parties that were held 15 years ago, it also means there is still some hope that people are listening to the rules!

Good job America!

Wednesday, August 12, 2020

BLM x NBA: Social justice messages on jerseys - but are players really free to express themselves?

TLDR: In the aftermath of the killing of George Floyd and the movement for racial equality that has since received, deservedly so, additional attention, the NBA took a unique approach to social justice. The NBA has since allowed its players additional freedom of expression by means of social justice message featured prominently on their jersey where the athlete's surname would otherwise appear. 

Yet some players were less than enthused when they were told to choose from one of 29 pre-approved messages, citing the list being too restrictive or too restrained. 

Moreover, I find that comparing the share of messages that some may find are more 'politically-charged' on a team is correlated with the political leanings of the geography the team represents, begging the question,

Are the players really free to express themselves?

I would first like to remind everyone, the views here are my own and not necessarily that of my employer. This can be a bit of a touchy subject, and although I do not believe this is the correct forum to discuss large complex problems such as racism or police reform, I welcome constructive comments and criticisms on the analytical approach I have taken here.

I first became interested in this NBA initiative when I noticed several players were upset by the NBA's pre-approved social justice messages limiting their individualism and ability to use a perhaps more-provocative message for social justice. Certainly, detractors such as FOX News (among others far less friendly) also complained that the so-called 'right-winged' messages were not available on the list. 

Regarding the NBA's list, many social justice messages appear very neutral: 'vote,' 'peace,' 'equality,' 'freedom,' among others are concepts that neither liberals nor conservatives could imply mean more to the other's camp than are simply universally accepted. Among the remaining messages, such as 'black lives matter,' or 'I can't breathe,' have - for one reason or another - become sensationalised and incendiary to some.

Nevertheless, the NBA re-started in its Orlando 'bubble' and its players took the court with their social justice messages across their shoulders. And although each player is also an individual, it is important to remember that each player is an employee of a team that represents a city (and often a unique state) which has its own identity. While the city does not employ the player directly, the team ownership is certainly required to appease its local fan base. Therefore, one might expect a team from a Republican-leaning area to avoid the 'incendiary' social justice messages - such as the Dallas Mavericks (from the state who has voted for the Republican presidential candidate since 1980) and the entire team's 'choice' to feature 'equality' on their jerseys.

Similarly, if I plot the team's share of these BLM messages and the county's 2016 Trump vote share, the results are fairly revealing (for obvious reasons, I exclude the Toronto Raptors from this analysis).

There are some exceptions to the rule. For example, the top two teams - the Portland Trail Blazers and Miami Heat - have 48% of their players with BLM-style messages on their jerseys, yet just 34% of Miami-Dade County voted for Trump in 2016. However, a somewhat-recent poll says only 27% of Miamians would vote for Trump in the upcoming election making it appear more similar to that of Multnomah County, Oregon (home of the Trail Blazers).

I leave all further inferences up to the reader. Please take what you will from the graph or the concept in general.

Friday, May 1, 2020

So long XFL, we hardly knew you...

So long XFL, we hardly knew you...

And perhaps you hardly knew yourself.

Because if you did, you would know that before the Coronavirus-induced suspension of play, the laying-off of all employees, and the Chapter 11 bankruptcy, there were some positive signs of life. And, yes, the viewership was consistently decreasing week-over-week (a pattern not unique to the XFL, mind you), but the league was at or near its floor in viewership - the solid base of fans it could count on. And the magnitude of this fan base would put it in some very good company - namely the other major, non-NFL, sports leagues.

There was never really high expectations for this year's Xtreme Football League (XFL) given that it was the second incarnation, the original of which had folded after just one season back in 2001. That original XFL was also hardly the first American football league with the lofty goal of becoming a legitimate rival to the mighty National Football League (NFL). Yet, insofar as these attempts to develop a viable competitor, none have found success.*

Yet despite the poor track record of all the previous endeavors, the 2020 version of the XFL saw an opportunity to not just bring the more of the same American football, but to deliver on a unique brand of football: kick-offs were modified, PAT kicks were eliminated, and it seemed that nearly everyone in the stadium would be mic'd up.

Thus, on 8 February 2020, the XFL was (re)born. This eight-team league kicked off a ten-week schedule just seven days after the NFL Super Bowl. Each member team was slated to be in action each week and all games broadcast nationally on ABC, ESPN, FOX, or a counterpart thereof. The  first games were generally well-received by the 3.3M fans that tuned in and the style of play in was described as "quirky" but "a lot to like." While these television audience sizes were less than half of what the 2001 predecessor attained during its debut, this year's viewership was certainly enough to label the XFL 2.0 a viable product - if it could only keep it up.

Below I plot the number of viewers for each XFL game and add a simple logarithmic trend line before a Coronavirus-induced hiatus was announced. By week three, we can see why, after a tepid, yet acceptable start, people predicted this league was doomed: the average viewership had dropped by 50% compared to its debut. However, it should be noted that this pattern has been seen time and time again, such as NFL's Thursday Night Football: the large hype for the first event of the season does not last long.

Alas, the XFL viewership declined in a somewhat predictable way, but this decline began to settle around week four. If we think that the XFL had in fact bottomed out, the average viewership for the remainder of the season would have been around 1.25M. When comparing this estimated average viewership to other major sports leagues, this is a very reasonable level (below I use the most recent full season of other leagues to compare against):

Perhaps the XFL hoped to have garnered interest enough to rival that of the NFL, but with a 2019 average of 15M viewers per game, the NFL remains way out of the XFL's league - pun intended. The XFL also fell just short of keeping pace with NCAA college football which averaged 1.7M viewers on ESPN in 2019.

However, if we move the goalposts just a bit, two places where the XFL stood out from crowd was against the 243K viewers of ArenaBowl XXXII (the Arena Football League's version of the Super Bowl) and the 200K viewers of the 107th Grey Cup (the slightly more polite version from the Canadian Football League - a game played on a oft-snowy field in November in Canada where Shania Twain once rode a dog sled with a Mountie for the half-time show).

The point is that XFL wasn't really a strong competitor of the NFL. But as a league of second-tier talent and an informal moniker of 'minor-league' football, the XFL had outstanding success. Perhaps they fell victim to their own hubris and lofty expectations, or perhaps other, unknown issues befell the league but sadly, XFL, you were gone too soon.

RIP XFL - you will be missed ... ?

* The exception being the American Football League whose outstanding strategy of having teams based in then-untapped markets led to a merger with the NFL.