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.

A victory on the field = another round of celebratory drinks at home.

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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    • acotrel says:

      07:02am | 01/10/12

      There are some sports which are seen to be less than legitimate.  Australia has produced the best motorcycle road racers in the world.  In fact in Europe they say ‘if you want to win in MotoGP, you get a Japanese bike and put an Australian on it’. We don’t have an Australian motorcycle manufacturing industry, mainly because our motorcycle racing controlling bodies tend to satisfy dealers and importers, before encouraging constructors.  The sport is a great developmental area, but we will never be able to exploit it to benefit our economy. We need a change of mindset.

    • Gregg says:

      08:05am | 01/10/12

      ” We don’t have an Australian motorcycle manufacturing industry, “
      Surprised are you?
      You should not be if you have a look at what Australian wage expectations are compared to those abroad but that will all change with new mindsets forced on people having to take whatever work they can get to make ends meet.

      Even a government cannot borrow endlessly to keep hand outs going.
      If you doubt that, ask the Greeks, Spaniards or Irish and a few others.

    • Pedro says:

      12:27pm | 01/10/12

      We do have a gambling industry led by such respectable racing families as the Waterhouses.
      Ah ... it would make a mug punter proud to hand over his money to young Tom. He might have been born to wear the baggy green but he was certainly born to drive leased sports cars and wear snappy suits - with the interest on his Amex bills paid by idiots obviously less intelligent than me. Wonder if his Dad gives him advice on ethical behaviour?
      MAybe the LNP will rein in the unsufferable adverts for online gambling to which our kids are subjected during sporting broadcasts. Everyone knows it’s wrong - but no one will do anything about it.
      Nick Xenophon, hello? Where are you when I need you?

    • Gregg says:

      07:25am | 01/10/12

      I doubt that you need to be any sort of an economist to understand supply/demand factors Jessica.

      Yes, the AFL has been prepared to control that re players salaries and as you say it has been for the greater good of the competition, clubs and supporters.
      Players might get less proportionally but then there is probably a lot more spent on the many forms of promotion including community clinics.

      The AFL has used the supply/demand equation in a more regular manner with the TV rights and the television consortiums are going to look at what they do on an economic basis.

      As for stadiums, I doubt there are too many AFL ones constructed using government funds that are solely for the AFL and you only need to look at the MCG or Sydney ANZ stadium is it, the one built for the Olympics, a lot of the remodelling of the MCG being done for 1956 Olympics initially and then the Commonwealth Games beside the C standing for Cricket and then it has also been used for a few concerts etc.

      So less people are participating and that should not be so surprising when you consider we are continually being reminded of an aging population.

      All up, there is still a lot going for team sports, in economic activity generated and in general health of the community.

    • gobsmack says:

      08:11am | 01/10/12

      Sorry, you can’t equate sports salary caps with government measures designed to prevent anti-competitive behaviour by businesses.

      The latter is intended to encourage competition, the former is designed to even out competition.

    • AdamC says:

      09:14am | 01/10/12

      I don’t think Jessica Irvine was saying that the two are exactly the same. Incidentally, I understand the first salary caps in sports where much more about limiting player salaries than evening out competition.

      My question is, aside from pointing out the beeding obvious - that Australians enjoy playing sort - what was the contention of this article?

    • gobsmack says:

      10:28am | 01/10/12

      @AdamC

      This is the comment with which I take issue.

      “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.”

      Taking the example of milk, unfettered competition (in theory) results in milk that is cheaper and of better quality.  That is the benefit to the consumer, the competition is a means of achieving that benefitt.

      In sport the “product” is the competition itself and the best “quality” sporting contests (at least in team sports) are those where the contest is close.

      The quoted remarks entirely misuderstand the fundamental difference between the two areas of activity.

    • Al B says:

      08:01am | 01/10/12

      Sport is still sport, and in that context salary caps are still a way of faking a level playing field. It may well be ensuring a ‘more competitive’ playing field in one sense. But only by being anti-competitive for the teams at the top - the super clubs. These are the ambitious teams pursuing excellence but always being pegged back for the purpose of maximising the tv revenue pot. For sports where they want to compete beyond Australia, it does hold them back.

      The other aspect of the ‘cap’ that is ignored is the floor. This ensures the welfare state aspect of the system, as the smaller club need a fairly regular stream of extra handouts to stay in the game at all. The downside of this is relocated clubs when the league gets too big for them ...or a lack of real organic expansion/promotion from regional areas of lower divisions. This is the real competition of league sport…salary caps ensure faked competition.

      Any economist that studies the system of salary caps and other redistributive measures in Australian sport and concludes it as a positive ...well it would be fair to say they have little interest in the true competition of the free market. Australian sport is a keynesians wet dream! wink

    • Greg says:

      09:49am | 01/10/12

      Supporters in Australia do not have the passion to support their team every year knowing they are going to lose eventually like the big soccer leagues of the world.

      If in the AFL every season was won by one of 4 or 5 clubs or whichever new club was bought by a billionaire, people would simply stop watching, it’s the thought of winning that keeps people watching in Australia.

      At the end of the day sport is not a free market never has been and never will be.  In the last 20 years 5 different teams have won the EPL, in the same time frame 11 different teams have won the AFL flag, 13 different teams have become NHL champions & 12 NRL premiers. Whilst only 2 teams have become Scottish football champions since 1985, it’s the same with Spanish football 2 teams since 1984.  Now pick which leagues have salary caps here and tell me which is more exciting. 

      Soccer survives because of it’s history of fanatical support for their team even if they can never win, sport in Australia survives because we can all dream of winning one day.

    • Al B says:

      11:59am | 01/10/12

      The difference with football leagues internationally, is they have competitions that embrace a range of sizes of clubs. Sport can be much more of a free market than it is in australia that is for sure. Surely sport should be about more natural competition than the contrived versions of ‘competition’ we have here.

      I guess the thing going against it for afl or nrl here is there isnt the contest for europe (or asia) cups. Also the lack of a competitive entry point at the bottom via promotion and relegation. Here a prospective club has to go cap in hand to the league board (other clubs) begging for an expansion spot, rather than having the chance every year to play for promotion on the sporting field.

    • richardt says:

      09:24am | 01/10/12

      doggies played like little puppies.
      weak as!

    • Gregg says:

      10:19am | 01/10/12

      Even as far as getting into cuddly nibbles!

    • Richard M says:

      11:25am | 01/10/12

      Typical economist’s analysis.  Like most economists, Ms Irvine knows the price of everything and the value of nothing.  She obviously has no knowledge of the incredible exhilaration and feeling of belonging and togetherness of being there with many thousands of other supporters and seeing your team win the premiership, as I did on Saturday.  There are few feelings like singing your club song as loudly as you’ve ever sung before over and over again with those thousands of others.  All of us will treasure the memories for life.  How can you put a value on the sheer joy of being at the MCG on Saturday to see the Swannies win?
      In the economist world, there is no joy and exhilaration, only the cold greyness of finance.

    • Augustus Caesar says:

      11:43am | 01/10/12

      Great to see South Melbourne & Melbourne Storm win, wasn’t it?

    • Richard M says:

      12:25pm | 01/10/12

      Pretty pathetic, mate.  The Swans have been in Sydney for over 25 years, and are utterly embedded there.  Of course, they also strongly acknowledge their South Melbourne heritage and have thousands of loyal members and supporters there.  I can assure you that on Saturday there was no distinction between the Melbourne Swans supporters, those from Sydney and those from elsewhere (like me - from Canberra) - we all chanted Syd - nee together, and we all love the Swannies.

    • Bob says:

      02:20pm | 01/10/12

      ” In 2009-10, there were 6.4 million Australians who did no sport or physical recreation – including walking for exercise - even once.”

      Is sex classified as exercise?

    • shane says:

      06:06am | 02/10/12

      Mate, the only reason I do any exersize is because I’m not getting any.  I can assure you if I was scoring a bit more often the bike wouldn’t make it out of the shed.

 

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