ECON 782 Managerial Economics For Sports Professional Team

Answer:

Introduction

Market is a place where buyers and sellers meet and interact for transaction of commodities. The market structures are of different forms. A competitive market is one where numerous buyers and sellers compete with each other and neither the buyers nor the sellers have any market power. In the monopoly market there are single seller controlling the entire market. The single seller supplying large number of buyers. A combination of monopoly and competitive market monopolistic competition. Here there are different brands selling a differentiated product. In the oligopoly market, few sellers supply the enormous buyers. High market concentration is an important feature of this market. These are the four main types of market.

The business environment of a sports club though different from usual business firms, it resembles to any of the four basic types market structure. The features of sport business is similar to that of the monopoly market. However, there are some form of competition giving it structures of monopolistic competition. The sport club take in the report is New York Yankees. It enjoys a monopoly power in the market. The monopoly power is attributed from having world-class players in its team. The players are selected based on their performance scales. There are fans of these sports club who watch performance of the selected sports clubs.

The operation of the team is more of a business firms that seeks to maximize profits. The revenue is collected from the payments that spectators pay for the tickets. The economies of place are operated from the business influence and control the ticket price and infrastructure.

New York Yankees

The New York Yankees is a famous name for professional baseball team of America. It is based in the New York City of the Bronx. The tram competes with the Major League Baseball Team (www.espn.in , 2017). The owner of the team is Yankee Global Enterprise. Yankees takes the place the most successful sports club.

Market Structure of New York Yankees

The professional sports team runs their business that is ideally described as monopolies by most of the economists. In this form of market structure the sole supplier control the market and takes important business decision. The operation structure of the team alike the monopoly structure. The basic goal is to maximize profit their profit (Fizel, 2017). This is done by selling the available tickets at the maximum possible price. The New York Yankees operate in different forms of market. The primary revenue source the earnings from the tickets sold. Other revenue sources are other types of collection that the club makes. The other sports materials that the club sold also add to the revenues of the firms.

The price of tickets are not solely determined depending on the cost that the club. There are external forces that can influence prices. These external are important in deciding the club ticket prices. In order to retain the monopoly power the club adapts some strategies. The monopoly position of the club is largely determined by the premium quality players (Hersch & Pelkowski, 2017).  The club always pay handsome salaries to retain the players and never to disappoint its fans. The good quality players maintain the standard of the club and help to sell the tickets at high price. The other competing club are not able to pay such a price. In the monopoly, barriers play an important role retaining the marketing powers. For New York Yankees their strategy if paying high salaries to the players and other facilities works as a barrier to entry for new entrants. Often the exiting club go on mutual understanding to prevent new entrants (Welky, 2016). This is similar like cartels where the oligopolies takes market decision with mutual convince.

The professional teams more often extends to a wide ranged geographical area. The professional clubs are exposed to the international following. The marketing platform is not limited to buying and selling of tickets. In the cable channels they enjoy they obtain the broadcasting right which gives another platform for brand promotion and helps in increasing number of spectators (Humphreys & Pyun, 2017). Once satisfied with the broadcasted match, people eager to experience the match from the field and next time purchase tickets to have the experience. This boosts the sales of tickets. The broadcasting channel is an alternative means of promoting and marketing the club. In the phase of changes in marketplace, this helps to escape the club from the changes. This provides the team a wide localized market even when there is a narrowed marketing exposure. The club still enjoys the same status in the widened market platforms (Bondy, 2015).

Marketing Strategy of New York Yankees

The marketing strategy followed by New York Yankees is the digital marketing strategy. The objective of the digital marketing strategy is to boost the sales of tickets of the sports club. The digital marketing strategy helps to expand the business using the digitization. It aims to raise the merchandise sales for the concerned club. To expand business it is necessary to create brand awareness. There are targeted market segment for the club and it intends to create the brand awareness using the digital marketing strategy aims at promoting the brands aims at targeting each of the targeted segments (Schmidt, Tainsky & Leopkey, 2017). The marketing strategy preserve the reputation of the brand online.

The main aim of the digital marketing for the New York Yankees is to develop a strategy for digital marketing that will be targeting the sports fans of New York and make them buy tickets for the days in which there will be games (Reddy, Stam & Agrell, 2015). The strategy is aimed to develop in such a way that it will draw the fans towards the field of the game, rather than making them sit at home and enjoy the game on the television. As more fans will start to go and watch the game on the field, they all will need to buy tickets for the game. This will result in producing a higher amount of revenue. This will also help in selling out all the tickets of the games and thus there will be a huge support of the New York Yankees on the ground (Ryan, 2016). The strategy will also be aiming to entice the parents of the fans as well as the fans themselves to buy the merchandise of the teams as gifts and for holidays.

These strategies are mostly planned to be implemented on the fans of the team New York Yankees, the sports fans of the New York City and the sports fans who are in New York City at the time of the match for a vacation or some other purpose.

Types of Marketing Strategies

In order to achieve the aims and the goals of the digital marketing, a few strategies have to be developed. These strategies are discussed here.

Google Adwords Campaign:

Adwords campaign mainly focuses on the words and the phrases that will be searched by the target market in order to eliminate the advertisings that are useless to people and which will by no means draw people to become customers of the team (Armstrong et al., 2015).

Pay Per Click (PPC)

Pay per Click is a type of marketing strategy in which the search engines are used for advertising in which the clicks are generated to the website that are visited instead of being earned organically (Leeflang et al., 2014).

Social Media Development

Advertisements of the events that are to be visited must be shown on popular social media websites such as facebook, Instagram, twitter, linkedin, etc. should be developedso that they can be visible to people visiting those websites.

Budget for the Strategy Implementation

 The owners of the team of New York Yankees have a limited budget in order to implement the strategies. The total budget for the team or the club owners are $576,000 for a year with a monthly budget of $48,000, a daily budget of $2,181 and an hourly budget of $272. Thirty percent of the total budget is planned to be spent on Pay Per Click (PPC) which is around $14,400. Again, thirty more percent or $14,400 of the total budget is allotted for Social Media Development Further, twenty percent, that is around $9,600 has been fixed to be spent on optimization of the Search Engines (SEO). Mobile marketing will need around $4,800, which is ten percent of the total budget. The budget for content marketing and email marketing has been fixed at $2,400 each, which is around five percent of the total budget for each of the types of marketing (Royle & Laing, 2014).

Monopsony

Monopsony is a market situation that is not very commonly discussed. It is defined as a market with a large number of sellers and only one buyer (Kolmar, 2017). The market that is discussed is he sports market. In the sports world any sellers are found. The buyers of the sports services are the professional clubs. There are high chances of having resemble with the characteristics of the monopsony market with one or few buyers and several sellers. The buyers therefore enjoy the market power about the price at which they buy the service and the cost that they have to bear.

In case of city or metropolitan areas, the sport teams are commonly assumed to be of monopoly form in their specialized games. Consider for example the case of Yankees.  In the Major League Baseball, there are 30 teams. The teams are representative of 27 different countries. Chicago, New York and Los Angeles are the only cities having two respective teams. These three are the biggest cities in the MLB league. There are 32 teams participated in NFL representing 31 cities. In the NFL, too New York is participating with two teams.

The next consideration is on the case of each of the specialized team. The six participating teams in the MLB do nor ace any competitive pressure in terms of local support. In the respective cities there are only one service providing company. This too has economic implication. The service providers enjoy access over the stadium. Other commercial rights are associated with name of the brand. This implies the professional sport teams are the only provider of sports and other associated services (Kesenne, 2015). This in turn the market structure of the sports service more of a monopoly nature. Therefore, thee professional sport team operates like a monopoly in their cities.

However, the monopoly structure of the professional sports teams is not similar to that of traditional monopolies. The conventional monopolist using its market power can determine the price and quantity in the market. The sports team do not have this kind of command and control over all the market (Varian, 2014). The marketing operation is different from the textbook monopolies, as opponents are needed to arrange the game and in the entire league the games needs to be coordinated properly. Economists argue, it is actually the League that holds the monopoly power. The teams are plants that needs to be coordinated and produced and provide games and services to the customers. Some often finds similarity of this market structure with natural monopolies. The natural monopoly is a market structure where firm enjoys monopoly power because of the large fixed cost and firm enjoy the benefits of economies of scale (Leeds & Von Allmen, 2016). Most of the public utility companies belong to the structure natural monopolies. The characteristics are similar to that of a public utility companies as it is better to have one league. When there is only one league, then the manner in which the games are organized is to be done in the most efficient way. The resources are allocated efficiently with the single league. The revenue earned by the sport teams depend on the opposition strength, termed as Louis- Schmeling Paradox. It is not in the interest of one team to be too strong that people lose their interest (Matheson & von Allmen, 2014). The uncertainty of the team adds to the value of the consumers and place team to the bottom line. There are more number of supports for Steelers, champion of NFL and Penguins, also NFL champion. The number of supporters largely dependent on the lading and its opponents (Mills & Winfree, 2016). The supports go with more enthusiasm when there are certainty rather than where there are uncertainty about the winners.

Therefore, the monopolistic overview of the sports team are of restricted sense. There are other popular games as well that gives competition to attract crowd. For large national market as well the analysis remain same. Like MLB, soccer league in the cross-national market have monopolies in the local market despite the presence of several leagues in several countries. Market structure of the monopsony market is similar to that of a monopoly market (Késenne, 2014). The only exception I that there are large number of sellers instead of a single seller. Therefore, in case of specialized sport team the relevance of monopsony is also restricted. In the sport market, those have interest in baseball interest with MLB while those having interest on hokey is more careful about NHL. There is not rivalry in choice among the games.

Conclusion

The report analyzes market structure of a chosen sport team. The Four basic forms of market structures are Perfect competition, monopoly, monopolistic competition and oligopoly. Each of the four structures have their own features. The chosen sport team for the report is New York Yankees. The team market structures is generally of a monopoly. To maintain its monopoly power the team provides high salaries to the players and sell their tickets at a high price. The players in the market with their playing skills attract buyers. The primary goal of the team is to achieve high profit. To do so, they try to sell their tickets at as much price as possible. The marketing is not only limited with buying selling of tickets but also extends to the broadcasting of the match through cable channels. In the league different teams participates to represent their counties. Often they are described as natural monopolies as the single league authority can allocate the resources and arrange games efficiently.

Another relevant form of market here is the monopsony market characterized with single buyer and large number of seller. In the market structure, professional clubs are the buyers of sport services. The Major League Baseball provides an example of monopoly market as multiple teams are competing in the same league. The specialized sports teams possess characteristics of both monopoly and monopsony market. However, it depends on specific situation and has distinct from that of conventional market structure. 

References

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Bondy, F. (2015). The Pine Tar Game: The Kansas City Royals, the New York Yankees, and Baseball's Most Absurd and Entertaining Controversy. Simon and Schuster.

Bradbury, J. C. (2017). Monopsony and competition: The impact of rival leagues on player salaries during the early days of baseball. Explorations in Economic History.

Fizel, J. (2017). Handbook of sports economics research. Routledge.

Hersch, P. L., & Pelkowski, J. E. (2017). The Consequences (and Nonconsequences) of Ownership Change: The Case of Major League Baseball. Journal of Sports Economics, 1527002517716972.

Humphreys, B. R., & Pyun, H. (2017). Monopsony Exploitation in Professional Sport: Evidence from Major League Baseball Position Players, 2000–2011. Managerial and Decision Economics, 38(5), 676-688.

Késenne, S. (2014). The Economic Theory of Professional Team Sports: An Analytical Treatment _. Edward Elgar Publishing.

Kesenne, S. (2015). The Single Entity Status of a Sports League. Journal of Sports Economics, 16(8), 811-818.

Kolmar, M. (2017). Introduction. In Principles of Microeconomics (pp. 45-53). Springer, Cham.

Leeds, M., & Von Allmen, P. (2016). The economics of sports. Routledge.

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Matheson, V., & von Allmen, P. (2014). Introduction to the Symposium on Sports Economics. Eastern Economic Journal, 40(4), 456-458.

Mills, B. M., & Winfree, J. A. (2016). Market Power, Exclusive Rights, and Substitution Effects in Sports. The Antitrust Bulletin, 61(3), 423-433.

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Reddy, S. K., Stam, A., & Agrell, P. J. (2015). Brand Equity, Efficiency and Valuation of Professional Sports Franchises: The Case of Major League Baseball. International Journal of Business and Social Research, 5(1), 63-89.

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Ryan, D. (2016). Understanding digital marketing: marketing strategies for engaging the digital generation. Kogan Page Publishers.

Schmidt, K. A., Tainsky, S., & Leopkey, B. (2017). The Dominican Republic and the development of the Major League Baseball Team Academy. Contemporary Sport Marketing: Global Perspectives, 72.

Varian, H. R. (2014). Intermediate microeconomics with calculus: a modern approach. WW Norton & Company.

Welky, D. (2016). The Colonel and Hug: The Partnership That Transformed the New York Yankees.