The Utility of Sport and Returns to Ownership
Ramon P. DeGennaro
University of Tennessee, Knoxville - Department of Finance
Journal of Sports Economics, Vol. 4, pp. 145-153, May 2003
Previous research had shown that owning thoroughbred racehorses tends to provide a negative financial return. Yet people continue to purchase and own them. Obviously, rational owners must obtain utility from racing in non financial ways to entice them to willingly pay a premium to enter the game of racing. Recent evidence has concluded that this premium is approximately constant across thoroughbred prices. I generalize recent work by allowing multiple determinants of the premium rather than one. Using this approach, the evidence shows that although the premium is approximately constant for relatively low-priced horses, it increases with the cost of the racehorse, at least for the most expensive and presumably most promising ones. Evidently, a sizable number of owners are willing to pay increasing prices for talent in the quest to own a champion. To the extent that this preference for champions generalizes to other sports, it has important implications for public policy and social welfare. Put differently, if people have such a pronounced taste for championships that they pay a large premium for talent, in turn leading to noncompetitive games and the financial failure of teams, then limits on bidding for talent might make sense.
Note: This is a description of the paper and not the actual abstract.
JEL Classification: G0, G12, G19Accepted Paper Series
Date posted: June 24, 2003
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