Using sports in economics and management research

Gabor Bekes (Central European University, KRTK and CEPR)

When social pressure leads to favoritism, policies might aim to reduce the bias by affecting its source. This paper shows that multiple sources may be present and telling them apart is important. To illustrate this point, we revisit the much-quoted paper by Garicano et al (2005), who found that football referees help the home team by allowing the game to last longer when it is losing. This bias was attributed to conformity: social pressure stemming from home supporters in the stadium. Instead, we argue that referees may be affected by multiple sources of social pressure: the supporting crowd in the stadium as well as the host team organization. To test this hypothesis, we compile and combine new and comprehensive datasets on the top 5 European leagues over 10 seasons that cover all match events, referee decisions, team backgrounds, and referee career paths. Relying on exogenous variation in crowd size due to stadium closures during the Covid-19 pandemic, we confirm the presence of referee bias, but find that it remains unchanged despite the lack of crowds. Instead, we show that the hosting (home) team organization may have an influence on referees since the bias is twice as large when it favors an influential (top-ranked) team and is even higher when an influential team is losing at home to a minnow. However, we show that the favoritism bias of the referees is uncorrelated with career benefits. An important adverse aggregate effect relevant for policymakers is that social pressure benefiting influential teams helps maintain the ranking and makes it more difficult for smaller teams to catch up.

Co-authors: M. Fleck and E. Borza

Peter Dolton (University of Sussex)

The scores of World Cup matches are inherently difficult to predict. We examine the predictions of every game in the 2022 Qatar World Cup by professional football ‘pundits’, sophisticated betting houses (‘bookies’) which use AI techniques and compare them with 20 amateur pundits. We condition on team form, FIFA standings and team composition effects and explore the extent to which the market (bookies) are better at prediction than the experts or the amateurs. The amateurs were predicting under experimental conditions and the role of learning, uncertainty and risk aversion is examined with the data, as is the role of experimental fatigue and mini-league friendly rivalry. Side issues of how to model discrete pairwise integer values of the scores is discussed along with the problem of creating the most desirable scoring system in prediction. The possibility of ‘bounce back’ results after shock upsets are examined as is the inherent differences between first and last group games and knock out matches.

Bernd Frick (University of Paderborn)

A salary cap (typically negotiated between team owners and the respective players’ union) is a rule that places a limit on the amount of money that clubs can pay to their players. It is designed to promote parity between teams and to control costs. In this paper I use longitudinal data from all teams in the four Major Leagues in the US over a period of 20 years (2000-2021) to assess the impact of different salary cap regulations on the clubs’ profitability. While the National Hockey League and the National Football League have both implemented a “hard cap” that is difficult to circumvent, the National Basketball association has implemented a “soft cap”, the regulations of which can be easily avoided. Finally, Major League Baseball has implemented a luxury tax only, an arrangement in which teams whose payroll exceeds a certain figure are taxed on the excess amount they pay. My estimations show that in leagues with a hard cap the revenue-profitability-relationship is much closer than in leagues with a soft cap or no cap at all, suggesting that salary caps primarily serve the purpose to control costs. In the NHL and in the NFL each additional revenue dollar increases owner profits by about 66 cent, while in the NFL the respective amount is 47 cent and in MLB 25 cent only.

Rachel Scarfe (University of Edinburgh)

There is an inverted u-shaped relationship between age and wages in most labour markets and occupations, but the effects of age on productivity are often unclear. We use panel data on productivity and salaries in a market of high earners, professional footballers in North America, to estimate age-productivity and age-wage profiles. We find stark differences between these profiles; wages continue to increase for several years after productivity has peaked. This discrepancy poses the question: why are older workers seemingly overpaid relative to their contemporaneous productivity? The richness of our dataset allows us to consider a range of possible mechanisms that could be responsible, including institutional factors, unobserved elements of productivity, and a talent discovery theory, by which risk averse teams pay younger players less because their productivity is less well-known.

Francesco Principe (University of Bergamo and ECASE)

We investigate the role of local amenities in shaping compensating wage differentials in labour markets populated by superstars. Using 10 years of longitudinal data on workers productivity as well as information on firms and location amenities, we evaluate whether workers are willing to pay to join a better firm and if firms with undesirable attributes must provide higher wages to attract workers. By accounting for unobserved workers heterogeneity, we show that superstars receive positive wage differentials for lower location amenities as well as riskier employments.

Co-author: Mattia Filomena