Economics in Football

Economics in Football

For my blog I will just touch on a couple of issues dealing with football and my opinion around them:

Will LaDainain Tomlinson remain a San Diego Charger? Negotiations have begun between the San Diego Chargers and LT to restructure his contract, if he wants to remain with the team. In the eyes of Charger fans, LT is a superstar and future Hall of Famer; however, the organization believes that LT’s marginal benefit is on the decline, in terms of his production decreasing his marginal cost, in terms of his salary per year, which is in the double digit range of millions per year to decrease, with-standing an equilibrium salary figure to exist. With that said, LT has a decreasing marginal utility in the organizations opinion. If your look at his career stats, in 2006, LT rushed for career highs in yards, 1815, yards per average, 5.2, and touchdowns with 28. Since 2006, each category has declined in yards from 1474 in 2007 and 1110 in 2008, 4.7 yards per avg. in 2007 to 3.8 yards per avg. in 2008, and 15 touchdowns in 2007 to 11 in 2008. So what does the organization do? While both parties would like a Pareto move to occur, this is not possible since the increase of the well being of the organization, decrease in LT’s salary, will decrease the well being of LT, so a Pareto optimum will occur. LT has been in the league for eight seasons, after being drafted in 2001 in a trade between the Chargers and Atlanta Falcons for draft picks, who drafted Michael Vick with the trade and is currently in jail, a little FYI. So the issue of LT’s durability and the risk the organization is willing to take comes into play. In those eight seasons, LT has rushed the football 2663 times, which is quite a workload for a NFL running back. However, during this time, LT has only missed one complete game, which occurred last season. So what is LT’s expected value? The San Diego Chargers believe he is worth 24 million dollars over three years, which seems like a risk loving figure to me. So will this expectation become a moral hazard if the organization and LT agree to these terms. Will LT still produce as he has, letting 2008 being a down year or will his marginal utility continue to decline in his production for the team. Only time will tell if LT believes there is a surplus for him in terms of other teams allowing his marginal cost to increase in salary figures, rather than seen through the Chargers eyes, allowing him to attain more money in a contract.

Will Terrell Owen and the Buffalo Bills co-exist?
I will just touch on this subject real quick, T.O. and the Bills agreed to a 1 year, 6.5 million dollar contract over the weekend. I believe that T.O. agreed to this contract because he has no leverage throughout the league and the Bills were the only team who are risk loving enough to take a chance with T.O. and see his marginal benefit at an extremely high rate compared to his marginal cost of his salary during these deprived economic times. Now T.O. has been called “Team Obliterator” due to his actions on and off the football field. But individuals believe that T.O. will be on “Good Behavior” because he will play the 2009 season with the intention to increase his residual value in 2010. To me though, T.O. will be a negative externality to the Buffalo Bills. The Bills already have a number one wide receiver in Lee Evans who had 63 catches for 1017 yards in 2008. T.O.’s numbers are better for 2008, with 69 catches for 1052 yards, making him believe he will be the number one receiving causing arguments when is not getting the ball thrown in his direction enough. On top of that, T.O. will want the ball even more since he is trying to increase his residual value. These actions will only cause poor companionship throughout the team, which is an essential part for football, which was seen last year in Dallas. Over the last three years, T.O. has averaged 12 dropped balls per year, now he will have to deal with the negative externalities of weather issues in Buffalo; cold weather, wind effects, and the effects of the weather on the balls. Personally, I believe that T.O. will become a moral hazard to the team causing Buffalo to have a horrible season.