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Tuesday, July 23, 2013

Nate Silver and the Hidden Genius of Capitalist Crowdfunding

After a long and difficult year personally, it gives me some quiet joy to announce that I've just uploaded a "shitty" first draft of Catalyzing Fans to SSRN. Actually, it's somewhat polished as a draft, but it's pre-submission, blissfully short (13,000 words) and, um, really interesting. Bonus: it has nothing to do with retributive justice.  So, my co-authors, Mike McCann and Howard Wasserman, and I hope you'll read a draft and send along comments. Here's an overview:

Should Nate Silver have stayed at the New York Times, or instead go to ESPN?  Where should Cass Sunstein teach? What team should Lebron James play on? In this paper, we have a proposal for how to think about the trilateral relationships among "talent" (Silver, Sunstein, James), teams (the NYT, the Miami Heat, Harvard), and fans. For some reason, the answers to where that talent should work are  often only indirectly connected to the desires of third-party fans. We think this could be different.

Specifically, we propose the development of Fan Action Committees (FACs).

Analogous to, but distinct from, Political Action Committees (PACs), these FACs would coordinate, aggregate, and monetize the intensity of fan preferences and would thus serve to either enrich "talent" directly, or, in a wrinkle we prefer, make contributions to charities favored by talent.  If we're right about how fans could introduce crowdfunding as a way to re-configure that triangular relationship, well, it's a potential game-changer, if you'll pardon the pun.  Once our paper lays out the architecture of the direct compensation and charitable models, we anticipate how to overcome obstacles to the development of FACs that may exist under current rules or laws. We also address a variety of policy concerns and objections ranging from considerations of competitive balance to distributive justice.  Advancing and illuminating the possibility of FACs across pro team sports and commercial entertainment, journalists and academics, we show how crowdfunding options produce the potential for more efficient valuations of talent by registering not only the number of fans but also the intensity of their preferences. This insight, which stresses the upside of price discrimination, has relevance to a wide range of human endeavor. In short, the introduction of FACs can basically change the dynamic of any area where bilateral contracts have third party externalities that are not currently calibrated or adequately valued.  

Btw, Howard, Mike and I began kicking this idea around last summer after I floated on FB something like the notion of  fan interference, wondering why fans couldn't affect the Knicks' incentives to hire or retain Jeremy Lin in the midst of Linsanity. To transition this into a proper paper, however, I encountered the slight problem that I could not care less about sports or sports law, and knew zero about the area. So I enlisted my pals Mike and Howard -- two of the leading sports law guys in the country -- to write a paper with me about the law, policy and economics about fandom. The paper's come a long way from a facebook thread (which itself is a sort of crowd wisdom opportunity), and some of its most interesting moves and extensions come from conversations with prior readers at FSU and more recently the 10,000 Feet Legal Theory Workshop--so thanks to those folks! (The latter, btw, is a workshop that spontaneously emerged among the group of profs who went hiking with me in the afternoons while in the Rockies two weeks ago for the LEC's annual law and econ boot camp.)  Anyway, we'll be sending it out soon, and, now that it's been gently road-tested, I'm sure any of us would be excited about the prospect of talking about it at your law school this coming year. 


Posted by Dan Markel on July 23, 2013 at 01:43 AM in Article Spotlight, Current Affairs, Dan Markel, Employment and Labor Law, Sports, Workplace Law | Permalink


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1) do academics have fans? I mean, students, maybe, but they're unlikely to want to pay...
2) don't fans already influence sports trades through ticket purchases? If more fans are likely to go see the Knicks with Jeremy Lin on the team, as seems likely, that means more revenue for the owner, and thus more incentive to offer higher pay...
3) please tell me Nozick's Wilt Chamberlin example gets a mention!

Posted by: Paul Gowder | Jul 23, 2013 3:06:16 AM

Paul's #2 seems like a strong point. In the case of a product, why doesn't aggregated market demand already "coordinate, aggregate, and monetize the intensity of fan preference"?

Posted by: Orin Kerr | Jul 23, 2013 3:51:25 AM

The system is not designed to incentivize the team to sign the player; these transactions begin with the premise that the team is interested in signing the player and the player would be interested in signing with the team. It is a question of whether the player signs with Team A or Team B when both are viable options. *Now* the fans of the teams can come in with a crowdfunded supplement to the team offers, hoping to sway the player's choice. So Team A offers $ 19 million/year and Team A's fans offer another $ 5 million (either for the player or for his foundation), that tips the balance over Team B's offer standing alone.

Posted by: Howard Wasserman | Jul 23, 2013 7:54:29 AM

Worth a look, perhaps, is Hausman & Leonard's "Superstars in the National Basketball Association: Economic Value and Policy," 15 J. Labor Econ. 586 (1997), which you can get at http://www.jstor.org/stable/10.1086/209839. They point out that superstars have positive externalities on other teams. So one response to Paul (and thus Orin) is that marginal ticket purchases related to signing a player don't allow a team to internalize the value of that player.

I'm guessing the paper might be relevant to yours in other ways, too. Here's the full abstract:

An econometric analysis demonstrates that television ratings for NBA games are substantially higher when certain players (“superstars”) are involved. Thus, these superstars are quite important for generating revenue, not only for their own teams but for other teams as well. Using the econometric analysis and additional information on attendance and paraphernalia sales, we estimate the value of Michael Jordan to the other NBA teams to be approximately $53 million. The positive externality superstars have on other teams can lead to an inefficient distribution of player talent. We examine several league policies that might be used to address the externality.

Posted by: jonah gelbach | Jul 23, 2013 10:09:25 AM

Thanks, Jonah -- very interesting.

Posted by: Orin Kerr | Jul 23, 2013 11:21:35 AM

1) C'mon, I'm a co-author! Of course, Nozick and Chamberlain are in there. Walzer too :-)
2)Academics have fans (possibly) beyond students: alums might be excited to sway to return Sunstein at UC or Lessig at Stanford.

imagine Bill Gates really wants a particular opera singer in Seattle. Ticket sales don't currently reflect both Gates' desire and capacity to pay to have her (or Jeremy Lin or whomever) there. That's the problem with ticket sales or eyeballs on broadcasts for ad rates. They are rough proxies across wide bands of fans, and, unlike FACs, can't sensitively achieve price discrimination that captures the intensity of fan preferences (with money). That's our purported insight (among others?).

Jonah, thanks for the paper link!

Btw, here's a related post to the ideas here:

Posted by: Dan Markel | Jul 23, 2013 11:41:16 AM

I suspect that if fans pay players through FACs, or are expected to contribute to a FAC to keep the player in their hometown, people will begin to resent players and thereby diminish consumer surplus.

We all know that we pay athletes via ticket sales, cable subscription fees, and so on, but there's something unseemly about having to directly pool money with other fans to bribe a player to stay. I think I would stop watching sports if this happened, and I would hate any player who demanded another $5 million from his hometown fans to stay. The Yankees can have him.

Posted by: andy | Jul 23, 2013 6:47:05 PM

Andy, thanks for flagging the concerns. Out of curiosity, do you think it's unseemly to pool money to recruit a player, as opposed to keep a person? What about donations to charities favored by the player--also unseemly? Seems better than just lining the pockets of the fat-cat owners and their pals in the broadcasting service!

Anyway, we actually address a bunch of those concerns. Check out the piece on SSRN--we just put up a revised version this morning.

Posted by: Dan Markel | Jul 28, 2013 9:47:48 AM


I definitely think it's *less* unseemly to bring a player on than to ask a player to stay. I suspect that others would feel similarly in different contexts -- offering a new professor a rent-free apartment, for example, may be viewed differently from giving in to a professor who says he will leave unless he is given free digs. However, I still think that direct payments from fans (or FACs) is outrageous. Most die hard fans, and I include myself among them, somehow manage to delude ourselves that those on the field are playing for us or their teammates. In fact, when a player lashes out at fans or his teammates, his popularity and endorsement opportunities seem to disappear almost immediately.

Demanding or even accepting a payment from a FAC, I think, would generate a similar response. We want players who play hard for our cheers, not for our dollars. Again, I recognize that this is a naive belief, but as long as there isn't a direct payment from us to them, somehow I can put aside reason and root for players. I'm a huge Barry Bonds fan and stuck with him through pretty much everything, but if he requested a payment from a a FAC, that would cross my line.

Regarding payments to charity -- that strikes me as completely different. In fact, if a player said he would stay if the local community donated $1m to e.g. the United Way, that would increase my estimation of him.

I don't think my positions on this issue reflect anything resembling consistent logical analysis. But one must suffer from a substantial amount of cognitive dissonance to care so much about sports in the first place. (It's just a bunch of big men playing with a ball, after all.) Sports-related topics are perhaps the one area in which logic can be an enemy, and emotion runs king.

Posted by: andy | Jul 30, 2013 1:28:40 AM

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