Fantasy sports are sometimes reviled in iffy click-bait “studies” as a massive destruction of economic productivity (you are costing America $6.5 billion!), but as Nate Silver can tell you, they’re a good way to learn about basic economic precepts:
Uh, yeah, I don’t do fantasy baseball because I find that the expectations would be — people would expect me to be perfect. And fantasy baseball is super research-intensive. But fantasy football I’m pretty good. You kind of figure out which players are overvalued or undervalued, and you take advantage of peoples’ biases in that way.
And sometimes the lessons go beyond the statistics. I participate in a very serious and time consuming league that brings in people from foreign countries for the draft, and it’s an interesting little model economy. We’re all graduates of the same undergrad institution (the same as Silver, not to mention Kim Ng, the influential baseball writer Doug Pappas, and other baseball nerds) from approximately the same years, but make very different salaries—about a third lawyers and consultants, about a third Ph.D. students in competitive but poorly compensated fields, and a couple folks like myself, who put our degrees in the humanities directly to work in enjoyable but not particularly monetizable positions.
Not long ago our running conversation turned to the Yankees; like any sample of serious baseball fans, the majority of us look for reasons to hate them, and this year’s playoffs provided a lovely example. The Yankees couldn’t sell out tickets to the American League Championship Series. Yes, they go that far a lot, but the Cardinals have gone seven times in the past 12 years, and the Giants three times. Neither had to move fans just to keep up apperances, though it came as no surprise to those of us in the league’s lower income brackets:
“At the old stadium, a playoff game, Saturday night, it was electric. It was a zoo,” said Charles Weimer, 33, of Staten Island, who was sitting in the sixth row of 334. “There were guys in jersey-shirts, drinking $8 beers. They’re gone, and I don’t know if they’re going to come back. Your $10 tickets are $50 tickets now.”
Indeed, the face-value ticket prices are exorbitant. Seats for Sunday’s Game 2 against the Detroit Tigers are available on the Yankees’ website for between $113 and $688. The Legends Seats – behind home plate and the surrounding areas – range from $860 to $1,715. A spokesman for Major League Baseball said the league offers a variety of potential ticket prices to each team, which then chooses its desired pricing for its LCS home games.
In other words, the cheap seats for the ALCS were on par with a dinner at Next, and more than twice the average price of Yankees tickets the previous year, $51.83 (a 12.9 percent compound annual growth rate since 2006, according to WR Hambrecht + Co.; PDF).
According to that same report, the White Sox actually had the fourth-highest ticket-price increase from 2006-2011: 9.2 percent CAGR, from $26.19 to $40.67. So it’s not much of a surprise what happened when they employed a sports business consultant to figure out why they couldn’t draw fans to see a competitive team:
Respondents who indicated they were going to fewer games also answered a battery of questions as to why. Those results showed that there was no specific thorn in fans side — tickets, parking, concessions, merchandise — but rather a combination of it all.
Two thirds of those who were attending less frequently said they simply had less money to spend and that they could not afford going to as many games.
No word on whether fans intuited that the Sox would fold like a cheap tent against an ultimately superior Tigers team.
Which leads me back to the little economy of my fantasy team. Those of us who are not raking in lawyer money were lamenting the spiraling cost of tickets. So I thought: when there’s an economic disparity, public policy is probably wrapped up in it somewhere. Sure enough, write Richard Schmalbeck (Duke Law) and Jay Soled (Rutgers Business School):
Over the last two decades, the average ticket price for a Chicago Cubs game has increased 265 percent, more than four times the inflation rate. Add in parking, concessions and souvenirs, and a family trip to one of this week’s opening day games could easily cost a few hundred dollars.
There are many reasons for the price explosion, but a critical factor has been the ability of businesses to write off tickets as entertainment expenses — essentially a huge, and wholly unnecessary, government subsidy.
Who has the money to buy wildly expensive tickets? The people who are corporations, my friend. It’s changed the shape of stadiums themselves:
While baseball parks built in the 1960s and before held as many as 56,000 seats, the modern trend is toward smaller-capacity parks, with a higher percentage of total space dedicated to skyboxes. The new Yankee Stadium, the only major-league park built since 2000 with more than 44,000 seats, has 3,000 fewer seats than its 1923 predecessor but almost three times as many skybox suites.
The authors note that tax law changed in 1986 to restrict “the deductibility of luxury skybox tickets to the face value of non-luxury premium tickets.” Here’s how that works:
Tom Dwyer pays $3,000 to rent a 10-seat skybox at a stadium for three baseball games. He uses the skybox for deductible business entertaining. The cost of non-luxury box seats at each event is $20 a seat. Dwyer can deduct (subject to the 50-percent limit) $600. That is the product of 10 seats at $20 for three events (10 x 20 x 3 = $600).
In that case, the optimal approach is to buy and deduct non-luxury premium seats instead of skyboxes, an incentive to raise the prices of good non-skybox seats, creating a ripple effect up to the nosebleeds.
Schmalbeck and Soled make the case for eliminating business entertainment deductions altogether; in a lengthier treatment for Tax Notes (PDF), they argue it could bring in 10 billion dollars back to the tax coffers annually. Knowing the level of the playing field, however, they have a different idea (no, not challenging the deductions on the basis that the Cubs cannot plausibly be considered “entertainment"):
Given corporate America’s passionate attachment to sports-related perks, a blanket elimination may be unrealistic, though. A more feasible but still effective approach would be to limit deductions for luxury skybox tickets to a low, fixed amount — say, $50 per seat, per game.
Sure, but then you’re running into the same problem, only less so. If you’re going to be subsidizing “corporate America’s passionate attachment to sports-related perks,” why not target those subsidies? American baseball, football, and basketball are the best in the world, but we still face a massive soccer gap, affecting our credibility in a globalized world. Wipe out the deductions for the sports that don’t need the help, and throw it at MLS (and Bridgeview, victim of trickle-up tax subsidies, could use the help). In a global economy, you want your finest employees speaking the international language of sport.
Photograph: Chicago TribuneEdit Module