All the tasks, strategies, and criteria noted in the previous chapters are considered valid, ceteris paribus. And yet ceteris is not always paribus. A key theme of this book is that methodological choices frequently involve tradeoffs. Satisfying one dimension may involve sacrificing another. Tasks, strategies, and criteria often conflict. Accordingly, for every dimension listed in Table 1.1 and in subsequent tables throughout the book one can locate conflicting imperatives.

The call for discovery is at odds with the call for accurate appraisal. Indeed, exploratory research is typically carried out in a different fashion than research whose primary goal is confirmatory (falsificationist), as emphasized in Chapter 2.

How do social scientists describe a social reality? What arguments do we employ in our attempts to bring order to the great blooming, buzzing confusion of the world? One might suppose that the shape of a descriptive inference is limited only by the social phenomenon that we seek to describe, the models (cognitive, linguistic, mathematical, and visual) that we have at our disposal, and our imagination. In practice, however, descriptive inferences draw from a standard itinerary of tropes.

I shall argue that most descriptive claims can be classified as indicators, syntheses, typologies, or associations, along with their various subtypes as illustrated in Table 6.1. This is how social scientists carve up nature at the descriptive level. These are the patterns that we look for when attempting to describe classes of events in the social world.

Since Hume, writers have been aware that the assessment of causal relationships is rather ethereal. One can never know with absolute certainty whether some factor caused an outcome to occur, because one cannot go back in time to re-play events exactly as they happened, changing only the factor of interest and observing the outcome under this altered condition. The causal counterfactual can never be directly observed for there are no time-machines. This is sometimes referred to as the fundamental problem of causal inference.

In recent years, social scientists have become acutely conscious of the insubstantial nature of the evidence that typically undergirds causal propositions in anthropology, economics, political science, sociology, and various offshoots of these disciplines. Methodologists have little confidence in inferences drawn from observational data, and no statistical machinery seems likely to provide secure foundations. There is, some have insinuated, a “crisis of causality.”

Introduction

Final offer arbitration is a mechanism for resolving salary disputes in Major League Baseball (MLB) when a player and his club cannot agree on a salary. In MLB, rookies and veterans with only one or two years experience in MLB are not eligible for final offer arbitration. To a large extent, they are at the mercy of their clubs. Those players with six years’ experience are free agents unless they are under contract. These players are protected by the market. Those veterans in between who have three to five years’ experience are eligible for final offer arbitration. If a player's agent and the general manager of the team cannot reach agreement on a salary, the player is entitled to put the dispute before a three-person arbitration panel. The three arbitrators are neutral – that is, none of them will favor one side or the other. “Final” offers are submitted by both sides to the arbitrators along with supporting documentation. After considering the evidence presented by the player and that submitted by the team, the panel must select one of the two offers; no compromises are permitted. If the evidence shows that the player's demand is closer to market value than the team's offer, the panel will award the salary demanded by the player. If the evidence shows that the team's offer is closer to the player's market value, then the panel must award that lower number to the player. The decision of the panel is binding on the two parties. If the panel chooses the team's offer, the player is obligated to sign a one-year contract for that salary. If the player wins, the team must pay the higher salary demanded by the player.

In this chapter, we examine final offer arbitration. Very few cases that are filed are actually heard by the arbitration panel; the vast majority of these disputes are settled. There is an economic reason for this result, which we develop in some detail. We also present brief accounts of some empirical results.

Introduction

In a relatively short time, sports agents have become major participants in the sports industry. Mark McCormack began representing Arnold Palmer in 1960 when Palmer was at the top of his game and the peak of his popularity. McCormack helped Palmer cash in on his swashbuckling style and personal charisma. Although he could not help Palmer on the golf course, he provided plenty of assistance off the course in building Palmer's financial empire. McCormack's representation of Palmer was a major building block of the International Managerial Group, which McCormack founded and is now known as IMG. The value of IMG has been reported as being more than $1.5 billion.

Before the demise of the reserve clause in major league team sports, sports agents could not help much in dealing with the players’ clubs. First, the players had no options other than retiring and therefore no real bargaining power. Second, many clubs simply refused to deal with a player's agent and might even punish players who had one. Once players were set free from the hated reserve clause, however, sports agents took center stage in dealing with the player's club. Today both athletes and coaches are represented by agents who negotiate deals on and off the field for their clients.

Introduction

The term sports has many meanings encompassing a wide array of human activity that is neither work nor rest. Sports includes athletic competition, of course, but also recreational hunting and fishing, auto racing, exercise activities, and even poker. For the most part, in this book we focus on the activities covered in the sports section of local newspapers. Even this is fairly broad because that includes both amateur and professional sports, as well as recreational activities of all sorts: cycling, sailing, surfing, hiking, and many others. The coverage extends to both team and individual sports that are played in the United States and around the world. In our study, we touch on many of these, but our attention is largely on the major league professional team and individual sports that are most popular in the United States: football, baseball, basketball, hockey, golf, and tennis. Some additional attention is paid to intercollegiate sports under the auspices of the National Collegiate Athletic Association (NCAA).

Studying the economics of sports does not involve much discussion of batting averages, field goal percentages, or rushing yardage. From an economic perspective, these performance statistics are important because they affect the outcomes of the games. To the extent that winning leads to more fans and greater attendance, athletic performance improves economic performance – that is, profit – of the team. This, of course, is important for the team and for the athlete because salaries and bonuses reward performance. Unlike many avid sports fans, however, we will not dwell on performance statistics for their own sake. The point is that we are interested in the business and economics of professional and amateur sports.

Introduction

In a nutshell, discrimination is the unequal treatment of equals. As objectionable as it may be, discrimination to one extent or another is all around us. It can be based on race, gender, ethnicity, religion, socioeconomic status, age, and other differences among people that should not matter. In the world of sports, discrimination may result in reduced job opportunities, lower salaries, more demanding performance standards, and fewer endorsement opportunities for those in the disfavored groups. In this chapter, we examine some aspects of discrimination in sports. As we will see, some differences in outcomes are based on merit, but others may not be.

We start by examining the definition and concept of discrimination and then move on to an economic analysis of discrimination. Following that, we analyze racial and gender discrimination in sports. Title IX is examined and its impact on both men and women is noted.

Introduction

The National Collegiate Athletic Association (NCAA) has been characterized as a cartel, that is, “a combination of independent commercial or industrial enterprises designed to limit competition.” As we will see, this is an accurate characterization, especially as it relates to the labor market for student-athletes and coaches. More precisely, the NCAA acts as a buyer cartel or collusive monopsony. Under the auspices of the NCAA, the member institutions collude to reduce competition among themselves in an effort to reduce costs and thereby generate more profit for their athletic programs. As we saw in the preceding chapter, monopsony is the awkward label attached to the market structure in which there is a single buyer of a good or service. In the United States, this market structure is rare indeed, but collusive monopsony is not so rare. Examples can be found throughout the economy, but the NCAA is a particularly good example.

The NCAA's members collude on two key inputs in the production of athletic competition: the student-athletes themselves and their coaches. With respect to athletes, the agreement restricts quantities by placing a ceiling on the number of scholarships that a school may award in each sport. In addition, in the name of amateurism, the compensation of these athletes is limited to room, board, tuition, books, and incidentals. Bonuses for winning conference championships are limited to relatively inexpensive rings or watches. There have been several legal challenges to the NCAA's monopolistic behavior by student-athletes, which we examine here. With respect to coaches, the number employed in each sport is limited by NCAA Bylaws. In this connection, we examine the Hennessey v. NCAA litigation. The compensation of coaches is typically unconstrained, although there have been attempts to restrict the earnings of some coaches. In this connection, we examine the Law v. NCAA litigation, which led the NCAA to rescind its rule restricting the earnings of some assistant coaches.

Introduction

As fans, we are most interested in the action on the field or in the arena because that is where the excitement takes place. We crave “the thrill of victory and the agony of defeat,” as ABC's Wide World of Sports television program put it. But sports is a big business that has some interesting economic characteristics. Sports businesses take many forms depending on the segment of the industry. Sports franchises in the professional leagues are athletic teams on the field, but they are businesses off the field, selling tickets, food and drinks, logoed apparel, parking, souvenirs, and broadcast rights. In individual sports, such as bowling, golf, tennis, and track, the athletes have their own businesses in a very real sense; they are sole proprietors with profits and losses based on earnings or winning, and expenses of many kinds. Athletes need facilities – bowling alleys, tennis courts, golf courses, arenas, ballparks, and tracks – and these are also businesses in their own right. Similarly, athletes need equipment – balls, bats, helmets, shoes, uniforms – and equipment manufacturers are obviously businesses. Advertisers, broadcasters, concessionaires, sports agents, and apparel manufacturers are all involved in some aspect of the business of sports.

Amateur sports are also big businesses. The National Collegiate Athletic Association (NCAA) members manage substantial athletic budgets and must make business decisions on a daily basis. These decisions include hiring and firing coaches, picking corporate sponsors, investing in new or expanded training facilities, adding or deleting a sport, and pricing tickets, among many other things. On a smaller scale, high school athletic directors, recreational league directors, local Little League organizers, and the like are in the same boat.

Introduction

In sports, to cheat is to violate the rules dishonestly. This definition distinguishes inadvertent infractions of the rules from deliberate or intentional infractions. It is the element of deliberateness that makes it cheating. Sports leagues and organizations have multiple concerns with cheating by players and coaches. First, cheating confers an unfair advantage on the cheater and thereby impairs the integrity of the competition. The best player or team may not win. Second, when cheating leads to suspect results, fans may lose interest in the game. This, of course, would have serious economic consequences for the players and their clubs. Unfortunately, cheating of one sort or another is all around us. Most of us are well aware of some common forms of cheating. Currently, the most prominent form of cheating involves the use of steroids and other performance-enhancing substances. Also, there are the all-too-familiar college recruiting violations and impermissible payments to student-athletes. Cheating comes in all shapes and sizes, however. The silver medalist in the women's 800 meters at the 2006 Asian Games failed a gender test. The International Olympic Committee suspended a senior Bulgarian official for his role in a vote-peddling scheme for bid cities. Two players at the World Open, the largest chess tournament of the year, were suspected of cheating by using computers to help them. Even NBC had to admit that some plagiarism had occurred in its script for a lead-in to the Kentucky Derby.

Cheating to win confers an unfair competitive advantage on the cheater. This could cause retaliatory cheating, so no one would be playing by the rules. As a result, the best team or the best athlete may not win, which can lead to fan dissatisfaction. As reprehensible as cheating to win may be, we can appreciate (if not approve of) the motivation. Cheating to lose, however, seems much worse. The boxer who takes a dive, the basketball player who shaves points, and the tennis player who tanks in a match are all involved in the most reprehensible cheating. Cheating to lose denies fans true competitive contests, which is what they are buying. In either event, cheating threatens the integrity of the contest, which may result in fan dissatisfaction and loss of interest. This is not good for the teams, the athletes, and the fans. Cheating must be controlled to protect the popularity of the sports involved. In this chapter, we examine cheating to win and cheating to lose. Our focus is on the economic incentives and economic consequences of cheating. We begin by developing an economic model of deterrence to illustrate how governing bodies can deter cheating. The economic approach to deterrence is not to point to the immorality of cheating and appeal to a player's conscience and sense of fair play. Instead, the economic approach is to make cheating “unprofitable” or otherwise unattractive so that players will elect to compete honestly.

Introduction

John Daly, a flawed hero on the PGA Tour, revealed that he may have lost as much as $60 million gambling. Charles Barkley chimed in with his own admission that he had lost over $10 million gambling. These accounts are sensational because of the magnitude of the losses, but it comes as no surprise that some athletes gamble. Gambling is a fact of life in sports. Fans, athletes, coaches, officials, and owners gamble on something – athletic events, lottery tickets, card games, casinos, horse races, and the like. Some of the gambling is legal, but much of it is not. All of the major sports leagues and organizations find gambling troublesome. As a result, all of them prohibit gambling to one extent or another through rules, bylaws, codes of conduct, and contractual provisions. Violations of these prohibitions may carry heavy penalties. The major concern is protecting the image of the sport and the integrity of the competition. Unfortunately, both image and integrity have been undermined from time to time by gambling-related scandals.

In this chapter, we examine why people gamble. We also analyze the gambling business and how the major professional sports leagues, organizations, and the National Collegiate Athletic Association (NCAA) have reacted to the prevalence of gambling.

Introduction

As we have all seen, teams compete vigorously on the field, but off the field, there is a lot more cooperation than competition. This cooperation provides some benefits to the fans because the athletic competition that we love to watch could not be provided without substantial cooperation. There is no doubt, however, that cooperation benefits the teams and results in higher profits. These higher profits, of course, must come from somewhere: the fans, the sponsors, the broadcasters, the coaches, the athletes. In most sectors of the economy, the antitrust laws do not permit competing firms to collaborate in ways that injure the public. However, sports leagues and organizations have some unique characteristics that may lead to a different application of the antitrust law. In this chapter, we examine the role that the antitrust laws have played in shaping the conduct of sports leagues and organizations. We begin this chapter with a brief review of the economic rationale for antitrust, our central antitrust statutes, and their interpretation. Along the way, we develop the crucial concepts of market definition and monopoly power. We then turn to the application of antitrust policy to sports leagues and organizations. After a brief look at the general approach to evaluating league rules, we turn our attention to antitrust challenges by league members and by outsiders.

The Economic Rationale for Antitrust

The economic argument for competition and against monopoly centers on the social welfare losses that flow from the profit-maximizing behavior of a monopolist. We can see the nature of such welfare losses in Figure 9.1. Demand is labeled D, and long-run industry supply is labeled S. The competitive output is found where demand and supply are equal. This is shown as QC in Figure 9.1. The competitive price that corresponds to QC is PC, which is equal to marginal and average cost. At the competitive price and output, the competitive firms earn just enough profit to keep their resources in this particular industry. Furthermore, price is such that any consumer who is willing to pay the cost to society of an additional unit of output can buy that extra output.

Introduction

We are all familiar with the fact that athletic competition is often organized in sports leagues. The major professional leagues immediately spring to mind: the National Football League (NFL), National Hockey League (NHL), National Basketball Association (NBA), and Major League Baseball (MLB). There are leagues everywhere, however: recreational bowling, golf, softball, and tennis leagues are local fixtures for many adults. For children, there are Little League Baseball, Pop Warner Youth Football, high school leagues, and many others. At the college level, we call them conferences rather than leagues, but the Pacific-10 (PAC-10), Big Ten, Southeastern Conference (SEC), and Atlantic Coast Conference (ACC) are the same as other sports leagues in many respects. They have schedules, rules for postseason play, championships, rules for revenue sharing, and so on.

There are also organizations that put on athletic competition for individual athletes: the PGA Tour and Ladies PGA (LPGA) in professional golf, the Association of Tennis Professionals (ATP) and Women's Tennis Association (WTA) in professional tennis, the Professional Bowlers Association (PBA) in professional bowling, and various others for boxing, equestrian events, figure skating, speed skating, and track and field. For individual sports, tournaments or specific events rather than a season-long schedule of systematic competition are organized to determine a champion.