Handbook

The purpose of this unit is to understand how economics affects sport. We begin by focussing on the importance of sport to the economy. Microeconomic principles are then applied to various sports in order to understand the concept of comparative advantage in sport, whether ticket prices are set to maximise profit, and whether the method of ticket distribution leads to scalping. The sports broadcasting rights market is analysed to help explain the growth in sports leagues revenues. Sports leagues not only set player rules and fixtures, but negotiate the business side of sports such as TV rights, collective bargaining agreements, strategic location of teams, and public subsidies. Whether clubs and teams are profit maximisers or win-maximisers is important, because this can impact outcomes in sport and whether sports league policies are effective. Evenness of competition is a goal of many sporting bodies, commonly known as the uncertainty of outcome hypothesis. This gives rise to consideration of the concept and measurement of competitive balance, and the effectiveness of policies to address competitive imbalance, such as reverse-order player drafts and the invariance principle, team salary caps, gate revenue sharing, league revenue sharing, league expansion and contraction, and relegation and promotion. The player labour market is analysed to explain player pay, and tournament theory is used to explain rewards in individual sports. A much-debated issue is the economic impact of mega sports events and the case for government subsidy. Case studies of professional team sports leagues and individual sports in Australia and overseas are used throughout to illustrate the application of the economics principles developed in the unit.