Weights are routinely dropped at the UWO rec centre, yet they almost never are at the Athletic Club.  This is in stark contrast to what I would expect to be the case.  Patrons at the UWO gym are, generally, in better physical condition than those at the Athletic Club and appear to have more experience lifting weights.  Combine this with the fact that the UWO gym has a much greater staff presence to enforce the rules and you can see why things appear out of balance to me.

It was bothering me today how a difference like this could exist between two places serving a near identical consumer base with similar workout patterns.  While at the Athletic Club, I began to realize that the UWO gym shares many characteristics with a typical “tragedy of the commons” situation and that this may be why weights are frequently dropped.  Multiple individuals act in their self-interest, ultimately destroying a shared resource that it is in nobody’s best interest to ruin.  Private clubs have an incentive system in place that helps to reduce this resource destruction, but I believe such a system is harder to implement at UWO for the following reason:  

The standard person at the UWO gym will only be using it for the remaining length of their degree, while Athletic Club members will be using the facility into the foreseeable future.  Since UWO gym users will only be at that facility for a short period of time, they may be more willing than Athletic Club members to sacrifice the long-term condition of the equipment for the short-term convenience gain that comes from dropping weights. (Ex – how much does someone in their fourth year really care about the lasting impact on the condition of a dumbbell that results from dropping it 2 ft. when they will never workout there again?)  Furthermore, people at the UWO gym do not have to suffer the consequences that result from their actions.  Money to support the facility is generated from mandatory fees the current student population is subject to; meaning that the costs to replace broken weights are transferred to the next generation of students.  As a member of the Athletic Club, the fear of rising membership dues is an incentive that encourages you to protect the equipment…yet this does not exist at UWO.      

This observation could be the result of a lack of fear for the disciplinary actions campus recreation can choose to take, but I still feel the transfer of costs to future users plays a role. 

Gym guy would not be impressed.

But I recently came across an innovative charitable foundation that is beginning to garner serious attention on the UWO campus.  We(e)press is a Canadian children’s book publishing house dedicated to raising funds in support of child education and literacy projects in Africa.  The proceeds from each book purchased are matched 3:1 by the Canadian International Development Agency and used to promote development through literacy. 

We(e)press is dedicated to the creation of a “global village.”  The first book, Around the World in the Blink of an Eye, contains illustrations from each time zone and literally allows readers to travel around the world.    

I’ve always been a strong believer in literacy and consider myself very fortunate to grow up in a household that placed an emphasis on this trait.  I could not agree more with the founders of We(e)press when they state that “literacy is fundamental to education and skills creation; and these are what will enable a sustainable future.” 

For more information about We(e)press, visit their website or become a fan on Facebook.

The first film fits in nicely with other posts on this blog.  Freakonomics is set to debut this fall, although I question how widely released it will be.  This is one of my favourite novels (Superfreakonomics wasn’t quite as good) because it does such a great job of illustrating how the study of incentives can be used to explain topics normally not associated with economics.  In particular, I found the chapters that discussed how real estate agents utilize the power of information to exploit their clients and the effect of legalized abortion on the crime rate to be very interesting.       

The other film is “The Social Network,” which recaps the story behind Facebook and its founder, Mark Zuckerberg.  Watch the trailer…the cover of Creep by Radiohead is worth a listen alone.

I find Facebook fascinating.  It has completely revolutionized how people communicate with each other and altered how we present ourselves publicly.  To me, a person’s Facebook profile can be looked upon as their brand.  Tagged pictures, profile information and status updates all reflect the image an individual wants to portray.   

The history of Facebook is also remarkable.  The true value of this empire is unknown since it’s privately held, but since its inception in 2004 it has grown exponentially. In 2007, Microsoft invested $240 million for 1.6% of the company, thus suggesting it was worth $15 billion.  I can’t even imagine what it is worth now, as the user base has grown significantly and it is now the world’s second most popular site.

I just started reading The Accidental Billionaires, the Founding of Facebook: A Tale of Sex, Money, Genius and Betrayal and I can’t put it down.  I’m excited to see how this movie portrays the initial version of the site – a forum to rank the hotness of girls at Harvard.  Then there are the multiple accusations about Zuckerberg stealing the concept from classmates and being a conniving, ruthless, shallow guy…

I can’t wait.

Something is clearly wrong here; a company’s value does not skyrocket while profits plummet.  I think NBA commissioner David Stern’s projection is little more than a political ploy for when the NBA’s collective bargaining agreement expires next year.  As a representative of the owners, it is Stern’s objective to transfer as much money as possible from wealthy players to even wealthier owners. 

I had a prof this year who changed my perspective on accounting in pro sports and made me realize some of the tricks used by owners to manipulate their balance sheets.  Check out this article I read for class that outlines how a claimed $34 million loss for the Florida Marlins was in reality a $13.8 million gain.  It does a great job detailing some of the accounting tricks such as undercharging for broadcast rights because the team and broadcast partner belong to the same company or claiming player contracts as a depreciation expense.    

 Stern has been attempting to gain public support for the owners for quite some time now, and most indications suggest he has done a good job.  Superstars Amare Stoudemire and Kevin Durant have both chosen to sign new contracts this summer rather than next in fear that the new collective bargaining agreement will be more owner friendly. 

 The Golden State Warriors are one of the league’s most hapless franchises; they have no marquee players, haven’t won a title since 1976 and play in the NBA’s oldest arena – yet they are still worth $450 million on the open market.  Due to this, I can’t put much faith in Stern’s numbers.  I put even less faith in those numbers when I consider the motives behind his statement.

Every single time I buy a gift for somebody I can’t help but cringe, and it’s largely because of a paper called “The Deadweight Loss of Christmas” (If you don’t want to read the full study, here’s a summary).  The act of purchasing a gift is almost always inefficient; and I question whether I am better off buying a gift anyway to stay in line with social conventions, or instead giving money so that the recipient can utilize the money to purchase something more in line with their preferences.

As depicted in the following table, recipients value gifts by 10%-25% less than what was paid for them.  So maybe instead of spending $50 on a gift that is only valued at only $37.20, we are betting off giving the person $50 cash.

Deadweight loss by gift value

I know that looking at it from this perspective ignores the sentimental value of gift giving, but frankly, I’m not a very sentimental person and would prefer knowing that the recipient is achieving the highest level of utility possible.  It is also important to consider the search activity that could also be saved by adopting this strategy.  No longer would I be reading the back cover of 30 books to find a good one, or trying to figure out what colour shirt would look best on somebody.  I imagine that somebody else would find something they like more quickly than I ever could for them.

So what to do for my sister?  Buying a gift is inefficient, but giving money seems tacky.  Hopefully at some point in my trip we go out for dinner or spend money on a form of entertainment.  I can always pick up the tab for that, and in doing so straddle the line between being efficient and tacky.

And no, I will not buy a gift card.  Why substituute cash for a good that limits consumer choice so much?

First came this now infamous open letter.  As bad as it is, at least he can use the excuse he was caught up in the moment to try and calm the media firestorm.

But now comes this news: Dan Gilbert also owns Fathead, a sports memorabilia company that makes life sized posters. Apparently fathead has slashed the price of a LeBron James poster from $99.99 to $17.41. Why $17.41 you ask? Well, this just happens to be the birth year of Benedict Arnold.

Grow up Dan Gilbert. LeBron doesn’t owe you anything.  When you bought the team in 2005 you paid $375 million.  Just a couple of moths ago the team was valued by Forbes at $476 million.  Much of this can be attributed to LeBron, who in his seven years took the Cavaliers from obscurity to national prominence.  Experts are suggesting that the loss of LeBron will cause the franchise value to fall anywhere from $100 million to $250 million, yet Gilbert had the opportunity to sell at any time and chose not to.

But lately roulette seems to have lost some of its appeal.  This isn’t because I know it’s a poor financial decision (I think everyone knows this), but rather because the actual game is no longer any fun to play.  I think this is largely because I’m more aware of the gambler’s fallacy – the false belief that certain events are “due” in independent trials of a random process. 

 For example, after seeing the ball land on red for the past 4 turns, I would actually feel like a complete idiot for betting black under the belief that it must be “due.”  The elements of luck, risk and intuition that made roulette fun have been completely replaced by a sense of indifference for what to bet on.     

 This indifference stems from the fact that every single bet possible has the same expected value of -0.053% (the lone exception being the top line with an EV of -0.079%).  Click here for an expected value table. 

 When the expected value is the same for every possible action you can take, what’s the fun in playing?  I need to brush up on blackjack, or even better stay out of the casino completely.

 1)  Chicago, IL – In addition to being the home of deep dish and Oprah, residents of this city pay a flat rate of 3% to the Illinois legislature. Couple this with the 35% federal rate and (insert star player here) will take home $77.81 million of his contract.

2)  Los Angeles, CA – California residents can pay up to 10.3% in state income tax. This includes a 1% tax on incomes over $1 million entitled the mental health tax. This makes the take home pay a healthy $68.6 million.

3)  Cleveland, OH – 6.24% in state income tax results in earnings of $73.7 million.

4)  New York, NY – New York City is one of few places I’ve ever heard of that charges a municipal income tax along with state and federal ones.  After giving 35% to Washington, 8.97% to Albany and 3.648% to the mayor’s office, a basketball star is left with $65.7 million for himself.  Hopefully the increased endorsement opportunities can make up for this.  

5)  Miami, FL – Between perfect weather, South Beach and no state income tax, this seems like a good fit for a professional athlete. I’m sure D-Wade and Lebron could find a couple of ways to spend their $81.2 million in post tax income.

Although lower income taxes in some states may be counteracted by higher sales, property or capital gains taxes, there remains millions of dollars an athlete may never receive based on where he chooses to sign.  Writers often point out that a player may require more money to play in New York rather than Cleveland to account for the higher cost of living and media scrutiny (aka the compensating variation), yet they routinely fail to acknowledge the issue of taxation.    

Regardless of what happens in the next week, I hope these players make an educated decision.  Ask Latrell Sprewell, it can be hard to feed your family on an NBA salary.

And what will come of all these new soccer stadiums once the tournament is over?  Rugby is extremely popular in South Africa and many people suggest rugby teams will make use of these facilities…and I certainly hope so.  Read This article about how long it often takes to pay both the principal and interest on municipally funded stadiums.

 Earlier this year I wrote a paper about LeBron James’ marginal revenue product. In doing research for it I came across an economist named David Berri who has researched inefficiencies in the labour markets of professional sports leagues. He co-authored a paper called “On the Evaluation of the ‘Most Important’ Position in Professional Sports”  that argues goalies are an overvalued resource in the NHL and that there is little difference in the playing ability of average and good goaltenders.

 In a sample from 2000 to 2008, he found the average save percentage to be 0.906, a standard deviation of 0.012 and a coefficient of variation of 0.013.  All of this suggests that there may not be quite as large of a difference between Roberto Luongo and Pascal Leclaire as we are led to believe.

 Berri also found goalies to be wildly unpredictable, both from season to playoffs and year to year:

“A regression of postseason save percentage on regular season save percentage revealed an R^2 of .07. In other words, about 93% of what a goalie did in the postseason could not be explained by his corresponding performance in the regular season.”

 You see this fairly often in the playoffs. Consider this year alone, where three of the final four goalies started the season as backups before going on improbable postseason runs (Antti Niemi, Michael Leighton and Jaroslav Halak). One can also look to players such as J.S. Giguere and Dwaye Roloson (remember them?) for further proof of this position’s unpredictability.  Over the past five years, the goalies that make the conference finals have played an average of only 48.1 games in the regular season…hardly what I would view as the workload of a franchise cornerstone.

 Halak’s trade value is higher now than it has ever been.  He may wind up being one of the greatest goalies of all time, but the Canadiens must believe they are in a better position with Carey Price and whoever they choose to sign with the money that would have been spent on Halak. 

 Ken Holland, general manager of the Detroit Red Wings, shares many of these same beliefs.  He is even quoted as saying “the difference between the eighth goalie in the league and the 15th goalie, it’s a big difference in money. It’s not a big difference in performance.”  Goalies are still capable of stealing games for their team, but when you consider the unpredictability of this position it seems like paying for an all-star defenseman may be a slightly better investment.