Wednesday, December 17, 2014

The Economics of March Madness

Zach Brennan

Mrs. Straub

Economics

12/16/2014

The Economics of March Madness

March madness is a single elimination NCAA tournament at the end of the college basketball season, there are total of 64 teams that compete and there is only one victor. March Madness is one of the most popular tournaments in sports. Nearly a third of America watched the tournament last year. Sixty-eight teams from all over the country battle head to head to become the NCAA champions. From school yards to elderly homes, there is a variety of people who watch this annual tournament.  March Madness is actually good for the economy and helps not only local businesses. Billions of dollars will be spent on products relating to the tournament whether it’s tickets or key chains.
When it comes to tickets they are a very elastic good. Ticket prices range from $150 to $700 depending on where and how far into the tournament each team it. As the price of the tickets go up less people feel that the positive externalities do not outweigh the negative externalities. The cost is way too high for the average joe to go to a march madness game. However, people are still willing to pay ridiculous  prices for these tickets.
Majority of the activities during march madness by fans are wagers. In fact it’s the second most wagered event in the US, just behind the Superbowl. Just in Las Vegas alone there was about 80 million dollars wagered in 2013. The odds of getting a perfect bracket are 1 in 35,360,000,000. So definitely the odds may never be in your favor.
Although the tournament is a major distraction, since “ Many more—86 percent of workers, according to a 2013 MSN survey—will check brackets or scores intermittently throughout the day. Which in turn does have some negative economic costs to businesses. Although it does increase moral of workers and most businesses do have bracket tournaments.
Many local businesses benefit where the games are played. Such as restaurants, hotels and bars. However, businesses that are located in places where the local team reaches the sweet sixteen, have major economic benefits. A survey showed that “fans will spend $100 or more if their team makes it to the sweet 16”. The products that they spend on are team apparel or even a new big screen tv.
Marketing from sponsors is one of the primary sources of income for the tournament for colleges. Ranging from espn to the weather channel, all of them have som source of marketing for the tournament when March comes around. When it comes to broadcasting for the tournament it’s very monopolistic. The few channels that have the privilege of live broadcasting are CBS, TNT, Turner Sports and TruTV. Because of this many other channels receive a scarcity of revenue during the tournament, because their channel’s viewing goes down tremendously.
Overall the economics of March madness are mostly positive. It does not only benefit the city that the games are played, but also the hometowns of the teams. Unfortunately the amount of revenue is dependent on if or how far the team goes into the tournament. So there is no guarantee of profit. An example would be a store in the area of a number one seeded team. They would increase the supply of the team related gear in the store. The farther the team goes into the tournament the more profit on the team gear for the store. If the team loses and is out of the tournament earlier than expected  the store will lose money, because people are much less likely to buy the goods. So there can be some negative impact on the economy.
Works Cited

Forbes. Forbes Magazine. Web. 15 Dec. 2014. <http://www.forbes.com/fdc/welcome_mjx.shtml>.
Swatek, Rick. "The 3Ms of March Madness: Money, Marketing, Media." Bloomberg Business Week. Bloomberg, 17 Mar. 2011. Web. 15 Dec. 2014. <http://www.businessweek.com/lifestyle/content/mar2011/bw20110317_204231.htm>
"The Feudal Economics of NCAA's March Madness." The Islamic Monthly. 15 Dec. 2014. Web. 15 Dec. 2014. <http://www.theislamicmonthly.com/the-feudal-economics-of-ncaas-march-madness/>.

Vinik, Danny. "The Economics of March Madness: The Tourney May Not Hurt the Economy as Much as You Think." Web. 15 Dec. 2014. <http://www.newrepublic.com/article/117045/economic-costs-and-benefits-college-basketball-ncaa-

6 comments:

  1. This was a really good topic to chose, because so many people watch the tournament. A few things are unclear in this piece however. How does people putting money on their bracket benefit the economy? Does the amount of profit these main tv channels make outweigh the cost of how much the others will be making during this time? Also, if people already have this channel the games are played I do not see how it would benefit the economy. I think an interesting statistic to show would've been how much more revenue places such as buffalo wild wings take in during this tournament because it is so much more common for people to go to sport's bars when they have a wager on who wins, and want to be around people with similar interests.

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  2. This post touches on a lot of very true aspects of the economy when it comes time for the tournament to come around. Restaurants, stores, and arenas all get major increases in profits during this month, especially towards the end of the tournament. I never would have thought that this tournament could have such a positive contribution to the economy, but now looking at it through this post and also realizing how expensive products that go along with the tournament are I can really see how much money this tournament brings in for the economy.

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  3. I am not surprised that march madness would help the economy all around the U.S. It is one of the most watched sports event in March and has to bring in good amount of money for everyone. Since these games are located all around the U.S it bring in money to many different areas. March madness is the only real important thing in March to sports fan. So March madness can bring in a lot of revenue to many people around the U.S.

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  4. Companies have a risk when they stock their shelves with March Madness gear. Stores must predict beforehand which teams will go far and which teams will soon be eliminated so that they can put the correct number of products in stock. If a top team gets beaten early then there will be a higher supply than demand and there will be a surplus of the goods. If a team that was not supposed to do well goes far in the tournament there will be a higher demand for their products than what is supplied. This will force consumers to pay a high price if they want the goods.

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  5. I tend to agree that March Madness is good for our economy, but when you say it is good for local business too, I start to disagree. A lot of the restaurants that people go to are chain restaurants, like Buffalo Wild Wings, and the local restaurants and bars get those who will not be seated in time for the games. I do however think that every year with March Madness many other types of businesses profit. I remember my dad telling me about a deal that was going on at during March Madness that offered a free pizza to those who participated, not because of March Madness but because it was for an operation that puts men on bed rest for about a week... a good excuse to sit around on the couch and watch games if you ask me.

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  6. March Madness is a huge basketball tournament and turns the sporting world upsidown. I have had the luckiness to be able to attend it when it was in Milwaukee and it was great. It was very expensive like you said. I think another reason ticket rices are so high is because the tournament rotates venues to different cities every year which makes people want the tickets that much more when it comes to there town r near them. Also, the fans will travel to support there favorite teams wherever they go because march madness it such a big deal. With the tournament only happening once a year, some consider it a once in a lifetime opportunity to see the best college basketball around and many do not get the chance because tickets are too expensive and there are only so many of them to go around.

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