June 11, 2023

Today’s Economist: Nancy Folbre: What Romney Could Learn From the N.F.L.

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

In a recent speech, Mitt Romney likened the election to a football game. I wonder if he has considered the merits of the National Football League’s regulatory regime.

Today’s Economist

Perspectives from expert contributors.

I became an N.F.L. fan after reading the management expert Roger Martin’s “Fixing the Game,” which explains how the league has discouraged player involvement in gambling and improved competitiveness.

All business leaders, not just the one who wants to be chief executive of the “American company” should take notice.

Plenty of management gurus have renounced the principle of maximizing shareholder value, asserting that it leads to excess emphasis on short-term profits at the expense of long-run performance.

Professor Martin makes the point particularly vividly, observing that the way we currently reward corporate C.E.O.’s is roughly equivalent to rewarding football teams for exceeding expectations rather than winning games.

Consider the New England Patriots, who were unbeaten in the 2007 season but offered gamblers little payoff, because they seldom won by more than predicted (gambling on football usually involves a “point spread,” the expected margin of victory; to determine the outcome of the bet, that number of points is added to the points scored by the underdog).

Professor Martin sees an analogy with companies like Microsoft, which reported steady increases in revenue between 2000 and 2010 but saw its share price stagnate because it was unable to surpass expectations of what its earnings would be.

Rewarding football teams for beating the point spread would give players perverse incentives to manipulate expectations rather than to win games. That’s one reason why the N.F.L. enforces strict rules against player gambling.

By contrast, corporate pay practices that give managers short-term stock options encourage them to gamble. The easiest way for them to win big is to beat the market’s expectations, rather than to deliver steady performance.

Professor Martin draws other lessons from the N.F.L., which takes particularly effective measures to ensure team competition and – as a result – creates more suspense and excitement for fans.

Hard ceilings (known as caps) on the amount of money each team is allowed to spend on player contracts make it hard for rich teams to buy their way to success. Strict revenue-sharing from national television contracts acts like a progressive tax, giving each team an equal share regardless of their market size and local broadcast audience, enabling teams in relatively small cities including Green Bay, Wis., (population about 105,000) to be competitive.

Other professional sports have similar but sometimes weaker measures. In Major League Baseball, the disparity between the rich and the not-so-rich is particularly great. The New York Yankees, Philadelphia Phillies and Boston Red Sox spend more than three times as much on players as some competitors. As the Red Sox and Phillies have demonstrated this season, money doesn’t always buy success, though in the long run, it strongly influences outcomes.

Professional sports associations often adjust game rules to help balance offense and defense. They realize that competitive teams, like small businesses, need good rules and tough referees to guarantee fair play. They also realize that the well-being of individual teams depends, in large measure, on the success of the league as a whole.

The NFL’s regulations, in particular, have contributed to professional football’s success. Professor Martin notes that the average nationally broadcast regular-season N.F.L. game attracts more television viewers than baseball’s World Series games. The collective value of N.F.L. teams is considerably higher than those of any other league, although the New York Yankees and Los Angeles Dodgers rank among the most valuable sports teams, according to Forbes.

Many Republicans are football fans. They tend to oppose government regulation almost on principle; how they feel about industries’ self-regulation — and whether it has ever worked in finance, banking or accounting — is less clear. Mitt Romney favors a rollback of rules governing financial reform and environmental protection.

Democrats generally favor stricter rules. Maybe President Obama, known for liking basketball and golf, should call the N.F.L. to his side.

Article source: http://economix.blogs.nytimes.com/2012/09/10/what-romney-could-learn-from-the-n-f-l/?partner=rss&emc=rss

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