Archives for May 2009

Stefan Szymanski Article: New Capitalism and Subprime Baseball

Stefan Szymanski, the author of PLAYBOOKS AND CHECKBOOKS: An Introduction to the Economics of Modern Sports, tackles the economics of the exorbitant tickets to Yankee Stadium in this original article.

The House that George (and Michael) Built: New capitalism and Subprime Baseball

As we are entering a new era of capitalism, with tighter regulation of bankers and banking, federal oversight of the auto industry and public demand for higher moral standards from our business leaders, will the nation’s monopoly sports franchises start to come under pressure to clean up their act? Public reaction to the new Yankee Stadium is instructive. First, while the Steinbrenners claim that, unlike so many city funded stadiums and arenas, they are picking up the bill themselves, there was been widespread opposition to the deals that allowed them to issue $1 billion tax exempt bonds (entailing a tax subsidy of between $250 and $500 million) and to repay the bonds in lieu of (property) taxes. Moreover, there have been investigations claiming that the stadium was deliberately and misleadingly overvalued in order to make the deal to go through. Second, now the stadium is open, punters are baulking at paying the $2500 price tag attached to the premium seats, attendance figures are weak and there is talk of serious price discounting. Could the mighty Yankees, like a subprime borrower, end up being unable to pay their way?

There’s no question that the last 20 years has been a bubble economy for sports franchises. Between 1990 and 2009 the total value of Major League Baseball franchises rose from $3 billion to $15 billion. Over this period 21 new stadiums were built with over 50% of the money coming from the taxpayer- an estimated subsidy of over $4 billion. Much the same can be said of the NFL and NBA. How is that owners are allowed to get rich at taxpayer expense? The answer is not dissimilar to the explanation of the banking crisis. There, executives were able to take crazy risks knowing that they were too big to fail; exactly as predicted, the rest of us have been forced to bail them out. Likewise, the owners of major franchises know that we have nowhere else to go, they have a monopoly of what we want, and so we have to pay. Had Mayor Bloomberg not come up with a Yankees deal, it’s not inconceivable that the Yankees could have left town, the threat that sports franchises use everywhere to get more juice.

For economists, this is just old fashioned abuse of monopoly power, and for many years they have been calling for measures to bring them down to size. One solution is to break up the leagues into competing entities. Another is to copy European soccer leagues and create a system of promotion and relegation (sending poor performing teams to the minor leagues and replacing them with the best teams from lower leagues) which would entail abolishing territorial exclusivity, the cornerstone of their monopoly power. Over the last few years Stephen F. Ross and I have developed this proposal in some detail in a number of publications, but the argument has always foundered on the idea that it would be too dirigiste.  Either solution requires concerted intervention by government to ensure that the market works in favor of consumers rather than at their expense.

It’s still early days, but there are signs that baseball attendance in general is being hit by the recession. The evidence from Yankee Stadium seems to fit a wider pattern of resistance to high ticket prices, and discounting of ticket prices has been noted across the country. Were this to continue, the major leagues might end up, like the banks and the automakers, going cap in hand to government for more support. In the event that this was to materialize, government should be ready with a list of reforms that would be the price of their support. There should be recognition that the “owners” do not own the sport, but are trustees of the game, which they should leave in a better state than when they entered it. Criteria should be set against which performance is measured, such as the rate of growth of ticket prices or the number of fans watching the game. Ways should be found to recognize the voice of the fans, who cannot simply be told that if they are not happy they should take their custom elsewhere. Moreover, the owners should bear some responsibility for the “grass roots” of the game, supporting the playing of the game in schools and communities across the country. Most of all, the threat of relocation must be brought to an end. Blackmail is unattractive at the best of times, but when it comes to our national sports, it must be outlawed.

Cormac Ó Gráda on Forbes.com–The End of Famine?

Cormac Ó Gráda, author of FAMINE: A Short History, discusses the history and a possible future for famine in Forbes.com. Read the article here.

Also check out Karen Long’s thoughtful review of the book in The Cleveland Plain Dealer.

Stefan Szymanski on Marketplace Morning Report

Stefan Szymanski, author of PLAYBOOKS AND CHECKBOOKS, weighs in on the Olympics in Chicago on today’s “Marketplace Morning Report.” Click here to listen to the interview.

Peter Leeson on Marketplace

Click through to listen to Peter Leeson discussing Somali pirates and their 18th century brethren with Kai Ryssdal on Marketplace yesterday.

A quick excerpt:

Ryssdal: Are there remnants of that 18th century system that we see today with these Somali pirates, for example?

LEESON: It doesn’t appear that modern pirates are using a democratic form of governance. And I think the reason for that is that the crew members and the captain, if you will, of a modern Somali pirate crew is probably appointed by the landed financier. Kinda tribal chieftains who provide the seed capital for ships, who has an interest in making sure a captain of his choosing is in charge. With that difference aside, what you do see are the sorta rules of social organization emerging about how to divide up booty, and there’s also a kind of judicial system.

Emile Nakhleh on the Riz Khan Show

Yesterday The Riz Khan Show interviewed Emile Nakhleh, author of A Necessary Engagement, as part of their program on The US’s Middle East Challenge. The complete program is available below in two parts.

Part 1

Part 2

Slumdog Millionaire actor’s home demolished, highlighting the risks of poverty

Caitlin Weaver, writes about the demolition of the home of one of the child stars of Slumdog Millionaire over @ The Financial Access Initiative. She makes the point that the destruction of homes and property is fairly commonplace for the world’s bottom billion–a fact supported by the research conducted for the book Portfolios of the Poor: How the World’s Poor Live on $2 a Day.
Click through to read the full story, but here’s an excerpt from her article:
Slumdog Millionaire brought new attention to urban poverty in India. Sadly, though, the kind of disaster highlighted by the NY Times is a common occurrence for urban poor families living in slums around the world. A new book, Portfolios of the Poor: How the World’s Poor Live on $2 a Day, describes a similar situation in Bangladesh:

“Many of the property losses in Bangladesh were caused when slum environments were cleared by police or by contractors doing infrastructure work. Because Dhaka’s urban slum dwellers are aware of these risks, they tend to invest less in housing that has an insecure tenure. Homes may be huts that are quickly packed up and shifted on a handcart to another location.  When we revisited our Bangladeshi households in 2005, all three of our urban research sites had been wholly or partly destroyed since we were there in 1999-2000.”

Stefan Szymanski’s PLAYBOOKS AND CHECKBOOKS in New York Times

Stefan Szymanski’s new book PLAYBOOKS AND CHECKBOOKS: An Introduction to the Economics of Modern Sports is very timely, and Harry Hurt III discusses the book in an intriguing article called “The Wide, Messy World of Sports” in The New York Times on May 16. Szymanski is going to be interviewed by PRI’s Marketplace next week–look for the interview here…

Book Trailer for The Invisible Hook by Peter T. Leeson

Chris Eisgruber on Intrepid Liberal Journal

Rob Ellman of Intrepid Liberal Journal posted a new interview with Chris Eisgruber over the weekend. Eisgruber’s book, The Next Justice, is now available in paperback. Listen in here.

Household Profile from Portfolios of the Poor

Feizal, Uttar Pradesh, India
Feizal’s story illustrates the effect of resource constraints on health-seeking behavior.
Feizal’s ten-member family lives on a household monthly income of $36, largely comprised of his earnings selling aluminum pots and supplemented by his son’s earnings as a tailor’s apprentice. His wife and daughters roll bidis (cheap cigarettes) to sell. Although their income is low, the family stocked away significant savings in preparation for one daughter’s wedding.

When Feizal fractured his thighbone, the family was suddenly without its main breadwinner. He didn’t have insurance, and because he didn’t want to spend the money the he’d saved for his daughter’s wedding, he went to a less expensive, traditional doctor. But the break got worse, and the family was forced to spend nearly $250 (two-thirds of their income for a whole year) on a modern doctor and hospital fees. Feizal’s father paid for the rest, and Feizal finally went back to work eight months after the accident.

During Feizal’s health crisis, the family’s financial net worth deteriorated but did not turn negative. They avoided taking on expensive, interest-bearing loans to make ends meet, and instead drew down savings, took small interest-free loans from friends and neighbors, and used shop credit to buy household goods.

In the end, though, the costs of the accident—both the direct cost of treatment and the indirect cost of lost wages—pushed the family deeper into poverty. If Feizal could have relied on an insurance product, paying small amounts dispersed over time, he would have had the incentive to seek early, high-quality care at a much lower cost.

Feizal’s financial diary and those of other survey participants are available at http://www.portfoliosofthepoor.com/portfolios.asp

Peter Leeson on Between the Covers @ NRO online

Click through to listen to a great interview between Peter Leeson and John J. Miller, host of the Between the Covers feature for National Review Online.

Hubble Telescope in the News–Zimmerman Gives the History

Bob Zimmerman is the author of THE UNIVERSE IN A MIRROR: The Saga of the Hubble Space Telescope and the Visionaries Who Built It, a terrific history of the Hubble, focusing on the people who fought for the creation of this flawed, but ultimately great space telescope. The Hubble has been in the news again lately as the Atlantic Space Shuttle is currently on a service mission for Hubble until May 22. The hope is that the service will extend the working life of Hubble until 2013, after which it will gradually shut down and eventually fall to Earth at the end of a long and distinguished career.

Bob Zimmerman has been interviewed and the book featured on Alan Boyle’s Cosmic Log, which appears on the MSNBC.com site. In addition, the Astroguyz.com site has been following the mission and features a review of the book. Finally, the San Jose Mercury News did a story on some of the people involved with the mission, and Bob is featured in this article, as well.