2014 05 colisseum rise of tournament effect

“All my movies end this way, baby.”

 – Austin Powers, International Man of Mystery (original ending)

If you ask a non-Canadian (or even many Canadians) what is Canada’s national sport, they will tell you ice hockey. We are one of the few countries in which the number-one sport is not football (soccer), and although not all Canadians play or watch hockey, many of our icons are built around the sport.1)Of course, we don’t call it ice hockey; we call it hockey. Tim Hortons and Canadian Tire are 2 brands that are marketed with ice hockey, and the theme song from Hockey Night in Canada (HNIC) is probably the best known music in the country. And, of course, it’s a matter of federal policy that Canada must own the ice.

But ice hockey is not our only national sport. Lacrosse is the other. Lacrosse is violent. When I was 9 years old my parents forced me to learn golf rather than play lacrosse because, as they so candidly put it, ‘you’re already aggressive enough and we don’t need to add Lacrosse to the mix.’

Lacrosse was not invented by Europeans. It is in fact a sport from our First Nations. Now, here is the important part for our discussion today: the stakes in lacrosse could be pretty high. According to Native American Studies expert, Anthony Aveni, even wives and children were sometimes wagered in traditional lacrosse games.2)Anthony Aveni, “The Indian Origins of Lacrosse,” in the Colonial Williamsburg Journal. Accessed July 15 2018.  So winning really, really mattered.

This story of lacrosse illustrates what is one of the most important features of the economy in the last 3 decades: The Rise of the Tournament Effect. And dealing with the consequences of the Tournament Effect is one of our greatest challenges if we are going to maximize Flourishing.

The Tournament Effect is the tendency over time for the gains to the winners to increase disproportionately to those of the more moderately successful. And there seems to be overwhelming anecdotal empirical evidence that this has been happening. Sticking to sports for the moment:

  • In tennis, the top 5 male players in 2014 earned USD 33.6M on average (including sponsorships) versus earnings for the 100th male player on the planet (Igor Slijsling,) of just USD 528,44o. We are assuming, of course, that Igor is not getting sponsorship in the same league.
  • In basketball, the Top NBA salary in 2014 was Kobe Bryant’s USD 24M,3)NBA player salaries 2014-2015, ESPN. Last modified 2015. Accessed July 15 2018. while in Euroleague Basketball (often considered by many American players as a second alternative to playing in the NBA) top players are earning ‘only’ up to USD 3.4M and most players much, much less.4)Globetrotting: Would NBA Players ever move to Europe? Hoopslounge. Last modified 2013. Accessed February 25, 2015. Page since deleted.
  • In F1,  Sebastian Vettel, one of the top drivers in the league, made a salary of nearly USD 25M in 2014,5)Sebastian Vettel’s F1 salary 29 times more than Daniel Ricardo: report, news.com. Accessed February 27, 2015. whereas bottom-ranked drivers earn only around USD 250K.6)2014 Formula One Driver Salaries, HITC Sport. Accessed July 15 2018.
  • Among football clubs in Premier League,7)Unlike the NFL, football (soccer) in general and the Premier League in particular allows huge disparities in club resources (see article, Optimized Competition). the 2014 value of Manchester United, Manchester City, Arsenal, and Liverpool is collectively GBP 3.7bn8)Soccer team Valuations 2014, Forbes. Accessed July 15 2018. versus, for example, GBP 224M collectively for Premier League perennials Stoke City, Sunderland and West Ham, United.9)Team market Values 2014, Transfer Market. Accessed February 28, 2015.

Why is this happening in sports? Well, the most common explanation is that the advent of television and the Internet have allowed everyone the opportunity to watch the very best players in the world. Whereas in the past you might have gone to the stadium and watched your local (and mediocre) team live, today you can find Liverpool on every corner of the globe. And one can see the effects of this every day in Nigeria, where there is essentially no proper Professional Nigerian Football League because fans are interested only in the Premier League (and so, consequently, player development is poor).

When the Tournament Effect is strong, success begets success, and those who have some success can build on it to amass very strong positions in relation to other players in the field.

The rise of the Tournament Effect might not matter that much if it were restricted to the realm of sports. After all, we generally all want to see the best, and the huge prizes for being absolutely number one draw forth a huge effort from wannabees. Of course, the vast majority fail to make the pinnacle, but participation was their choice and, in fact, their efforts create competition that helps make the winner the winner.

The problem for Flourishing is that the Tournament Effect seems to be invading more and more aspects of business and life:

  • Income distribution – it is well known that in many countries incomes of the rich (the “1%”) have been growing exponentially faster than those of the middle class and poor.10)OECD Video and Data on the Growing Gap between Rich and Poor and Its Impact. Accessed July 15 2018.
  • Educational attainment – the race starts early now, with parents trying to get children into the right preschool, so they can get into the right school, so they can  get into the right college, so they can get into the right graduate programme.11)Oxford University researchers recently published findings that better GSCE grades actually do correspond with better preschool education, and lead to higher wages. Better GSCE Grades for Children Who Had Preschool Education. Accessed July 15 2018.
  • Digital Economy – many businesses in the Internet world are, as we all know, winner take all. The service is more valuable when everyone uses the same one (such as Trip Advisor), or the economy of scales so important that there is eventually only 1 player that controls the market – so Facebook, Google, Alibaba, Uber, Airbnb, etcetera. Orthodox economics has a term for this – natural monopoly – and, left alone, the results are not good.12)Definition of Natural Monopoly. Accessed July 15 2018.

Does this matter? Yes – because the goal of widespread Flourishing is not consistent with more and more of the rewards going to just a few. Michael Walzer wrote a terrific (but forgotten) book – Spheres of Justice. He put forward a pretty good argument that it’s fine to be good at putting a basketball in a hoop, but that shouldn’t mean you get all the fame, all the money, and all the sex. It’s just not fair.

Unfortunately, that seems to be the world we have ended up in. Can anything be done?

Yes. After all, we make the rules, as Principle 2 of Economic Reality states.

In Optimized Competition, we discussed extensively how we put constraints on the dimensions of competition both to have good outcomes and to have the competition itself occur in certain ways. The alternative – unrestrained competition – does not work. In fact, those who advocate for unconstrained competition are those who stand to lose the most – they have often gained power, fame, and wealth through their intelligence. But in a world of truly unconstrained competition, they would lose out quickly to those who were physically stronger, an implication they seem not to understand.

So, with developments in technology and communications, and other factors that enhance the Tournament Effect, it makes sense to think through policies that change the dimensions of competition given the rise of that effect. 

 

Photo Credit: Elle Neill : Elle Imaging 2014

Footnotes   [ + ]

1. Of course, we don’t call it ice hockey; we call it hockey.
2. Anthony Aveni, “The Indian Origins of Lacrosse,” in the Colonial Williamsburg Journal. Accessed July 15 2018.
3. NBA player salaries 2014-2015, ESPN. Last modified 2015. Accessed July 15 2018.
4. Globetrotting: Would NBA Players ever move to Europe? Hoopslounge. Last modified 2013. Accessed February 25, 2015. Page since deleted.
5. Sebastian Vettel’s F1 salary 29 times more than Daniel Ricardo: report, news.com. Accessed February 27, 2015.
6. 2014 Formula One Driver Salaries, HITC Sport. Accessed July 15 2018.
7. Unlike the NFL, football (soccer) in general and the Premier League in particular allows huge disparities in club resources (see article, Optimized Competition).
8. Soccer team Valuations 2014, Forbes. Accessed July 15 2018.
9. Team market Values 2014, Transfer Market. Accessed February 28, 2015.
10. OECD Video and Data on the Growing Gap between Rich and Poor and Its Impact. Accessed July 15 2018.
11. Oxford University researchers recently published findings that better GSCE grades actually do correspond with better preschool education, and lead to higher wages. Better GSCE Grades for Children Who Had Preschool Education. Accessed July 15 2018.
12. Definition of Natural Monopoly. Accessed July 15 2018.