For much of his career, Dr. Steven D. Lang, the Edward W. Seese Professor of Economics, has applied both macro- and microeconomic principles to a subject popular among generations of students: sports. His class Economics of Sports (and others, throughout his tenure) have explored some of the hot button issues in the world of sports through an economic lens. We asked him to do the same here for our readers.

Q: Sports can be a great vehicle to explore complex economic concepts. What are some that you discuss in your Economics of Sports course?

A: The first is monopoly and antitrust, and what you’re talking about there is the monopoly power of pro sports leagues. Secondly, we get to dig into public finance. There, we’re talking about the economics of stadium subsidies, but also the economics of the taxes that are imposed to pay for those subsidies. The third one is player salaries and player unions, and that’s labor economics. As my students can attest, we do a lot of graphical analysis.

Q: The construction of new stadiums is a source of great public debate. How should teams and municipalities go about funding these projects?

A: Beginning in the 1950s, cities were paying for facilities 100%. This era was commonly known as the civic infrastructure period and municipalities chose to build these facilities to keep their teams from relocating. The benefits are generally expressed in terms of jobs created, income raised, and tax revenues. But they overestimate the benefits and they underestimate the costs.

There’s something called the local substitution effect. If you take your family to a ball game and buy four tickets, a couple of Cokes, a couple of hot dogs, a ball cap, you might drop a couple hundred bucks. That’s money that would have been spent by those folks on entertainment at another place in time in the city, so you’re just moving that around. It is not new spending.

Thinking of the benefits in terms of income tax revenues is probably the wrong way to look at it. But there are some social benefits of having a team. They generate civic pride and all kinds of things that are associated with that. To the extent that local or state politicians think that’s important, it might make sense to provide some subsidies.

By the 1990s, we’d evolved into what some sports economists call the private public partnership era, and that’s more the norm now. It’s a combination of public funding, funding by the team, and maybe funding by corporate sponsors in the form of naming rights.

Q: We often think of professional athletes as high earners, but that wasn’t always the case. What are some factors that impact their wages?

A: Monopsony is a case where you have a single buyer of something. In pro sports, even with free agency, teams have some monopsony power. But the players with unions have monopoly power, so you get to explore the interplay between that.

Think of a factory town. A factory town can offer lower-than-competitive wages to workers in that factory because it’s the only game in town. This explains why pro athletes, for years, weren’t paid their market value.

Baseball, in the late 1800s, but continuing with the other three major leagues, adopted the “reserve clause,” and this became a standard thing in player contracts in all major leagues. The reserve clause gave the team that signed the player initially the rights to that player forever. When the player’s contract expired, their rights were still owned by the team, who had the right to just continue the contract and pick the salary.

Q: How has that dynamic changed over time?

A: Eventually, with the advent of players unions, players were able to negotiate the end of the reserve clause. But for years players were underpaid. Even into the 70s, players had jobs in the offseason. I mean, imagine LeBron James selling insurance in the offseason! That’s the kind of stuff they did. Jackie Robinson sold appliances in the offseason, and he was one of the highest paid players in MLB in the 50s. Johnny Unitas, one of the greatest quarterbacks of all time, installed flooring. That gives you a sense of how depressed the wages were, relative to market value.

Q: Sports leagues, especially in North America, typically have a kind of monopoly within their market, but there’s a different way of operating. What is the difference between an open and closed sports league?

A: The sports leagues in North America are closed. You can’t just decide “I’m going to get a team in the NFL.” The only two ways you can get one is by buying an existing team, which is very difficult because it has to be approved by a super majority of owners, or the league has to expand, and you have to bid for it and get it. Many times when rival leagues have emerged, the existing league handles that by either buying them out or merging. And there’s a long history of that.

For an open league, think of the English Premier League. At the end of the year, the bottom three teams are relegated to a lower league, and three teams are promoted. Theoretically, if you wanted to get a team in the Premier League, you could buy a lower league team, invest in players and facilities and work your way up through the ranks. It might take time, but it happens.

I try to get students to understand there’s a different way to do things, and it’s very popular in most of the world. We’re sort of unique. I think opening their eyes to that is always a fun thing.

Q: What else do you hope students take from your course?

A: I hope they see sports differently, and I hope I’ve opened their mind up to alternative ways of viewing things. But more importantly, I hope they can see how economics is applicable to so many things in our society.