Economics
Homework Sports #3
Due Wednesday, June 1
Please write your answers on a separate sheet. Make sure your answers are well-written and make
sense even if the reader has not seen the question.
1)
Assume the interest rate is 10%.
a) Would you prefer a $500 gift today or a $540 gift next year?
b) Would you prefer a $100 gift now or a $500 interest-free loan to be paid back in four years?
c) You just won the lottery. You can collect $10,000,000 today or $2,000,000 over the next
eight years beginning next year. Which option is better? Show your work.
2)
Refer to the article from the New York Post printed below.
a) Suppose trader Ray Bartoszek and investor Anthony Lanza are solely concerned with
profits. Under what condition does it make sense for them to buy the Mets?
b) Describe a reason Bartoszek and Lanza may want to buy the Mets if they are not
concerned solely with profits.
3)
4)
Refer to the following articles and write a brief essay to answer the questions.
Jamie McCourt Seeks Dodger Sale and Bankers Say Bidders Willing To Pay $1 Billion For The
Los Angeles Dodgers; Forbes Magazine; January 12, 2011
http://www.google.com/hostednews/ap/article/ALeqM5gevUUAwqY8mIf_Vr8Xl9GaNMU_JA?
docId=e052698410c9489b888192ababb143a5
http://blogs.forbes.com/mikeozanian/2011/01/12/bankers-say-bidders-willing-to-pay-1billion-forthe-los-angeles-dodgers/
What is vanity premium (i.e. ego premium)? Why does this increase the price of the team?
Discuss how the monopoly power of the league, i.e. the leagues ability to restrict the number
of teams in the league , affects the price of the team given that several very, very rich people
were securing financing to buy the team.
Find two professional teams currently for sale or that recently sold. State the teams and the
selling price or the expected selling price. Explain why the prices are different.
5)
Suppose that you are considering buying a baseball team for $100 million. You will have to
borrow the money at a 10 percent interest rate. Profits in the first year are $5 million.
a) Assume that profits and the price of the franchise rise at 3 percent per year. Fill in the
following table for three years:
Value of
Increase in
Interest
Net
Cash
Year
Team
Profit
Value
Cost
Income
Flow
Debt
1
2
3
b) At an increase of 3%, is this a worthwhile investment? Why or why not?
c) Assume that profits and the price of a franchise go up at a rate of 6% per year. Is this a
worthwhile investment? Why or why not?
d) At what rate should profits and the price of a franchise go up to make this a break-even
investment? Show your work.
6)
http://sports.espn.go.com/ncaa/news/story?id=6562381
Refer to the article Year of the Scandal in ESPN magazine, May 2011. Find one of the recent
scandals in college sports and write a brief description of it. Be sure to specify the NCAA rule
the school cheated on. Write your own payoff matrix to show that there is an incentive on the
part of member schools to cheat on NCAA rules. Your players will be University A and
University B. Your moves will be cheat and dont cheat. Carefully define what the payoffs
represent. Show that the of outcome the game is for both schools to cheat.
7)
Use the payoff matrix from class for the Tour de France. Change the expected penalty for
cheating or the expected chance of getting caught or both so that the dominant strategy is to not
cheat.
Rewrite each of the original payoffs with your new numbers. (Not all payoffs will necessarily
change.) Write the new payoff matrix with the new payoffs.
Buyer Bewar -- the New York Mets Wednesday, May 25 2011
The New York Mets' beauty contest is almost ready to crown a winner.
Team ownership has chosen a preferred bidder -- the group led by former commodities trader Ray
Bartoszek and investor Anthony Lanza -- and have been in advanced talks since last week on the
proposed deal to sell up to a 49 percent stake in the money-losing team for $200 million, sources told
The Post.
The talks, which can still splinter like a cheap bat because they have yet to iron out some sticky
details, could be wrapped up and announced before the end of the month.
"They are pretty close to a deal," a source said.
One of the sticking points, sources said, is whether the bidders will be allowed to purchase a small
piece of SportsNet New York, the profitable regional sports network controlled by Sterling Equities, the
investment firm run by Mets owners Fred Wilpon and Saul Katz. Sterling also owns 100 percent of the
Mets.
The value of the Mets, including debt, may not support a $200 million price for a 49 percent stake. In
the past, sources said, Wilpon and Katz had not been looking to sell a piece of their controlling stake
in SNY.
The news that Wilpon and Katz have chosen a preferred bidder is a significant move in the monthslong bidding process.
The team is hoping to close on a deal by June 30 so it can use the investment cash to fund day-to-day
operations and repay some debt. The Mets took a $30 million emergency loan from Major League
Baseball last November and have to pay that back.
With attendance down about 10 percent from last year, the Mets are on track to lose $60 million in
2011.
MLB pressured Sterling to raise money after it lost $500 million in Bernard Madoff's funds and found it
difficult to bankroll the franchise. Wilpon and Katz are battling a lawsuit brought by the Madoff estate
trustee seeking $1 billion in purported ersatz profits -- and damages.
The two businessmen have steadfastly maintained that they were victims of Madoff like thousands of
others and didn't know the fraudster was running a Ponzi scheme.
Bartoszek and Lanza, both from Westchester, are lifelong Mets fans, sources said.
Bartoszek would be starting a new line of work as his present one closes. Until recently, the 46-yearold had been head of oil trading for the world's biggest commodity trader, earning hundreds of millions
of dollars for Glencore International. The Switzerland-based company listed its shares this month in
the London Stock Exchange's biggest IPO ever, raising $10 billion.
Lanza, 44, started private equity firm Carriage House Partners.
Sterling was previously close to reaching a deal with hedge fund titan Steven Cohen, but those talks
later cooled.