Economics of College and Sports

June 12, 2007

Economics of College and Sports

Skip Sauer writes,

I find the current state of sports a bit puzzling. I spoke at a local function yesterday and was asked the question whether pro sports were "pricing themselves out of the market." This was once an old and tired complaint, but it may now have fresh legs. Prices are higher than ever, and it is true that the revenues flowing in would seem to justify them. Its been a great ride, economically speaking, in the past few decades. But apparently I'm not alone in sensing that we might be near some sort of a market peak. Owners and their handmaidens in the media have clearly been milking the cow, but are they feeding it?

In both cases, increased affluence and constraints on supply are at work. The amount of money chasing seats is growing faster than the number of seats.

The decline in television ratings is probably more of a problem for pro sports. I think that the decline is inevitable, as entertainment becomes more fragmented. However, as entertainment becomes more fragmented, the audience becomes more targeted, which may mean that the value of advertising stays high. Your ad reaches fewer people, but you know who is watching it.

My guess is that an interesting trend to watch in sports will be globalization. Don't just pay attention to ratings in the American TV market. Pay attention to ratings in the world market.