Taking a Mulligan: An explanation of selected economic theories through the lens of sport:

Introduction:

Following the feedback on my article explaining an academic concept under the guise of sport, I have decided to replicate this in my current piece. Economic theories are something which have become part of everyday conversation in recent times, yet many feel out of their depth addressing some of the nomenclature. Thus, I hope to explain some of the most common concepts discussed on the news and in interviews such as market structures and corporate tax rates

Firstly, I will explain several concepts to do with market structures and types of competition through the development of the sport of mixed martial arts. Next, I will compliment that by showing the argument for low corporate tax rates by linking the development of entrepreneurship in countries with a low corporate tax rates to the development of golf. Hopefully those reading this from a non-business background can come away from this with a better understanding of a scattering of some of the most topical and important pieces of economic theory.

MMA-Market structures and competition

At the genesis of the sport of mixed martial arts, it’s most famous son, the Ultimate Fighting Championship (U.F.C) was formed in 1993.

The sport developed at a slow rate however, it experienced a meteoric rise the likes of which was not seen before and eventually the market entrant held a monopolistic position. A monopoly is where one firm has complete control of a market space.

As a Monopoly detrimental effects were had on both the market and the employees. The purses of fighters were quite low and as the profits started to soar, the wages did not rise at a consummate level. This was primarily based upon the fact that the lack of competition enabled the UFC to control everything they did. In fact, going in to the 2000’s its popularity surged and the primary competitor for viewers was actually found to be professional wrestling organisations like WWE. This is what is called indirect competition. This is when vendors who sell products which are not the same but could satisfy the same consumer need. Therefore, fans of combat sports outside of the established ones like Boxing could only really seek out either sports entertainment like WWE or the fringe sport of MMA via the UFC.

However, the surge in popularity of the UFC has seen the development of rival promotions. Pride FC was formed in 1997 in Japan. This bolstered the fledgling sport’s popularity abroad into the mid 2000’s. Likewise, Strikeforce was formed by Scott Coker in 2006 as a direct competitor to the UFC. These sports forced the UFC to increase fighter pay and conditions as they now had other options of where to fight. This also boosted the sport for the fans as now there was competition for viewers and better shows were being held in order to try to beat out the competition. This was seen by the introduction of measures like The Ultimate Fighter and longer cards for Pay Per View events. What we see here is called direct competition. This, is where two or more firms offering essentially the same service compete for market share.

The demise of Pride was seen by their declining viewing numbers and eventually a strategic takeover took place with the Fertitta brothers, who owned the UFC at the time purchasing the promotion. A strategic takeover is when there is planned M&A activity with a certain goal in mind such as eliminating competition.

In the current format of MMA we can see how the competition still exists. This comes from promotions such as One FC and most notably from Bellator, who are known to pay mid-level fighter’s market leading purses. This means that MMA now sits in an Oligopolistic market. This is where there are a few market leaders who control most of the market share. While there are now hundreds if not thousands of MMA promotions worldwide, the vast majority only view a handful of promotions. According to Game Theory, the actions of one player in an Oligopolistic environment will impact the behaviour of the others. Therefore, given the high pay offered by Bellator we have seen a steady rise in the pay offered by the UFC to its perennial contenders in the last half decade.

It remains to be seen what will happen with the future of MMA and its market structures. For a sport that started out with less regulation than any other in living memory to now be entrenched in extreme rules, it is interesting to see how the phenomenon will unfold. My hope is that the development of both competitors’ wages and benefits as well as better quality events for fans.

Golf- argument for low Corporate tax rates:

Admittedly golf is a sport I have only recently taken a shine to. Following an internship last summer with a number of avid golfers I decided to give it a try and I am certainly a fan at this stage (albeit a rusty player). Therefore, while observing competitions such as the recent PGA Championship I mulled over a comparison between golf and entrepreneurship/taxation policies.

This may seem illogical but hear me out. Golf like entrepreneurship is something with high barriers to entry. Starting a business requires thousands upon thousands of euro and many years of savings and loans to even get started. Likewise, golf compared to other sports is amongst the most expensive to start as you need to invest in a set of clubs, tees, golf shoes and green fees if not a membership. Furthermore, golf is a sport with an extremely high ceiling of money at the highest echelons, with top players like Tiger Woods, Phil Mickelson and Jordan Spieth all worth hundreds of millions. In entrepreneurship top moguls like Jeff Bezos and Mark Zuckerberg are all centi-billionaires. Therefore, the two have several similarities and thus can be compared.

The focus here is using golf as the medium by which to elucidate how certain government incentives to entrepreneurship can influence its success. In Germany there is a simplistic means of setting up a business compared to other EU countries. Likewise, there is a low corporate tax rate at just 15%. These are two factors in what makes Germany the largest economy in the E.U and the 4th largest economy worldwide. Therefore, by making entrepreneurship more accessible you can see how it bares huge increases in returns for the government. If you have a low tax rate, entrepreneurs are incentivised to take the risk because they will get to keep the lion share of what they bring in, which is very liberating. Also that money at the start could be the factor which enables them to stay afloat given how tight margins are for start-ups.

The same can be seen in the development of the quality of golfers. With the advent of Tiger Woods’ career 25 years ago golf as a whole became more accessible since then. The cost of membership and green fees declined and more people of a lower income bracket started to pursue golf. Furthermore, with the growth of tee time booking websites like TEEtimes.ie, golfers can now golf regularly without having to purchase a membership. The results are not just opinion but empirical fact. Between 1992 and 2017, the average USGA handicap for a man has improved nearly two full strokes, from 16.3 to 14.4. Furthermore, professionally the rounds shot by the average PGA player 25 years ago pales in comparison to the average PGA pro today. Therefore, it can be easily seen that the argument for a low corporation tax rate can be explained by linking it to the recently more accessible policy to playing golf.

Conclusion:

While I could ramble about a whole host of other economic theories and attempt to link them to several other sports, I believe these to be the most topical. MMA is an extremely new sport and so charting its entire history made it a sport I couldn’t overlook when trying to discuss macroeconomics. Furthermore, golf is a sport I greatly respect and seeing its evolution in recent times led me to draw a comparison with one of the most talked about economic debates in Ireland in recent times.

As I have said before the ultimate goal of this blog is to inform and educate and if I can use something as universal as sport to illustrate a difficult concept then this will have been a great success.

However, understanding these concepts, like playing a sport follow a similar mantra for mastering them.

Practice makes perfect!