9/15/2011

Sporting Events in Our Economy

Sporting events in the past, have been seen as a form of entertainment, competing with other forms of entertainment. But according to the Wall Street Journal, WSJ Sports Econ there has been a visible change caused by our economy. According to Brett Yormark, CEO of the New Jersey Nets (NBA), "We're not just competing for people's entertainment dollars anymore... We're going up against milk and orange juice."

If this statement is true, the traditional forms of entertainment that once competed with sporting events are not seen as substitute goods any more due to the decrease in income levels. Not only do we see a shift of the demand curve to the left but also a change in the substitute goods that compete with sporting events. This would suggest that utility changes with a change in income level.

Many people can still see sporting events on TV or on the internet. This could cause new behaviors for how we experience entertainment and keep the demand curve from returning to its original position.

Should those involved in the Sporting Event Industry expect a full return of consumers or change their traditional view on sporting events?

13 comments:

Dr. Tufte said...

One economics mistake: utility almost always changes with income levels, because we buy different stuff.

I don't see anything problematic with the post, but I do think the quoted official is being overly dramatic. Sporting events always competed with the ways we spent the rest of our money.

I do think that sports marketers are perhaps finding out the hard way that their income elasticity is a lot higher than they thought (not to mention the decline in perks offered by firms to their employees).

Another point to consider is that perhaps the demographic that is most likely to make discretionary spending on sporting events is also more likely to be unemployed in this recession. Given the much higher spike in unemployment amongst men, this seems likely.

Thomas said...

CEO Yormark is dramatic indeed.

Has the income of his target market decreased so much that they've gone from frequenting NBA games to worrying about milk on the table?

Average cost to attend 1 NBA game: $340.00 ($75.50 average ticket price for a family size 4.5). Yes, that's just the average ticket price of all seats in all NBA arenas - no hot dogs or drinks yet.

His target market's (90th percentile) income level did decrease from $145,625 a year in 2009 to $142,153 a year in 2011. Yes, that's just 2.3%.

I don't question the post or student comments, but if I was the owner of the Nets - I would questions my CEO. In place of worrying about milk, Yormark could concentrate on how to incorporate the TV and internet experience into each seat in his arena - and give his audience the best of both worlds.

Dr. Tufte said...

-1 on Thomas for a grammatical error.

You know, I wasn't really thinking about it before, but we're talking about the Nets here. It seems to me they have a history of having much bigger troubles with basic things like ... players. Perhaps they should refocus on winning some games.

Thomas said...

That's not very nice.

Dr. Tufte said...

About the grammatical error, or about the Nets?

Thomas said...

The grammatical error.
That was my first blog post.
Starting -1 bites.

Dr. Tufte said...

Well ... better to lose a point in class than to make a mistake on a resume or contract.

Thomas said...

True.

Brandon said...

Sporting events have always been able to do well, even during recessions. I don't forsee there being much as big of a decrease at games at the Net's CEO expects.

I can see how the elasticity for sporting events has increased during the recent recession. People are being more frugal and choosing to spend their money on things they need rather than on things for their enjoyment. However, if the NBA's target market, as stated by Thomas, only had a 2.3% decrease in their income level, it seems as if the CEO of the Nets is definitely overreacting. Comparing a sporting event to substitute items such as milk and orange juice seems to be going too far.

If the CEO is so worried about the potential loss of fans at Net's games, he needs to be focusing on new ways to market his team to those fans to keep them coming to the games. But then again, it is the New Jersey Nets. After looking at their overall record from the past 4 years (104-224), their real focus should be on winning more games.

Another interesting point, I wanted to point out is that I have not seen anything in the news from the CEOs of teams with winning records, such as the Dallas Mavericks or Miami Heat, stating that they are worried about how people won't come to their games because their incomes have decreased. It seems as if when a team wins games, people will find a way to come regardless of what their financial situation is.

Dr. Tufte said...

Oooh Brandon ... not true. Sporting events have not always done well. Think of all the pro franchises that have moved over the years, mostly in response to recessions.

As to whether the CEO of the Nets is overreacting, there are two issues. First, we don't know what the elasticity is: if it's 10, then a -2.3% change will have a big effect.

But a second point is that the average income is probably not the best measure of the economic impact. The nature of recessions is not that everyone suffers a -2.3% change in their income, but that, say, a tenth of the population has their income go down by 23%. For those people, sports events will almost certainly be cut. The relevant number for the Nets is then the 10% seriously affected by the recession, not the 2.3% average loss.

I love Brandon's last point about the teams with winning records. I grew up in Buffalo. When the Bills were winning everything (except Super Bowls) from 1988-96, the stadium was full, branded merchandise sold well nationally, and the team was worth a ton of money. In ... Buffalo. That's saying a lot. Contrast that with the baseball team in Miami these days ... which has had actual attendance in the hundreds for some games this season. Winning solves a lot of economic problems.

Brandon said...

Firstly, Thanks for pointing all of those teams out. I knew that most of those teams had moved to new cities, such as the Raiders and Colts, I just hadn't realized that they had moved during recession time periods. I don't know why I didn't think of that during my first post. After all, the main reason most teams relocate to a new city is because they are not making enough money.
Secondly, thanks for clearing up how we are not sure of the impact that a decrease in income would have because it depends on the elasticity of the market. That makes a lot more sense to me know.

Dr. Tufte said...

-1 on Brandon for a spelling error ... but you'll still get credit for the comment.

1) Dave Berri (of all people) was surprised at that list when I put it together. We think there's a publishable paper in there somewhere.
2) Thanks for pushing me to keep thinking about this. Dave Berri also believes that the point I made here about how the income elasticity is not that important in the face of macroeconomic variables is new.

Mitchell Stone said...

Winning does not necessarily solve a lot of economic problems, at least not in Florida. Take the Tampa Bay Rays and Florida Marlins, especially the Marlins in 2003, the year they won the World Series. Average National League attendance per team that year was almost 2.3 million, the Marlins had a season total of just over 1.3 million (www.baseball-almanac.com). The Tampa Bay Rays in 2008, the year they went to the World Series, had an total season attendance of about 1.8 million versus the average American League attendance per team of almost 2.5 million (www.baseball-almanac.com) My theory is that those 2 teams had no star appeal, no big shot famous player and no "face" of the franchise. Star appeal is a big factor in sports because it gets teams all the attention and t.v ratings, especially in the bigger markets. So when a team like the Marlins go to the World Series, no one pays attention. This is the reason teams spend a lot of money on a player, who in realty is no good (Carmelo Anthony). Players like these draw fans to the stadium. (David Berri can talk plenty to you about Carmelo Anthony).