An Economic Angle on Sports

It's Paul Oyer, Senior Associate Dean at the Stanford Graduate School of Business, Professor of economics, also the author of an Economist Goes to the Game, How to Throw Away five eighty million dollars and other surprising insights from the economics of sports. He joins us via zoom from Stanford, California. Professor, Oy, are good to have you back with us. How are you great to talk to you again. Thanks for joining us.

We we promised we'd do more with you, and we're eager to have you back this afternoon because we've got so much to talk about, especially with regard to your book. But before we get to your you know what's in the book. I want to know what got you to write this book, Like, what was the number that you ran across that this label went off in your head and you said, Okay, there's there's so many inefficiencies when it comes to the way that people think about sports.

It could fill a book. Yeah, I that's I don't think there was any one moment, although if maybe it was thinking about kids sports. The first chapter is youth sports, which um may have been what really drew me into this, having kids and taking them to do sports and thinking about whether that was a good use of resources or not. So I think that may have really got me into it. Also, when I started the book, my son was um in college and he helped me with a lot of the

original research. So it was a good chance for us to work together. He doesn't have much interest in economics, but he has a lot of interest in sports, so so it was a good chance to get to do some spend time with him while calling it work. Is your kid a pro athlete? Sorry? He was? He was on the gun high school baseball too. The reason I ask is because the first chapter is should you help your kid become a pro athlete? Yeah? You should not? Well,

it depends. That's where the chapter is it depends, But for most kids the answer is no, you you don't want to um. It's not the best use of funds to try to help your kid become a pro athlete. It is kind of shocking. Now. I have to say I rememb when we talked with you. That really resonated with me, because you know, I've seen it in people I know where they're like Johnny or Susan they're gonna be the best and they're gonna go pro and da da da da da, and they never do because the

odds are stacked against them. And I just find it interesting troubling. Well, it is troubling if you give up other things. So if you sort of do it as I'm gonna learn a lot. I'm going to really focus on sports and that will help me be more disciplined and other things that might come out of it. There's not a lot of evidence that that helps you in the labor market later in life, by the way, but at least if you don't go all in, you can

see the argument for it. What if it helps you get into college, that is a big So I think that if you're going to make the case for if you're gonna make the case for investing in your sports career as a kid. I think you need one of two things. You either need to argue it's going to help you get into college. And one of my economist friends says, if you're going to do that, you should get your kid into fencing. The fencing is a particularly good way to help you get into a good, uh

and elite college. So getting into college is one thing, and in the book I go into that. Of course, it's it's hard to even show a lot of evidence that that there's a big advantage to that, because, um, it might get you into a slightly better college, but economists generally aren't sure that the quality of the college on the margin makes that much difference. So if the same kid goes to Ohio State or Harvard, it's not a complete given that that it has a big difference

on their outcomes. And yet you do say, what if your kid is Kevin Durant, So that's the other So I said there were two reasons you might do it. One is college and the other is if your kid is six ft eight and very coordinated at age thirteen, then the odds changed dramatically. Um, so Kevin Durant is a is a wonderful example that I go into in the book because he has a bunch of He has a bunch of things in favor of him becoming a star.

One is, well, the reasons he became a star with his physique, just the fact that he's such a gifted athlete and he happens to be six ft eight inches tall as as they as the basketball players say, you can't learn tall, So he had that advantage going for him. Um and then um. But the other thing, the other thing about Kevin Durant is the calculus is slightly different if you're if you come from a background where your

labor market prospects may not be as great. And so, given how hard it is to move up the socioeconomic ladder in the United States for you know, reasons you've probably talked about on your show before, the economic mobility isn't what we would hope it would be. Um. And so if you come from a really tough background, sports might be looked like a better way to really jump to a higher income distribution relative to more traditional ways

in the labor market. And Kevin Durant came from a very humble background and and um, you know, if you just sort of statistically looked at what is future might have been like without sports, it may not. You know, it wasn't a rosy picture. Yeah, I think of like you know, Venus and Serena Williams. I mean, and they obviously had a dad that was very driven, in a family that was supportive, and it was a tough background.

But it's you know, you wonder how much of it is it because of the dad and pushing them, how much of it was just you know, natural skill. I mean, there's a there's a lot that has to be taken into consider. Can you answer that professor that you know, the nature versus nurture debate HEREH Well, yeah, I mean I think it's easy to answer it in basketball because the answer is, if you're six ft eight, your odds of getting for the NBA are just like wildly higher

than if you're six ft tall. So in the book, I talked about Russell Westbrook, who went as a kid into much the same investment mode as Kevin Durant. His family went all in on basketball, and of course it paid off for both of them, But if you looked before they made those investments, Kevin Durant probably made a rational investment. Russell Westbrook probably got lucky, meaning a six. There are tons of athletics six ft kids, and the vast,

vast majority of them never get to the NBA. There are not that many six ft eight thirteen year old and a substantial fraction of them get to the NBA. So Venus and Serena again probably obviously worked out amazing. But if you were to try to run the numbers, was that a good investment beforehand? I think you would. I think you would have to say it wasn't. But it just paid off. It did end up paying off

really well. Obviously we're gonna go into more chapters. Just got a minute before we have to take a break, and then we'll come back and continue. But as someone who is Czechoslovaki and I love this chapter two, what do Silicon Valley and Check Women's Tennis have in commons? You've got a minute to talk about it. Then we'll talk some more. But what is the connection? Just quickly, well very quickly, I like to say, um, Check Women's

Tennis is this is like uh, Silicon Valley. There's not a natural reason why Check women should be so great, but there's a combination of historical accidents and then these network effects where the check women sort of push each other, but check girls push each other so hard that they end up becoming just great tennis players. There's no natural reason they should be any good. You know, if you look at why are Norwegian so good across country skiing as you do as I do in the book, there's

a lot more of a natural reason for that. But economic networks and economic competition really can lead to what about the weather as well? Well, the weather doesn't work for the check story, the Norwegian story. I know what the answer is because my family is two kid that check women were strong like bull So that's why, you know. I'm just kidding. I'm just kidding, But we did used to say that at home. You want to get back

to our guesta with us. Paul Oyer he Senior Associate Dean and economics professor at the Stanford Graduate School of Business. We're talking about his book and economist goes to the game how to throw Away five eight million dollars and other surprising insights from the Economics of Sports five eighty million dollars? Wait, wait, where'd that number come from? So that's an estimate I calculated based on the strike at

the NBA, and I believe it was two thousand eleven. So, um, there was a maybe a more up to date version to talk about was there was a strike in Major League Baseball at the beginning of the most recent season. Aren't you remember last spring training? Not a strike? Sorry, I lock both cases. It was a lockout, not a strike. So the point in whether talking about the NBA or Major League Baseball or whatever, is you see in sports,

and this is a broader thing. You see it in other collective bargaining agreement situations where, um, you get these two these two groups in the case of sports, it's the owners and the players union, and they rely so much on each other there their options are so much better if they work together than if they split up. But at the same time, they can't help themselves from

trying to steal a bigger share of the pie. It's a It's a very common thing in economics where you have these bilateral agreements where there's a lot of value captured by the by the agreement, and you you don't want to mess it up, but at the same time you can't help but try to take too much, and when that leads to a lockout, as it did in the NBA, it's sometimes is just like literally the end and the players pretty much just burned a pile of

five million dollars that they'll never get back. Okay, it's a lot of money. I want to I want to talk cheating. I want to talk cheating. Okay. There's an entire chapter in your book dedicated to cheating, and it talks about Lance Armstrong and the way that it asked the question about whether or not you can actually win the Tour de France if you're not doping. Um take us into this chapter and why athletes cheat? So um

they they You've only got half of it. I like to think that chapter is about why they cheat and lie. Oh sorry, excuse me, thank you said they cheat and lie because the incentives there are very strong. I mean, we see this in other places as well, when when we set up rules that we can't enforce and the value of breaking those rules is really high, people are going to break them. And it sad because that's human nature,

but it's what we need to expect. And you know, if you there there was a period of time, I don't know, maybe the testing is better now, but there was a period of time where you had to cheat to win. They to win the Tour de France and to win certain sprinting events in track and field. It's just every single person who won over a long period of time and both those sports was taking steroids and lying about it. And what the reason it happens is.

It's just simple prisoners dilemmas, straight out of your most basic college game theory class. If you don't cheat, there was no way you were gonna win, and the incentives from winning were so are so large. I mean, think about it. What was Lance Armstrong gonna do if he wasn't a champion biker? His next best option was not making a little bit less than he made. As a vice, are you see the ends justify the means? Well, I'm not saying this is an advice. This is um you know,

it's descriptive, it's not prescriptive. I'm not telling you to lie or cheap, but i will tell you that in situations like the Tour de Front, you have to recognize that your opponents will be cheating, and so you do have to think about that. It's interesting, though, because it's not just kids around the world are not listening to me. But what I think is pretty remarkable about this is is it is just numbers at the end of the day. Because there are downsides to to pumping your body full

of these bad substances. There are downsides to uh blood transfusion that you do on the road with blood that you know was taken from your body, uh months earlier when you weren't so tired. I mean, bad things can happen to you. Yeah, So, so keep in mind that

not everybody will lie in cheat. A lot of people who could have been great bikers will see that the only way they can get ahead is to lie, to cheat, and they take and they have they place a high cost on the things you just mentioned, either the long term damages or just they have moral qualms. They're like, I can't do that. And so for those people, they put it into their own personal calculus and they say I'm not gonna lie in cheat. Now they don't become

um famous, famous um bikers as a result. So it's absolutely the case that there are costs to this, and a lot of people just opt out of the system when that's the case. Hey, one thing I want to get to and maybe because we were all obsessed with Taylor Swift last week and you know, trying to get tickets for a concert, I couldn't get one bummer bummer. But anyway, we're looking at, you know, um, getting tickets for for things, and I'm assuming sports games as well.

Especially when you know, we get to something like the Super Bowl or the playoffs, things get a little pricey. You have a chapter that talks about ticket scalpers making the world a better place? Is that a question mark or affirmative? Well, I mean I wouldn't say that about every single ticket scalper, but as a collective they do now.

Not the not the ones who go out and use bots to and and make every waste everybody's time, but the traditional ticket scalper, the old days when you would go to a shop and buy and sell tickets, or go on eBay StubHub and buy and sell tickets that people just had extra tickets and wanted to resell them. There's a lot of value in that right. Just more broadly, resale markets are really good. They transfer items from somebody

who values them less to somebody who values them more. So, if you have a ticket to a game and you know, your kids soccer team is going to play some playoff that day and you want to resell that ticket. That is great that you have the ability to go on stub Hub and make somebody's day where they were dying to have a ticket to that game, and now you're

both better off. You have some money and you go to your kids game and that other person goes to the professional sports game that you sold them a ticket for resale is fantastic. And the middle people who make that happen, which now is more stub Hub, but traditionally was ticket scalpers or ticket agents. Those those people are providing a really valuable service. You know, it's not just tickets, it's used cars, it's all sorts. And increasingly ticketmasters getting

into it as well. I mean you can you can buy and sell tickets on that platform. Yeah, and so they're there in lies the problem right with ticket Master. I'm not as crazy about ticket Master and some of what's going on there because what happened is traditional ticket scalping, where you have a vibrant and fragmented market with a

lot of competition. That's good. What what gets ruined is when somebody gets exclusive rights to resale or exclusive rights to you know, Ticketmaster is now sort of has arrangements where they'll sell the ticket and you have to resell it through them. And then I'm not as excited about because then you start having more um uh pricing power in the part of a single entity. All right, Paul, One last question, what's the FED gonna do? No, I'm just kidding. I'm just kidding. We're not going to talk

about that. Segments about talking about Hey, there there are more chapters. Are athletes worth all that money? If your hometown host the Olympics? This is really a fun game. A proliferation of French Canadian goalies. Um. Such a fun read and just plays into I mean, we talked about the businesses sports all the time, and there's a lot of really thoughtful chapters in his book. Paul Owyer, thank you so much. Fun to catch up with you again.

He is Senior Associate Dean Economics Professor at the Stanford Graduate School of Business. Check out his book and Economist Goes to the Game, How to throw away five eighty million dollars and other surprising insights from the economics of sports. Right here on Blueberg