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Economic Analysis

Economic Analysis

admin / January 6, 2019

The productivity of the work force is becoming more and more qualitative. High quality productivity demands high mental alertness which requires a calm and trouble free mind. Thus the role of entertainment has increased many folds during the past decades. Sport, both as a participant and as a viewer is a major form of entertainment for many years. In recent years the trend is becoming more widespread and more professional.

Never the sportsmen used to receive so much money as they are today. As Kern (2000, p. 9) found that the players now receive salaries much closer to the value of their contribution to team revenue. Graton and Taylor (2000, p. 56) gave the same opinion while mentioning sports as recreation.

It has also been observed that certain countries have developed likings for certain kinds of sports and they are not uniform in all the countries as such. Football has become more popular in South Korea (Robinson, Bender & Whyte, 2004, p.110) after the world cup, while cricket has become popular in some Asian countries.

It s said that money is the biggest motivating factor, same goes with the players. Players’ productive life is probably the lowest in terms of years.

They become productive at the age of twenty and around 35 their productive life ends. In such a short time period they need to earn for their lifetime spending and therefore each player is very mindful of this aspect of his career. To motivate the football players FIFA has increased the salary of players in the world cup (Wong, 2008, p.126).

Thus the funding had to be increased as well. FIFA’s compensation to participating team for the 2003 World Cup was $16 million and was collected from the tickets. During 2006 the price of ticket was $136 which was increased to $139 during 2010 World Cup (Pretswell, 2010, para. 1). Before a player reaches to the world cup he plays at club level at his own locality and country.

There too, he needs to grow and groom to perfection. Thus, not only at international level, but even at local level the players need motivation for reasonable earnings for their household. During 2009 in Dallas, NFL average ticket prices rose 4% to $75, the fan Cost Index was $759 (Leahy 2009).

While talking about the importance of individual player’s productivity we may define it in terms of Marginal Revenue Productivity (MRP). This may be defined as the cost and benefit of additional players in the game. For example, MRP is the multiplication of increase in revenue and increase in productivity. The cost versus productivity graph may be drawn as follows:

The cost incurred in selecting the player and their productivity needs to be balanced to maximize benefits in each game.

The concept of marginal revenue product (MRP) may have some relations in sports also. MRP may be defined when the newly hired employee produces work more valuable as compared to his remuneration. MRP is the value that any particular employee produces on his behalf after considering all the input costs.

Talking to (MRP), since the workforce sells their services against remuneration, the same may also be said for sportsmen. They sell their playing services to the organizers against their competency worth in the sports market. There is a bid system prevailing in some countries also. Country cricket and Indian Leagues are examples. Thus,

MRP = MP X MR

“MP is the marginal productivity of an employee, while MR is the additional amount of revenue he produces by each new unit of output” (Wessels, 2006). For example, when a new employee is hired to produce hand-woven carpets then his worth is then the number of bread he produces multiplied by the number revenue each unit generates.

In sports, MRP may be related to number of wins that the teams has because of his contribution. The win then is multiplied by the value of each victory. In this context, sportsmen are paid according to their MRP. That means they create enough MRP for their organizers and as compared to any other profession except films an athlete remains in a position to contribute substantially. An important point in this regard is there are far few athletes than film actor or actresses.

The service life of an athlete is quite limited as compared to an actor which is spread over several decades, while an athlete performs at its peak for a decade or so. Beside that athlete for specific sports are limited and they cannot perform for any other sport. For example, a baseball player can not be a hockey player, but an actor can play his role irrespective of the nature of movie, whether romantic or adventurous.

Then the sports market is either a monopoly or an oligopoly, while in other professions there are perfect competitions. There are unions for athletes and leagues for sports organizations. After every few years, there are negotiations from both the sides, based on changing market conditions. There is another aspect in the bargain.

Unlike trade unions, athlete’s unions do not demand for a fixed salary or a certain percentage of increment. They establish a guideline that ensures a certain emolument for each player. Professional athletes are exceptions in the negotiation deals. Thus the price is controlled to a great extent.

Let’s discuss one more aspect, the price of tickets. A certain organizers announce the raise in ticket price by 15%. A very renowned player of two of the participating teams announces to play for free. Are the organizers going to forego the price increase? NO. In this case the MRP is not followed. And the organizers are going to make profits out of the deal. Such cases are not unusual in the field of sports.

Now let’s talk about the demand curve. With reference to athletes, at any given time there are only 20 or less number of players is required in the pool for any particular organizers. When more number of players are available the bargain is tougher for the athlete union, less number of players are available the bargain is tougher for the organizers.

This is being shown through the help of a graph below. In the following graph number of players is independent variable while the compensation of players is dependent variable. For basic analysis the demand graph is always a straight line. The demand curve may be defined as:

Quantity (No of players) = a – (b X Price/Compensation)

Where a and b are constants. As the price changes there will be a movement in the demand curve. Following scenario has been created for the graph.

Compensation ($ M)No of Players
512
417
322
227
132

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