Market Power

"Only Makes Me Want to Curse Harder"

K-man posts this one about every other day:

Just a reminder — this is a Times blog, so obscenities — even mild ones that you use all the, um, fleeting time — will get your comment deleted.

via krugman.blogs.nytimes.com

Why, oh why, won't the cursers listen?

That's Professor Whitehead.  Calling George Carlin. NSFW language (which only makes it more likely that you'll click it).  How many dirty words can you not write in a NYT blog comment?

The Continuing Stadium Mess: More Effects of Using Other People's Money

I'm shocked, shocked I say that this would happen in a case with a publicly-subsidized sports stadium.

Eight years ago, as the St. Louis Cardinals aimed to build a new baseball stadium, team owners signed an agreement with the city worth millions of dollars a year in tax breaks.

In exchange, the team agreed to a series of annual perks for the region's residents — 100,000 free tickets, 486,000 seats for under $12 and $100,000 in donations to recreation for disadvantaged youths.

The Cardinals also agreed to give the city a cut of profits made if any portion of the team was sold.

Then, last year, owners sold a sizeable chunk of the Cardinals — more than 13 percent. Now, a group of anti-public-stadium advocates is alleging that the team owes the city hundreds of thousands of dollars.

And, despite another multimillion-dollar budget gap anticipated for the coming year, the city isn't checking into it. City officials acknowledge that they have never really kept tabs on the agreement.

...Several city officials, including Barb Geisman, the former deputy mayor for development, said there was no reason to double-check. They trust the Cardinals.

Here is the story by David Hunn of the St. Louis Post-Dispatch (thanks to Craig Depken).  This is consistent with Milton Friedman's hypothesis that using other people's money on ourselves leads to waste.  We care about the benefits but not so much about the costs.

Cross-posted at The Sports Economist

"Domed Stadium in Los Angeles?"

Michael Davis wants to know why LA would need to have a domed stadium for a football team:  "To deal with the three days of rain that the area gets a year? Because of the brutal 60-degree cold days?"

Well, when we're using other people's money on ourselves...

Negative Returns to Talent in Sports - The Heat Turn Cold

The Miami Heat's players are frustrated with Erik Spoelstra and some are questioning whether he is the right coach for their team, according to people close to the situation. With the ballyhooed Heat losing four of their past five games and sporting a mediocre 9-8 record, the players are privately grumbling about Spoelstra on several fronts.

Sources say the players believe he is not letting them be themselves, that they are questioning his offensive strategies, and that they think he is panicking because he fears losing his job.

Here is the story by Chris Broussard. 

Perhaps we have a case of negative returns in production with the Heat.  There is only 1 ball (a fixed resource) and when each player says "give me the damn ball", egos can get in the way.  Perhaps there is too much talent on the Heat and we have a case of negative returns.  But it's still very early in the NBA season.

Congratulations King Banaian

St. Cloud State economist King Banaian has won his race for Mn. state house district 15B.  The differential between King and his competitor, Carol Lewis, amounted to only 10 votes, but after the recount began it became apparent that the outcome would not be changed and Lewis conceded.

King is a good man, but more importantly he is a damn good economist.  He understands the workings of economies and markets as well as anyone and he understands that public policy often has unintended consequences.  The people of district 15B have elected themselves a fine representative.  Congrats, King!

Turkey Tetrazzini

Here's the recipe that I used.  Per some comments there, I added garlic powder, salt, and black pepper to taste to the gravy.  After pouring the turkey, gravy, and spaghetti mixture into the baking dish, I sprinkled some Italian bread crumbs on top before putting it into the oven.  I also baked it for 40 minutes instead of the 60 minutes the recipe calls for.  There were some leftovers, but not as much as I thought I'd have.

I didn't add them, but green peas would go nicely mixed in with everything else before putting the baking dish in the oven.  Sauteed mushrooms would also be a nice addition.

And the gravy would be excellent in a chicken pot pie.

Sports and General Human Capital Development

Some parents won't buy their kid a guitar unless the child takes piano lessons.  There's a sports analogy from this article by Terez Paylor of the Kansas City Star:

By the time Evan reached the seventh grade, however, Royce and Teresa found they could deny him no longer, and they let him join a youth football league in Lee’s Summit with coaches who focused on the fundamentals.

It didn’t take long for Royce and Teresa to see that they’d made the best possible decision for their son. Evan was a natural lineman — bigger than his peers, but with advanced agility and coordination developed through playing soccer. Youth wrestling had also taught him the importance of leverage and hand usage.

My boys both want to play football and I've tried to teach them a few things - keep your eye on the ball, catch the ball with your hands out front of your body, get your butt into your tackles, etc.  One played soccer for year in '08, but hasn't shown any interest since.  Neither wrestle.  Both play baseball, but I'm not sure how baseball skills translate to football.

TSA Externalities?

It depends on who does this, but this could definitely be seen as a positive externality.

"I'm wearing my bikini," Corinne said as she unbuttoned her overcoat outside the terminal to reveal a black two-piece. "It's not that I'm concerned, it's that I feel like the TSA is making travelers feel uncomfortable, and I feel like we can have security measures that don't make people feel uncomfortable.

The young lady in the embedded video?  Positive externality.  Definitely positive.  Me in a Speedo?  Let's not go there.

Spending in College Football

Brad Humphreys discusses the Fanhouse data about spending in big time college football.  Fanhouse collected total expense data from the US Department of Education's EADA data set and found that the programs that usually populate the top of the rankings (Ohio State, Texas, Alabama, etc.) tend to spend the most on their programs. 

While those schools spend in the neighborhood of $25.1 to $32 million, schools like Louisiana-Monroe spend just over $2.9 million on their programs.  None of this is surprising to me.  Spending imbalance derives from revenue imbalance which derives from demand imbalance. Ohio State has a bigger fanbase than Louisiana-Monroe and that drives the spending differential between those two schools.

But Brad correctly notes this is an apples to oranges comparison because schools like Ohio State and Texas spend a lot on everything else.  So he recalculates spending on football on a per-dollar-spent-on-student-services basis using data available from the IPEDS data base.  Here's Brad:

Here’s how the Top 5, and cellar dweller Louisiana-Monroe compare by the ratio of student services spending to football spending

• Louisiana-Monroe 2.7
• Ohio State 2.6
• Texas 2.0
• Notre Dame 1.0
• Alabama 0.9
• Auburn 0.7

Louisiana-Monroe spent $8 million on student services and 43 million on football, or roughly $2.7 dollars of student service spending for every dollar of  football spending.  Auburn spent seventy cents on student services for every dollar spent on football.  Ohio State’s football spending is actually not that big when compared to student service spending.  I hope that students at Alabama and Auburn get a lot of benefit out of football, because they are not getting nearly the student services that students at, say, Louisiana-Monroe are getting.

When I saw Brad's post, I wondered how the Big XII schools (circa 2010) measured up against each other.  So I gathered student service spending, instructional spending, and enrollment data for each Big XII school for the 08-09 school year from IPEDS and their football spending for the 09-10 school year from EADA.  I calculated the spending per dollar spent on football for each expense category.  Here's the data for student service spending.

Baylor	5.36
Texas A&M	3.26
Colorado	2.43
Iowa State	2.38
Mizzou	2.27
Texas Tech	2.09
Texas	2.00
Kansas State	1.93
Kansas	1.66
Oklahoma State	1.19
Nebraska	1.02
Oklahoma	0.93

Baylor leads the way with a whopping $5.36 dollars spent on student services for every dollar spent on its football program.  This year's Baylor program is bowl-eligible for the first time as a Big XII school, so football success isn't something experienced on a regular basis for the Bears.  But Baylor students get a lot spent on them in other areas of the school.  A&M, CU, ISU, Mizzou, Tech, and Texas all have values over 2 while OSU, NU, and OU bring up the rear.  Texas looks pretty good in comparison, but remember that Texas has a lot of undergraduates.  Here is the dollar-for-dollar spending per 1000 students.

Baylor	0.45
Kansas State	0.12
Iowa State	0.11
Mizzou	0.10
Colorado	0.10
Texas Tech	0.09
Texas A&M	0.09
Kansas	0.09
Oklahoma State	0.08
Nebraska	0.06
Texas	0.06
Oklahoma	0.05

Baylor comes out on top with KSU in second.  NU, UT, and OU - the historical powers - bring up the rear.  Comparatively, Louisiana-Monroe spends 45 cents per 1000 undergraduates, postively Baylorish.  So what Brad comments holds even more with the rest of the Big XII: "I hope that students at" every Big XII school save Baylor "get a lot of benefit out of football, because they are not getting nearly the student services that students at, say, Louisiana-Monroe are getting."  Or Baylor.

I've gathered data on research and instruction spending as well as data on spending on men's basketball, but crunching that data is left for a future post.

The Tax Reform Act of 1986 and Sports Construction Projects

When we think of sports subsidies, three main ones come to mind:  operating subsidies that help pay day-to-day bills, infrastructure subsidies that improve, for example, roads and highway off-ramps near a sports facility, and - the biggie - stadium construction subsidies.  But there is another.  Ameet Sachdev of the Chicago Tribune discusses the often hidden subsidy that comes from the tax-exempt status of interest on municipal bonds.  Here's Mr. Sachdev:

Such bonds offer a discounted cost of capital to private individuals in the form of below-market interest rates, paid for through the exemption of the bonds' interest income from federal income taxes.

The exemption can result in a large subsidy. The municipal-bond market has been a mess lately, but let's assume a 2 percentage-point differential between tax-exempt and market interest rates. A $225 million stadium renovation financed 100 percent with 30-year tax-exempt bonds, assuming an equal portion of the principal is retired every year, would result in interest savings of $37.7 million, according to Dennis Zimmerman, a retired economist who studied the economics of stadiums at the Congressional Budget Office.

Considering the lower interest costs, it's easy to understand why sports owners keep eating at the public trough.

Yes it does.  Skip Sauer at The Sports Economist found the next few paragraphs about the TaxReform Act of 1986 by Sachdev particularly interesting.

Before 1986, professional teams generally repaid publicly financed stadium debt through revenue generated by the facility, such as tickets, parking and concessions. Such user fees met little resistance from taxpayers because general taxes were not being levied to pay for the stadium, Zimmerman said.

The 1986 Tax Reform Act placed limits on bonds issued for private activities by determining that no more than 10 percent of the debt service can be repaid by revenues from the project itself. Congress also removed sports facilities from the list of projects that remain eligible for tax-exempt financing.

Yet stadiums still manage to qualify for the tax exemption. A loophole allows owners and host cities to push 90 percent of the construction costs onto taxpayers. In other words, public revenues such as sales taxes, lottery proceeds or amusement taxes must be used to repay the bulk of debt. And owners pocket the stadium revenues.

One quick reaction I had to this was that the stadium building boom here in the states began within a few years of the passing on the Tax Reform Act.  Is this a coincidence?  Possibly. 

Considering facilities in use in the 2003-2004 NBA season only 4 of the 28 American facilities were built before 1986.   In 2004, 14 of the 32 facilities in the NFL predate the Act.  Of the 24 American facilities in use in the 2003-04 NHL season, 6 predate the Act.

The NFL numbers are skewed because 5 of the teams that played in facilities built before the Act was passed have new stadiums now (Arizona, Dallas, the Jets, the Giants, and Indiana) and 5 others saw their facilities get major facelifts (Chicago, Kansas City, San Diego, Oakland, and Buffalo - the Superdome underwent massive renovations after Katrina, so I leave that one out) after the Act was passed.  An argument can be made that some of the renovations and new facilities were needed to update old stadiums, but it's hard not to think that the incentives in the Act at least quickened the pace.