Demand of Sports in the Market, University of Palermo Presentation

The Market of Sports (I)

• In general, in a market, consumers demand goods and firms provide them.
• The market of Sports is organized in the same way, where the practitioners, citizens who engage in sports, represent the demand side, and all the sports services and initiative, i.e. everything that is functional to practicing sport, represent the supply side.
• Sport is therefore the commodity traded on the market where supply and demand intersect.

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The Market of Sports (II)

. The sports system in Italy is defined by the UNI 8616 standard of March 1984 as 'the whole of all sports practitioners and services'. Demand side Citizens practitioners Sports activity Supply side Resources Organization / services Initiatives Sports Economics - Demand of Sports 3

The Market of Sports: the demand side (I)

• The demand for sports can be derived in different ways depending on how the nature of the good 'Sport' is considered.
• Sport can be considered as:
  • a non-durable or durable good
  • or a capital good, which serves to produce other goods

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The Market of Sports: the demand side (II)

• Whether one considers sport as a non-durable or durable good, the analysis of consumer demand is based on he hypothesis that the consumer wants to maximize his/her utility by choosing how much sport to practice.
• The objective of analysis varies if one assumes that sport is a capital good. The emphasis, here, is on the fact that engaging in sports can improve an individual's health, leading to potential benefits such as increased labour productivity and income in the future.

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The Market of Sports: the supply side (I)

. As regards the supply of sports, sports production is the result of the interaction between three sectors:

• the public sector,
• the voluntary sector,
• and the commercial sector.

. These three sectors have distinct goals and use different methods to achieve them, making it impossible to identify a unique supply curve. Sports Economics - Demand of Sports 6

The Market of Sports: the supply side (II)

• The public intervention in sports production follows the theory of market failures. Since some forms of sports exhibit characteristics of public goods, such as non-excludability and non-rivalry, the public sector develops. The market is unable to efficiently provide this good.
• The voluntary sector is a non-profit sector by definition. Its behaviour can be explained by the club theory developed by Buchanan (1965) and applied by Weisbrod (1978, 1988) to the case of sport.
• The commercial sector operates in a competitive environment and aims to maximize profit, which is defined as the difference between total revenues and total costs.

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The Demand for Sports as a Leisure Good

• Sport can be defined as a leisure good, as it takes time to be consumed.
• The quantity demanded of this good depends not only on the consumer's income but also on the availability of time. The availability of leisure time is a necessary condition for individuals to decide to demand sport.

. Therefore, before analysing the demand for sport, it is essential to analyse the individual's choice regarding the amount of leisure time they decide to use. Sports Economics - Demand of Sports 8

The Demand for Leisure Time

. The demand for leisure time results from the process of utility maximisation under a budget line. . The individual's preferences are captured by the utility function U, which is drawn assuming that the axioms of completeness, transitivity, and monotonicity are verified (Deaton-Muellbauer 1998). Sports Economics - Demand of Sports 9

The Demand for Leisure Time: Utility Function

. The assumption is that the demand for leisure is derived from the consumer's utility, where there is a positive relationship between the consumption of general goods qc and leisure consumption q1. In other words, as the consumption of the two goods increases, utility also increases U = U (qc; qL) Sports Economics - Demand of Sports 10

The Demand for Leisure Time: Indifference Curves

• The function can be visually represented by the indifference curves of the graph
• These curves describe the various levels of total utility that an individual obtains with different combinations of the two goods.

. According to the axioms, the indifference curves are negatively sloped, with convexity towards the origin of the axes. They never intersect, and higher curves represent higher utility. qc U4 U3 U. U1 qL Sports Economics - Demand of Sports 11

The Demand for Leisure Time: Budget Constraint

IV . The utility maximisation process involves considering the budget constraint, which represents the resources available for purchasing two goods, qc and qL· Pc * qc + W *qL = WT+V=Y · Where Pc represents the price of consumption goods (qc), W represents the wage, which is the price or opportunity cost of leisure time (qL). T represents the total time available to the individual, and V represents the income from ownership or non-employment. . The term on the right-hand side of the equation, wT + V, represents the individual's total purchasing power from work and non-work, which can be used to purchase general goods and leisure. This term is known as total income Y. Sports Economics - Demand of Sports 12

The Demand for Leisure Time: Budget Constraint Graph

V · Graphically, the budget constraint can be represented as a line where the maximum quantity of consumption is equal to wT + V /Pc and the total time T is equal to 24 hours. · The consumer cannot have all the leisure and cannot consume all he/she wants. · The consumer can buy more goods only by sacrificing leisure time to work and earn income. qc (V+wT)/Pc QL T=24H Sports Economics - Demand of Sports 13

The Demand for Leisure Time: Maximisation Process

(VI) · The maximisation process leads individuals to place themselves on the highest achievable indifference curve given the resources at their disposal. . The consumer is best off at the point of tangency between an indifference curve and her constraint. . In equilibrium, we have the equality between the marginal rate of substitution and the ratio of the prices of goods. . This allows us to define the amount of consumer goods (q*) and leisure time * qc that individuals choose to consume. W - = MRS qc Pc * qc * qL T=24H qL Sports Economics - Demand of Sports 14

The Demand for Leisure Time: Wage Increase Effects

V · Graphically, it can be derived the demand for leisure time when the wage (w) increases: qc E2 E1 * Eo qc ∗ $ T=24H · For the income effect, when wage increases, the consumer becomes more rich and wants to consume more of both goods · For substitution effects, when wage increases, the consumer will substitute the good relatively more expensive (leisure time) with the good relatively cheaper (consumption good) w w' w' w DI $ 𝒒𝑳 ∗ qL Sports Economics - Demand of Sports 15

The Demands for Sports Activities

• To define the demand for sports, we should consider different perspectives.
• If consumers or practitioners demand sports, we can define 'sport' as the quantity of recreational activity consumed during free time (The demand for sports).
• If consumers or fans demand sports for entertainment, we can analyze 'sport' as the number of tickets demanded for a match (The demand for sports entertainment).
• If consumers demand sports for health reasons, then 'sport' becomes a factor in a healthy production function (The demand for sports and health).

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The Demand for Sports: Budget Constraint and Leisure Activities

• When defining the budget constraint, we may consider that leisure time consists of both necessary activities (like sleeping and eating) and possible recreational activities.
• By using the constrained maximisation process, we can determine the demand for different activities, including leisure activities such as sports.

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The Demand for Sports: Quantity Demanded Formula

. Therefore, the quantity demanded for a leisure activity or occupation, such as sports (qs), can be obtained as follows: qs = f (Ps, PA, Pc, Y) · Where Ps is the price of sports, PA is the price of other recreational activities, Pc is the price of consumption good and finally Y is the income of a consumer. Sports Economics - Demand of Sports 18

The Demand for Sports: Demand Curve

. The relationship between the price of a good or leisure activity and the quantity demanded is negative. As the price increases, the quantity demanded decreases. . Then, the demand curve for sport is downward sloping as shown. · Shifts along the curve are caused by variations in the price of sport, · Shifts in the entire curve may originate from variations in the individual's available resources, consumer preferences, or prices of other goods and leisure activities. Ps Ds qs Sports Economics - Demand of Sports 19

Quantity Demanded for Sport: Approaches to Analysis

• There are two approach of analysis to consider:
  • The hierarchical approach, which distinguishes between a 'parent demand' for strictly sporting activities and one or more derived demands concerning infrastructures, equipment, clothing, footwear, etc.,
  • The approach of analysis that sees all demanded elements simultaneously and does not distinguish between parent demand and derived demand(s).

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Quantity Demanded for Sport: Hierarchical Approach

• The hierarchical approach involves using the quantity demanded for participation in a given sporting activity (such as the membership fee for a sports club or membership of a swimming pool) as the basis for the parent demand function.

. On the other hand, derived demands are based on the quantity demanded of goods that are functional to the chosen sporting activity (such as the quantity of tennis rackets or baseball bats). Sports Economics - Demand of Sports 21

Quantity Demanded for Sport: Simultaneous Elements Approach

• The approach that consider all demanded elements simultaneously, not distinguishing between parent and derived demand, considers the quantity demanded as a composite sport good that includes various elements.
• The quantity demanded is expressed as the total expenditure on sports that the consumer has to spend in order to purchase the composite sport good.

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