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Issue no. 232 of the National Institute Economic Review is a special issue on sports economics, and contains five papers contributing to this literature. It is edited by NIESR’s Dr Alex Bryson (a.bryson@niesr.ac.uk), Bernd Frick from the University of Paderborn (Bernd.Frick@notes.uni-paderborn.de) and Rob Simmons from the University of Lancaster (r.simmons@lancaster.ac.uk)

Economists’ interest in sports has grown dramatically in Europe and North America over the past twenty years. recently there are two journals devoted to sports economics, and much-cited symposia have appeared in the highest ranked economic journals.

Cynics might say this growth in sports economics happened simply because it could – there are plenty of people out there, including economists, who have an interest in sport and can pursue that interest thanks to the increasing availability of large data sets containing information such as firm performance, worker productivity and wages.

Sceptics may say that they generate little by way of useful insights into the operation of the labour markets and the performance of workers and firms, as it is difficult to extrapolate from sports data to the wider labour market. Whilst sports teams are in competition, they often have a symbiotic relationship since the sports spectacle relies on some degree of competitive balance between the teams, enforced through rules governing finances and wages. This of course differs from other industries that are often more intent on trying to kill off rivals through competition. The scepticism may also be justified when sports economists appear to be motivated more by the love of sports than the pursuit of knowledge.

However sports economics cannot be dismissed quite so lightly for at least four reasons:

• First, sport is big business. A 2007 European Commission White Paper for Sport indicated that, in 2004, sport generated value added of 407 billion euros, accounting for 3.7% of EU GDP.
• Second, sport employs a lot of people. Across the EU, fifteen million people are employed in sports and related activities, equivalent to 5.4% of the labour force.
• Third, sport matters quite a bit to participants and supporters, with some studies finding that sporting success at national level increases citizens’ sense of life satisfaction and wellbeing.
• The fourth reason for studying sports economics is that it can shed light on fundamental economic questions.

In the first paper for this special issue, Richard Burdekin (richard.burdekin@claremontmckenna.edu) and Michael Franklin tackle the knotty issue of money spent on football players in the English Premier League. Growing concern about wealth inequality across clubs and its potentially damaging implications for competitive balance has led football authorities in Europe to institute ‘financial fair play’ rules which aim to limit the amount clubs can spend on transfer fees and on their wage bills. It is currently unclear what these rules might do to the quality of the football spectacle but this paper gives us some clues. It shows that spending on transfers in the English Premier League has risen dramatically and that there is a very marked gap between the talent that can be attracted by the ‘haves’ and ‘have-nots’. This is unsurprising, but what is interesting is the extent to which these expenditures have improved on-field performance. Spectators see much better football as a result. The clubs offer this increasing quality at the expense of their own profitability, indicating that win maximisation takes precedence over profit maximisation in recent Premier League.

Professional football in England is also the setting chosen by Andy Barlow and David Forrest (david.forrest@liv.ac.uk) for their paper, but the clubs they focus on are a million miles removed from those in the Premier League. Instead, they focus on two small town professional football clubs – Luton Town and Bury – whose very existence in the bottom tier of English professional football was in jeopardy at the time of the study. They consider whether the activities of these clubs generate benefits to the local community over and above those they can recoup in the form of ticket sales. The valuation of the clubs is based on local residents’ willingness-to-pay for the survival of the clubs through taxation. In both cases they find the community is willing to pay well in excess of the value of ticket sales. They suggest that, based on such evidence, there could be a case for local governments to consider intervention in circumstances where a club’s survival is in question.

The third paper by Colin Green (c.p.green@lancaster.ac.uk), Fernando Lozano (Fernando.Lozano@pomona.edu) and Rob Simmons (r.simmons@lancaster.ac.uk), like the first, considers investment decisions made by football clubs. The authors make use of an exogenous change in the incentives to invest – namely the number of Champions League slots up for grabs in the following season – to identify changes in investment decisions by clubs. They find that marginal clubs in particular – namely the ones who are most likely to be in the mix for the following season – are very responsive to such changes.

The setting for our fourth paper is professional basketball in the USA and Spain. The theme is discrimination, one that features heavily in the sports economics literature, in part because data on player performance are so good compared to data for other labour market settings. As the authors David Berri (berri@suu.edu), Christian Deutscher (christian.deutscher@uni-bielefeld.de) and Arturo Galletti (Arturo.galletti@gmail.com)point out, they have exceptionally good data on the on-field performance of each professional basketball player. This is normally the basis for an analysis of wage discrimination, but the authors instead focus on the time players are on the court. Having controlled for other factors, they identify a differential in playing time between US-born players and other players, which they attribute to potential discrimination on the part of coaches in their treatment of non-US born players. Although they cannot definitively rule out one or two other potential sources of the differences, the finding is certainly consistent with the idea that US-born players are credited with ability over and above that which they possess by virtue of the strong identification of basketball as an American sport.

Our final paper by Peter Lunn and Elish Kelly (Elish.Kelly@esri.ie) contributes to the burgeoning literature on the effects of sports participation on health and labour market outcomes. The authors focus on the impact of participation in extra-curricular sport at secondary school in Ireland on what people choose to do on completing compulsory education. They establish that those who choose to participate in sport in the last years of secondary schooling are more likely to continue formal education after leaving secondary school, as opposed to joining the labour market, compared to those who dropped out of sport earlier in their schooling. The authors suggest that, because college offers further opportunities to pursue sport, this may entail a consumption value of further education which, ultimately, brings dividends in the labour market.

What these papers have in common is an approach to economic inquiry which uses the rich data available in sports to explore and test theoretical propositions that are of general interest to economists. A handful of papers can in no way do justice to the array of contributions that can be made by economists when using sports data but we do think this collection nicely illustrates why more and more economists are embracing sports economics in their research.

Notes:

For journalists wanting full copies of these papers, please contact the NIESR Press Office:

Brooke Hollingshead on 020 7654 1923 / b.hollingshead@niesr.ac.uk

Links to the papers will be available from the NIESR website from midnight on Wednesday 6 May 2015.

For general enquiries on the special issue as a whole, please contact Alex Bryson on a.bryson@niesr.ac.uk or +447969179755 For specific questions about individual papers, please contact the author.

The National Institute Economic Review is a quarterly journal of NIESR. Published in February, May, August and November, it is available from Sage Publications Ltd (http://ner.sagepub.com/) or at subscription@sagepub.co.uk

The latest economic forecasts for this issue of the National Institute Economic Review are to be released today, embargoed for 00.01 Wednesday 6 May. Details of the press conference, where the forecast researchers can answer any questions, can be found here.

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