Sport plus Australia equals more dollars than sense
From a very early age, I struggled with handstands at little lunch. Come sports day, I invariably finished last. My high school netball team was consistently bottom of the league. By university, I didn’t even have the fitness to complete a run to the netball courts to try out. I am THAT kid.
Not all economists are bad at sport. In fact, the field of sport economics is a rapidly growing area of research. For more than a decade, the Journal of Sports Economics in the United States has delved into the economic mysteries behind player salaries, betting markets, coach efficiencies and TV rights.
Australia’s own academic sports economist, Ross Booth, from the Monash University, has studied in detail the way that salary caps, revenue sharing and player drafts have improved the competitive balance in the AFL, but resulted in a declining proportion of revenue going to players.
Salary caps prevent top clubs from snaring all the best players, allowing weaker teams to break even financially and compete. Salary caps mean, by definition, that players are paid below the market clearing rate. But such intervention is justified because it enables more clubs to afford good players and compete on a more level playing field.
The theory is similar to the rationale behind governments intervening in economies to stop businesses from getting a stranglehold in any one market. National competition laws stop big players, like supermarket chains or banks, from taking over weaker competitors and controlling too much of the market. By intervening in the free market, governments create a better competitive outcome for consumers. By imposing salary caps, clubs ensure a better competitive outcome for sports fans.
Economists are also interested in the granting of monopoly TV broadcast rights. In a free market, football fans would benefit if all channels were allowed to broadcast all games, whenever they want and how ever many times they want. But the AFL and NRL’s exploit their monopoly control over the broadcast of games to generate enormous revenue.
Broadcasting rights fees have skyrocketed over the decades. Seven paid just $30 million for AFL broadcasting rights over the five year period 1988 to 1992. If that had been indexed to inflation, it would amount to about $60 million today.
Instead, the trio of Seven Network, Foxtel and Telstra have paid $1.253 billion for the AFL broadcasting rights between 2012 and 2016. A similar sum ($1.025) has been paid by Nine and Fox Sports for NRL games over five years.
Yep, sport in Australia is big business.
And never more so than on grand final weekend.
Australians will fork out hundreds of millions of dollars this weekend on ticket sales, laying bets, travel and spending in pub, bars and bottle shops. The government has also invested many millions of dollars to build stadiums, often at a cost that will never be recouped.
Economists don’t mind pouring a bit of public money into sport (no matter how bad they were at it in school). Indeed, there is a clear cut case for investing in community sports initiatives, given the many “positive externalities” from greater community participation in sport.
Not only is it great for people to feel healthier, it also means they are less of a burden on the public purse. Healthy workers are also likely to be more productive workers.
Unfortunately, surveys show a declining proportion of Australians are actually participating in sport. In 2009-10, there were 6.4 million Australians who did no sport or physical recreation – including walking for exercise - even once. This was more than the 4.5 million who participated in organised sport.
Indeed, this grand finale weekend is more likely to inspire greater alcohol consumption and sedentary behaviour than it is to motivate us to get up off the couch.
But given the health benefits of exercise, a little more public money spent on community programs would go a long way. Tax deductible sneakers, anyone?
The economic case for spending on elite or professional sport is harder to quantify. Arguably big ticket events like the Olympics and grand finals weekend generate what economists call a “public good” – a common sense of community and enjoyment we all get as a nation from watching great sporting feats.
But perhaps we should also take some time this weekend to get outside and kick a footy ourselves.
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