WEBVTT - An Economic Angle on Sports

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<v Speaker 1>These sees Bloomberg Business Week with Carol Messer and Tim

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<v Speaker 1>Stanovic on Bloomberg Radio. We also wanted to bring to

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<v Speaker 1>you someone we caught up with back in December when

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<v Speaker 1>we were live from the Stanford campus to mark the

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<v Speaker 1>Stanford Graduate School of Business, big name once again by

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<v Speaker 1>Bloomberg Business Week is the top NBA program in the US.

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<v Speaker 1>We had a conversation live on air, and we knew

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<v Speaker 1>Tim we wanted to talk a little bit more with him.

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<v Speaker 1>It's Paul Oyer, Senior Associate Dean at the Stanford Graduate

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<v Speaker 1>School of Business, Professor of economics, also the author of

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<v Speaker 1>an Economist Goes to the Game, How to Throw Away

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<v Speaker 1>five eighty million dollars and other surprising insights from the

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<v Speaker 1>economics of sports. He joins us via zoom from Stanford, California. Professor, Oy,

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<v Speaker 1>are good to have you back with us. How are

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<v Speaker 1>you great to talk to you again. Thanks for joining us.

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<v Speaker 1>We we promised we'd do more with you, and we're

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<v Speaker 1>eager to have you back this afternoon because we've got

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<v Speaker 1>so much to talk about, especially with regard to your book.

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<v Speaker 1>But before we get to your you know what's in

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<v Speaker 1>the book. I want to know what got you to

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<v Speaker 1>write this book, Like, what was the number that you

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<v Speaker 1>ran across that this label went off in your head

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<v Speaker 1>and you said, Okay, there's there's so many inefficiencies when

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<v Speaker 1>it comes to the way that people think about sports.

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<v Speaker 1>It could fill a book. Yeah, I that's I don't

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<v Speaker 1>think there was any one moment, although if maybe it

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<v Speaker 1>was thinking about kids sports. The first chapter is youth sports,

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<v Speaker 1>which um may have been what really drew me into this,

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<v Speaker 1>having kids and taking them to do sports and thinking

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<v Speaker 1>about whether that was a good use of resources or not.

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<v Speaker 1>So I think that may have really got me into it. Also,

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<v Speaker 1>when I started the book, my son was um in

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<v Speaker 1>college and he helped me with a lot of the

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<v Speaker 1>original research. So it was a good chance for us

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<v Speaker 1>to work together. He doesn't have much interest in economics,

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<v Speaker 1>but he has a lot of interest in sports, so

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<v Speaker 1>so it was a good chance to get to do

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<v Speaker 1>some spend time with him while calling it work. Is

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<v Speaker 1>your kid a pro athlete? Sorry? He was? He was

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<v Speaker 1>on the gun high school baseball too. The reason I

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<v Speaker 1>ask is because the first chapter is should you help

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<v Speaker 1>your kid become a pro athlete? Yeah? You should not? Well,

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<v Speaker 1>it depends. That's where the chapter is it depends, But

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<v Speaker 1>for most kids the answer is no, you you don't

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<v Speaker 1>want to um. It's not the best use of funds

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<v Speaker 1>to try to help your kid become a pro athlete.

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<v Speaker 1>It is kind of shocking. Now. I have to say

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<v Speaker 1>I rememb when we talked with you. That really resonated

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<v Speaker 1>with me, because you know, I've seen it in people

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<v Speaker 1>I know where they're like Johnny or Susan they're gonna

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<v Speaker 1>be the best and they're gonna go pro and da

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<v Speaker 1>da da da da, and they never do because the

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<v Speaker 1>odds are stacked against them. And I just find it

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<v Speaker 1>interesting troubling. Well, it is troubling if you give up

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<v Speaker 1>other things. So if you sort of do it as

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<v Speaker 1>I'm gonna learn a lot. I'm going to really focus

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<v Speaker 1>on sports and that will help me be more disciplined

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<v Speaker 1>and other things that might come out of it. There's

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<v Speaker 1>not a lot of evidence that that helps you in

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<v Speaker 1>the labor market later in life, by the way, but

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<v Speaker 1>at least if you don't go all in, you can

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<v Speaker 1>see the argument for it. What if it helps you

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<v Speaker 1>get into college, that is a big So I think

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<v Speaker 1>that if you're going to make the case for if

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<v Speaker 1>you're gonna make the case for investing in your sports

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<v Speaker 1>career as a kid. I think you need one of

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<v Speaker 1>two things. You either need to argue it's going to

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<v Speaker 1>help you get into college. And one of my economist

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<v Speaker 1>friends says, if you're going to do that, you should

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<v Speaker 1>get your kid into fencing. The fencing is a particularly

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<v Speaker 1>good way to help you get into a good, uh

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<v Speaker 1>and elite college. So getting into college is one thing,

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<v Speaker 1>and in the book I go into that. Of course,

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<v Speaker 1>it's it's hard to even show a lot of evidence

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<v Speaker 1>that that there's a big advantage to that, because, um,

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<v Speaker 1>it might get you into a slightly better college, but

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<v Speaker 1>economists generally aren't sure that the quality of the college

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<v Speaker 1>on the margin makes that much difference. So if the

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<v Speaker 1>same kid goes to Ohio State or Harvard, it's not

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<v Speaker 1>a complete given that that it has a big difference

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<v Speaker 1>on their outcomes. And yet you do say, what if

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<v Speaker 1>your kid is Kevin Durant, So that's the other So

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<v Speaker 1>I said there were two reasons you might do it.

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<v Speaker 1>One is college and the other is if your kid

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<v Speaker 1>is six ft eight and very coordinated at age thirteen,

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<v Speaker 1>then the odds changed dramatically. Um, so Kevin Durant is

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<v Speaker 1>a is a wonderful example that I go into in

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<v Speaker 1>the book because he has a bunch of He has

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<v Speaker 1>a bunch of things in favor of him becoming a star.

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<v Speaker 1>One is, well, the reasons he became a star with

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<v Speaker 1>his physique, just the fact that he's such a gifted

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<v Speaker 1>athlete and he happens to be six ft eight inches

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<v Speaker 1>tall as as they as the basketball players say, you

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<v Speaker 1>can't learn tall, So he had that advantage going for him.

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<v Speaker 1>Um and then um. But the other thing, the other

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<v Speaker 1>thing about Kevin Durant is the calculus is slightly different

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<v Speaker 1>if you're if you come from a background where your

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<v Speaker 1>labor market prospects may not be as great. And so,

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<v Speaker 1>given how hard it is to move up the socioeconomic

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<v Speaker 1>ladder in the United States for you know, reasons you've

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<v Speaker 1>probably talked about on your show before, the economic mobility

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<v Speaker 1>isn't what we would hope it would be. Um. And

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<v Speaker 1>so if you come from a really tough background, sports

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<v Speaker 1>might be looked like a better way to really jump

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<v Speaker 1>to a higher income distribution relative to more traditional ways

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<v Speaker 1>in the labor market. And Kevin Durant came from a

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<v Speaker 1>very humble background and and um, you know, if you

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<v Speaker 1>just sort of statistically looked at what is future might

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<v Speaker 1>have been like without sports, it may not. You know,

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<v Speaker 1>it wasn't a rosy picture. Yeah, I think of like

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<v Speaker 1>you know, Venus and Serena Williams. I mean, and they

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<v Speaker 1>obviously had a dad that was very driven, in a

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<v Speaker 1>family that was supportive, and it was a tough background.

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<v Speaker 1>But it's you know, you wonder how much of it

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<v Speaker 1>is it because of the dad and pushing them, how

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<v Speaker 1>much of it was just you know, natural skill. I mean,

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<v Speaker 1>there's a there's a lot that has to be taken

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<v Speaker 1>into consider. Can you answer that professor that you know,

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<v Speaker 1>the nature versus nurture debate HEREH Well, yeah, I mean

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<v Speaker 1>I think it's easy to answer it in basketball because

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<v Speaker 1>the answer is, if you're six ft eight, your odds

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<v Speaker 1>of getting for the NBA are just like wildly higher

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<v Speaker 1>than if you're six ft tall. So in the book,

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<v Speaker 1>I talked about Russell Westbrook, who went as a kid

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<v Speaker 1>into much the same investment mode as Kevin Durant. His

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<v Speaker 1>family went all in on basketball, and of course it

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<v Speaker 1>paid off for both of them, But if you looked

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<v Speaker 1>before they made those investments, Kevin Durant probably made a

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<v Speaker 1>rational investment. Russell Westbrook probably got lucky, meaning a six.

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<v Speaker 1>There are tons of athletics six ft kids, and the vast,

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<v Speaker 1>vast majority of them never get to the NBA. There

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<v Speaker 1>are not that many six ft eight thirteen year old

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<v Speaker 1>and a substantial fraction of them get to the NBA.

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<v Speaker 1>So Venus and Serena again probably obviously worked out amazing.

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<v Speaker 1>But if you were to try to run the numbers,

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<v Speaker 1>was that a good investment beforehand? I think you would.

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<v Speaker 1>I think you would have to say it wasn't. But

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<v Speaker 1>it just paid off. It did end up paying off

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<v Speaker 1>really well. Obviously we're gonna go into more chapters. Just

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<v Speaker 1>got a minute before we have to take a break,

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<v Speaker 1>and then we'll come back and continue. But as someone

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<v Speaker 1>who is Czechoslovaki and I love this chapter two, what

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<v Speaker 1>do Silicon Valley and Check Women's Tennis have in commons?

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<v Speaker 1>You've got a minute to talk about it. Then we'll

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<v Speaker 1>talk some more. But what is the connection? Just quickly,

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<v Speaker 1>well very quickly, I like to say, um, Check Women's

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<v Speaker 1>Tennis is this is like uh, Silicon Valley. There's not

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<v Speaker 1>a natural reason why Check women should be so great,

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<v Speaker 1>but there's a combination of historical accidents and then these

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<v Speaker 1>network effects where the check women sort of push each other,

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<v Speaker 1>but check girls push each other so hard that they

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<v Speaker 1>end up becoming just great tennis players. There's no natural

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<v Speaker 1>reason they should be any good. You know, if you

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<v Speaker 1>look at why are Norwegian so good across country skiing

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<v Speaker 1>as you do as I do in the book, there's

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<v Speaker 1>a lot more of a natural reason for that. But

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<v Speaker 1>economic networks and economic competition really can lead to what

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<v Speaker 1>about the weather as well? Well, the weather doesn't work

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<v Speaker 1>for the check story, the Norwegian story. I know what

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<v Speaker 1>the answer is because my family is two kid that

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<v Speaker 1>check women were strong like bull So that's why, you know.

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<v Speaker 1>I'm just kidding. I'm just kidding, But we did used

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<v Speaker 1>to say that at home. You want to get back

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<v Speaker 1>to our guesta with us. Paul Oyer he Senior Associate

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<v Speaker 1>Dean and economics professor at the Stanford Graduate School of Business.

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<v Speaker 1>We're talking about his book and economist goes to the

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<v Speaker 1>game how to throw Away five eight million dollars and

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<v Speaker 1>other surprising insights from the Economics of Sports five eighty

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<v Speaker 1>million dollars? Wait, wait, where'd that number come from? So

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<v Speaker 1>that's an estimate I calculated based on the strike at

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<v Speaker 1>the NBA, and I believe it was two thousand eleven. So, um,

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<v Speaker 1>there was a maybe a more up to date version

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<v Speaker 1>to talk about was there was a strike in Major

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<v Speaker 1>League Baseball at the beginning of the most recent season.

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<v Speaker 1>Aren't you remember last spring training? Not a strike? Sorry,

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<v Speaker 1>I lock both cases. It was a lockout, not a strike.

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<v Speaker 1>So the point in whether talking about the NBA or

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<v Speaker 1>Major League Baseball or whatever, is you see in sports,

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<v Speaker 1>and this is a broader thing. You see it in

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<v Speaker 1>other collective bargaining agreement situations where, um, you get these

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<v Speaker 1>two these two groups in the case of sports, it's

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<v Speaker 1>the owners and the players union, and they rely so

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<v Speaker 1>much on each other there their options are so much

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<v Speaker 1>better if they work together than if they split up.

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<v Speaker 1>But at the same time, they can't help themselves from

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<v Speaker 1>trying to steal a bigger share of the pie. It's

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<v Speaker 1>a It's a very common thing in economics where you

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<v Speaker 1>have these bilateral agreements where there's a lot of value

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<v Speaker 1>captured by the by the agreement, and you you don't

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<v Speaker 1>want to mess it up, but at the same time

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<v Speaker 1>you can't help but try to take too much, and

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<v Speaker 1>when that leads to a lockout, as it did in

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<v Speaker 1>the NBA, it's sometimes is just like literally the end

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<v Speaker 1>and the players pretty much just burned a pile of

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<v Speaker 1>five million dollars that they'll never get back. Okay, it's

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<v Speaker 1>a lot of money. I want to I want to

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<v Speaker 1>talk cheating. I want to talk cheating. Okay. There's an

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<v Speaker 1>entire chapter in your book dedicated to cheating, and it

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<v Speaker 1>talks about Lance Armstrong and the way that it asked

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<v Speaker 1>the question about whether or not you can actually win

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<v Speaker 1>the Tour de France if you're not doping. Um take

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<v Speaker 1>us into this chapter and why athletes cheat? So um

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<v Speaker 1>they they You've only got half of it. I like

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<v Speaker 1>to think that chapter is about why they cheat and lie.

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<v Speaker 1>Oh sorry, excuse me, thank you said they cheat and

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<v Speaker 1>lie because the incentives there are very strong. I mean,

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<v Speaker 1>we see this in other places as well, when when

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<v Speaker 1>we set up rules that we can't enforce and the

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<v Speaker 1>value of breaking those rules is really high, people are

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<v Speaker 1>going to break them. And it sad because that's human nature,

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<v Speaker 1>but it's what we need to expect. And you know,

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<v Speaker 1>if you there there was a period of time, I

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<v Speaker 1>don't know, maybe the testing is better now, but there

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<v Speaker 1>was a period of time where you had to cheat

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<v Speaker 1>to win. They to win the Tour de France and

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<v Speaker 1>to win certain sprinting events in track and field. It's

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<v Speaker 1>just every single person who won over a long period

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<v Speaker 1>of time and both those sports was taking steroids and

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<v Speaker 1>lying about it. And what the reason it happens is.

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<v Speaker 1>It's just simple prisoners dilemmas, straight out of your most

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<v Speaker 1>basic college game theory class. If you don't cheat, there

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<v Speaker 1>was no way you were gonna win, and the incentives

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<v Speaker 1>from winning were so are so large. I mean, think

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<v Speaker 1>about it. What was Lance Armstrong gonna do if he

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<v Speaker 1>wasn't a champion biker? His next best option was not

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<v Speaker 1>making a little bit less than he made. As a vice,

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<v Speaker 1>are you see the ends justify the means? Well, I'm

0:11:52.800 --> 0:11:55.800
<v Speaker 1>not saying this is an advice. This is um you know,

0:11:56.080 --> 0:11:59.760
<v Speaker 1>it's descriptive, it's not prescriptive. I'm not telling you to

0:11:59.800 --> 0:12:02.040
<v Speaker 1>lie or cheap, but i will tell you that in

0:12:02.160 --> 0:12:04.800
<v Speaker 1>situations like the Tour de Front, you have to recognize

0:12:04.840 --> 0:12:07.560
<v Speaker 1>that your opponents will be cheating, and so you do

0:12:07.640 --> 0:12:10.000
<v Speaker 1>have to think about that. It's interesting, though, because it's

0:12:10.040 --> 0:12:12.240
<v Speaker 1>not just kids around the world are not listening to me.

0:12:12.360 --> 0:12:14.840
<v Speaker 1>But what I think is pretty remarkable about this is

0:12:14.840 --> 0:12:16.600
<v Speaker 1>is it is just numbers at the end of the day.

0:12:16.600 --> 0:12:20.040
<v Speaker 1>Because there are downsides to to pumping your body full

0:12:20.280 --> 0:12:24.600
<v Speaker 1>of these bad substances. There are downsides to uh blood

0:12:24.600 --> 0:12:28.040
<v Speaker 1>transfusion that you do on the road with blood that

0:12:28.080 --> 0:12:31.400
<v Speaker 1>you know was taken from your body, uh months earlier

0:12:31.440 --> 0:12:34.040
<v Speaker 1>when you weren't so tired. I mean, bad things can

0:12:34.080 --> 0:12:36.520
<v Speaker 1>happen to you. Yeah, So, so keep in mind that

0:12:36.559 --> 0:12:38.600
<v Speaker 1>not everybody will lie in cheat. A lot of people

0:12:38.640 --> 0:12:41.440
<v Speaker 1>who could have been great bikers will see that the

0:12:41.520 --> 0:12:43.520
<v Speaker 1>only way they can get ahead is to lie, to cheat,

0:12:43.559 --> 0:12:46.160
<v Speaker 1>and they take and they have they place a high

0:12:46.160 --> 0:12:48.960
<v Speaker 1>cost on the things you just mentioned, either the long

0:12:49.080 --> 0:12:51.840
<v Speaker 1>term damages or just they have moral qualms. They're like,

0:12:51.880 --> 0:12:54.880
<v Speaker 1>I can't do that. And so for those people, they

0:12:54.880 --> 0:12:57.360
<v Speaker 1>put it into their own personal calculus and they say

0:12:57.360 --> 0:12:59.600
<v Speaker 1>I'm not gonna lie in cheat. Now they don't become

0:13:00.360 --> 0:13:05.320
<v Speaker 1>um famous, famous um bikers as a result. So it's

0:13:05.320 --> 0:13:07.760
<v Speaker 1>absolutely the case that there are costs to this, and

0:13:07.800 --> 0:13:09.760
<v Speaker 1>a lot of people just opt out of the system

0:13:09.800 --> 0:13:11.800
<v Speaker 1>when that's the case. Hey, one thing I want to

0:13:11.800 --> 0:13:13.560
<v Speaker 1>get to and maybe because we were all obsessed with

0:13:13.840 --> 0:13:16.719
<v Speaker 1>Taylor Swift last week and you know, trying to get

0:13:16.720 --> 0:13:19.480
<v Speaker 1>tickets for a concert, I couldn't get one bummer bummer.

0:13:19.480 --> 0:13:23.160
<v Speaker 1>But anyway, we're looking at, you know, um, getting tickets

0:13:23.200 --> 0:13:25.440
<v Speaker 1>for for things, and I'm assuming sports games as well.

0:13:25.520 --> 0:13:27.280
<v Speaker 1>Especially when you know, we get to something like the

0:13:27.320 --> 0:13:30.120
<v Speaker 1>Super Bowl or the playoffs, things get a little pricey.

0:13:30.320 --> 0:13:32.760
<v Speaker 1>You have a chapter that talks about ticket scalpers making

0:13:32.760 --> 0:13:35.080
<v Speaker 1>the world a better place? Is that a question mark

0:13:35.240 --> 0:13:39.080
<v Speaker 1>or affirmative? Well, I mean I wouldn't say that about

0:13:39.120 --> 0:13:42.160
<v Speaker 1>every single ticket scalper, but as a collective they do now.

0:13:42.200 --> 0:13:44.400
<v Speaker 1>Not the not the ones who go out and use

0:13:44.480 --> 0:13:48.200
<v Speaker 1>bots to and and make every waste everybody's time, but

0:13:48.280 --> 0:13:51.120
<v Speaker 1>the traditional ticket scalper, the old days when you would

0:13:51.160 --> 0:13:53.079
<v Speaker 1>go to a shop and buy and sell tickets, or

0:13:53.120 --> 0:13:56.640
<v Speaker 1>go on eBay StubHub and buy and sell tickets that

0:13:56.760 --> 0:13:59.960
<v Speaker 1>people just had extra tickets and wanted to resell them.

0:14:00.040 --> 0:14:02.960
<v Speaker 1>There's a lot of value in that right. Just more broadly,

0:14:03.080 --> 0:14:07.200
<v Speaker 1>resale markets are really good. They transfer items from somebody

0:14:07.200 --> 0:14:10.240
<v Speaker 1>who values them less to somebody who values them more. So,

0:14:10.280 --> 0:14:12.800
<v Speaker 1>if you have a ticket to a game and you know,

0:14:12.880 --> 0:14:16.160
<v Speaker 1>your kids soccer team is going to play some playoff

0:14:16.240 --> 0:14:18.360
<v Speaker 1>that day and you want to resell that ticket. That

0:14:18.520 --> 0:14:20.320
<v Speaker 1>is great that you have the ability to go on

0:14:20.400 --> 0:14:23.680
<v Speaker 1>stub Hub and make somebody's day where they were dying

0:14:23.720 --> 0:14:25.720
<v Speaker 1>to have a ticket to that game, and now you're

0:14:25.760 --> 0:14:27.600
<v Speaker 1>both better off. You have some money and you go

0:14:27.680 --> 0:14:31.080
<v Speaker 1>to your kids game and that other person goes to

0:14:31.200 --> 0:14:34.040
<v Speaker 1>the professional sports game that you sold them a ticket

0:14:34.040 --> 0:14:38.080
<v Speaker 1>for resale is fantastic. And the middle people who make

0:14:38.160 --> 0:14:41.320
<v Speaker 1>that happen, which now is more stub Hub, but traditionally

0:14:41.440 --> 0:14:46.520
<v Speaker 1>was ticket scalpers or ticket agents. Those those people are

0:14:46.560 --> 0:14:51.040
<v Speaker 1>providing a really valuable service. You know, it's not just tickets,

0:14:51.040 --> 0:14:54.080
<v Speaker 1>it's used cars, it's all sorts. And increasingly ticketmasters getting

0:14:54.080 --> 0:14:55.880
<v Speaker 1>into it as well. I mean you can you can

0:14:55.920 --> 0:15:00.280
<v Speaker 1>buy and sell tickets on that platform. Yeah, and so

0:15:00.320 --> 0:15:03.200
<v Speaker 1>they're there in lies the problem right with ticket Master.

0:15:03.480 --> 0:15:05.800
<v Speaker 1>I'm not as crazy about ticket Master and some of

0:15:05.880 --> 0:15:09.600
<v Speaker 1>what's going on there because what happened is traditional ticket scalping,

0:15:09.640 --> 0:15:12.720
<v Speaker 1>where you have a vibrant and fragmented market with a

0:15:12.760 --> 0:15:16.440
<v Speaker 1>lot of competition. That's good. What what gets ruined is

0:15:16.480 --> 0:15:20.600
<v Speaker 1>when somebody gets exclusive rights to resale or exclusive rights

0:15:20.640 --> 0:15:24.120
<v Speaker 1>to you know, Ticketmaster is now sort of has arrangements

0:15:24.120 --> 0:15:26.200
<v Speaker 1>where they'll sell the ticket and you have to resell

0:15:26.240 --> 0:15:29.120
<v Speaker 1>it through them. And then I'm not as excited about

0:15:29.120 --> 0:15:33.320
<v Speaker 1>because then you start having more um uh pricing power

0:15:33.480 --> 0:15:37.000
<v Speaker 1>in the part of a single entity. All right, Paul,

0:15:37.280 --> 0:15:39.240
<v Speaker 1>One last question, what's the FED gonna do? No, I'm

0:15:39.280 --> 0:15:41.080
<v Speaker 1>just kidding. I'm just kidding. We're not going to talk

0:15:41.120 --> 0:15:44.720
<v Speaker 1>about that. Segments about talking about Hey, there there are

0:15:44.720 --> 0:15:47.400
<v Speaker 1>more chapters. Are athletes worth all that money? If your

0:15:47.400 --> 0:15:50.360
<v Speaker 1>hometown host the Olympics? This is really a fun game.

0:15:50.400 --> 0:15:54.240
<v Speaker 1>A proliferation of French Canadian goalies. Um. Such a fun

0:15:54.320 --> 0:15:56.280
<v Speaker 1>read and just plays into I mean, we talked about

0:15:56.320 --> 0:15:58.640
<v Speaker 1>the businesses sports all the time, and there's a lot

0:15:58.640 --> 0:16:01.320
<v Speaker 1>of really thoughtful chapters in his book. Paul Owyer, thank

0:16:01.320 --> 0:16:03.120
<v Speaker 1>you so much. Fun to catch up with you again.

0:16:03.240 --> 0:16:06.680
<v Speaker 1>He is Senior Associate Dean Economics Professor at the Stanford

0:16:06.680 --> 0:16:09.000
<v Speaker 1>Graduate School of Business. Check out his book and Economist

0:16:09.040 --> 0:16:11.680
<v Speaker 1>Goes to the Game, How to throw away five eighty

0:16:11.720 --> 0:16:15.000
<v Speaker 1>million dollars and other surprising insights from the economics of sports.

0:16:15.240 --> 0:16:16.160
<v Speaker 1>Right here on Blueberg