MGMC30H3 Lecture Notes - Lecture 11: Natural Monopoly

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Published on 27 Dec 2015
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The Peculiar Economics of Gov’t policy
towards Sport
Paper examines govt policies such as subsidies, mega-event bidding, salary
caps and player draft systems
oThe peculiar nature of sports industry provides some justification for
distinctive govt policies
HOWEVER, there is a greater need for transparency, better - directed funding
and genuine public debates regarding the evaluation of certain policies benefits &
costs.
Introduction:
Peculiar nature of sports makes them distinct from other industries
oHas led to extensive gov't intervention
oThrough subsidies, competition & other legislation
Assumption of externalities such as natural monopoly and competitive fairness
Assumed rather than analyzed
In Australia, these arguments have been dwarfed by emotional arguments such as
"national pride", "competitive balance" and "fairness" --> ill defined concepts
Led to govt taking active role in funding sport & providing regulatory exemptions
that are unique to sports
4 questions being raised regarding Australian gov't policy in sport :
1. Why spent public money on sport?
2. Why subsidise bidding for sports mega-events and hosting of mega-events?
3. Why subsidise professional team sports
4. Why provide regulatory exemptions which are unique to the sports industry?
Q1 - Why spend public money on sport?
Sport funding has a psychological appeal
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Many ppl participate in sport & it has a positive impact on their health & quality of life
Direct and indirect economic and social costs are widely accepted
Lower healthcare costs, reductions in productivity losses from illness
Participating in sport generates a net gain for society
However, in Australia, public sport funding goes overwhelmingly to elite sports - pro & olympic
athletes
oThese sports yield a more emotional type of positive externality
oKnown as "important part of national psyche" --> known as warm - glow effect
oA case is made that athletes provide role models for younger ppl, encouraging them to
participate as well as spectate.
Little evidence of this link
Can be argued that schoolteachers have more influence on teenagers
decision to participate in sport
With positive effects, there are some negatives, which are largely overlooked by those asking for
& giving funding
oViolence associated with team sports
oEffects on family relationships caused by over-zealous or fanatical following of a sport
Overall, KEY is to design funding mechanisms which encourage positive externalities
over negative
oNature & direction of sports funding
Public tennis court is more justified than sport stadium
oFunding for elite sports can be justified by warm-glow effect, but govts should be transparent
abt the cost of the glow
Q2 - Why subsidise sporting mega-events?
Attracting & staging sporting mega-events - key target for sports funding
oIf bid is unsuccessful, there is little public benefit as costs are hidden & any value is
dubious
oIf bid is successful, projected social benefits are outweighed by social costs
Costs tend to be understated in a prior budget for mega-events
Advocates of bidding for sports mega-events play up positive externalities that are hard to
measure
oApart from warm-glow effect, they bring in tourists, raise profile of host city or country &
has legacy effects
Negatives include - deterring non-sport visitors, inducing non-fans to leave town & legacy = debt
rather than useable facilities
Even unsuccessful bids have beneficiaries
Australia spent atleast 75 million in public funds in order to bid for 2018 & 2022 World Cup
competitions
oAccusation of lobbying including bribery
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