Monday 24 April 2017

Can the economics of sport predict rugby outcomes?

Dan O'Brien

Dan O'Brien

Election fever is taking hold. And so is Six Nations fever, as the northern hemisphere's pre-eminent rugby tournament gets under way this weekend.

As politics is more important to most people's lives than sport, my column in the main section of the paper is about the economics of the campaign. But sport matters a lot to a great many people. As such, this column explores another nexus: that which links sport and economics.

Linking the sporting arena and the dismal science might not be obvious - but economists have something to offer to those interested in the business of sport, including the Ireland fans and Welsh visitors who will flock to the wedge between Dublin's River Dodder and the country's oldest railway line later today.

The interest of economists in sport is not surprising. It has gone from being the preserve of amateurs a few decades ago to a multi-billion-dollar global industry.

The US is the world's biggest sports market, if among the least globalised. American football is played almost nowhere else, baseball is confined to a handful of countries and the world's sport - soccer - has never really taken off.

But those quirky American sports bring home the bacon. Thirty seconds of advertising during the Superbowl costs $5m.

As researchers tend to follow the money, most research attention has focused on the four mega-money US leagues, in ascending order of annual revenues: American football and baseball, followed by sports better known internationally, basketball and ice hockey.

But the business of sport is different from others. In most industries, firms try to rule the roost and drive their competitors off the pitch. In contrast, the sporting product is typically a contest, jointly produced by more than one team. Sports teams cannot function without plenty of strong rivals.

Sports have another peculiarity: fans prefer some 'uncertainty of outcome'.

Only diehards would be willing to pay to see their outfits being consistently hammered. This 'competitive balance', depends on teams being well matched.

As such, leagues are cartel-like - and sports require special competition law treatment. Article 165 of the EU's Lisbon Treaty refers to the "specific nature of sport".

The phrase 'human capital' (a proxy term for workers' skills and abilities) is attributed to Nobel Prize-winning economist Gary Becker. It has relevance almost everywhere and is becoming ever more so.

In the past, a nation's wealth (at much lower levels) was more related to endowments of land. But in today's information age, it is about endowments of human capital.

A nation's sports teams are similar - the quality of the players a country churns out determines success rates. And there is a growing body of research going into the factors behind countries' sporting success, including rugby.

The sports industry has one big research attraction when it comes to measuring and individual performance: transparency.

Where else is a worker's productivity data (tackles made and kilometres covered in a game) available publicly in near-real time? In fact, the stadium is often considered a laboratory.

But what, in turn, determines the relative quality of playing talent? Economists have turned their attention to the question.

Studies on which countries do best at the Olympics show that the medal haul tends to correlate positively with population size and GDP per capita. These factors matter in rugby too, it seems. But tradition also appears to be important.

Does this help explain the mighty All Blacks and, in turn, why three of these island's four nations are now coached by Kiwis? Even when one accounts for the size of that country's player pool (just 150,000) relative to others, it still outperforms.

As of 2014, Ireland had just under 100,000 registered players, while England had more than three times that number (there's more of these figures to be found at the blog empiricalrugby.com).

It is hard to avoid the conclusion that it is the game's nation-defining tradition in New Zealand which makes the difference - rather like the way hurling defines Kilkenny and makes it a superpower in the sport, despite having just 2pc of the population of the 32 counties.

Another particular phenomenon in the wider labour market of the entertainment industry is the 'superstar' phenomenon.

It is no accident that - as in movies and music - crowd-pulling players can profit handsomely from their efforts and fame.

One of rugby's quirks is that high salaries can go to the twenty-odd-stone tight-head prop. Basic instincts apply: anchor the scrum, win the game; win the game, fill the seats and sofas; then fill the coffers.

What of the Six Nations? The participant rugby unions organise the Six Nations on a collective basis. On competitive balance, no team has dominated during the contemporary era. Fans will also recall the excitement of the final day's uncertainty last season. Although not lacking critics, the Six Nations itself is a successful commercial product - for now, at least.

Stadia are generally full, and the sale of broadcast rights helps bring total tournament revenues to around €400 million annually. Last year, the tournament home games and various spins offs generated around 80pc of the IRFU's annual revenues of €74m. And the financial importance of the Six Nations cash cow is growing by the year, as the chart illustrates.

What explains this success? Many reasons are conceivable, but here are two from economic thought. Behavioural economists could point to people's 'status-quo bias' (a general dislike of change). It is the sport's oldest tournament, with origins in 1883 and has been tweaked only sparingly, such as the inclusion of Italy in 2000.

The other is the absence of close substitutes - what alternative depth-of-winter options do rugby fans have?

Economists are always asked for predictions. So who will win today? A standard answer would be to check the bookmakers. Economists generally think that gambling markets work efficiently (market prices reflect known information).

Brian O'Rourke, the brains behind empiricalrugby.com, has dug deeper than most into the information. The cream of Irish rugby's talent pool of 98,880 registered players takes on the Welsh equivalent of 73,444. Only three million people live in Wales, less than half this island's 6.5 million.

So Wales' "player/population intensity" is 1.64 times Ireland's - reflecting the almost religious status rugby enjoys in the principality. O'Rourke thinks that this, and Ireland's injury list, could be factors that determine today's outcome.

Ireland vs Wales kicks off at 3pm today

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