Dr. David Ely: A Q and A with SMBA’s Economics Professor

SDSU sports MBA economics professor David Ely has been teaching at San Diego State for longer than many Class of 2014 members have been alive. Despite moving up into an administrative role in the business school on an interim basis in the middle of the summer semester, he stayed on to teach us about pricing models and the labor market from a sports lens. In this professor interview, Dr. Ely discusses teaching in the sports MBA program and his economic background before diving into some of the topics covered in his class to give prospective students a look at what goes on in his classroom.

David ElyMichael Schwartz: You recently got promoted in the School of Business. What’s your new job title and why did you want to do it?

David Ely: My title is interim associate dean. In terms of my background here, I’ve been here since 1986. I’ve served four years as the director of graduate programs, then went back to teaching for a few years and at least for this year I’m serving as the associate dean.

MS: How does your new position compare to what you were doing last year?

DE: On a day-to-day basis, there’s not much connection there at all. Last year I was teaching classes, and I’m not teaching classes now. I was teaching classes last year and pure administration work right now.

MS: What do you like about teaching in the sports MBA program?

DE: Teaching in the sports MBA program is fun because the classes are graduate-level classes so the motivation of the students is so much higher than for undergraduate students typically. You have there with a cohort students that know each other and are comfortable with each other. You don’t have that time that you might have with a regular class for an environment to form and so forth. You’re stepping into that, so it’s much easier to begin a class and have the class become more productive.

MS: You have a bachelor’s, master’s and doctorate in econ. What draws you to this subject?

DE: I guess originally it was probably just the idea of focusing on macroeconomics, what’s going on in the economy, that one would think about when you’re looking at economics as a way to go into a career. I think when I started as an undergraduate I probably saw myself going to work for a bank or something else there. I just sort of was drawn to the subject because I found the topic interesting as an undergrad. When I finished my bachelor’s, you sort of understand you can’t get a job as an economist with just a bachelor’s degree, so I worked for a few years as a statistician with the Census Bureau. I worked on some of the economic censuses that the Bureau publishes. I was in the DC area for about three years doing that and then I decided I wanted to do more rather than be a statistician collecting data, to sort of return and be more of an economist and that meant going to graduate school. There you’re able to see much more clearly what economics is about and what economists do, and you get much more into the research areas of economics.

MS: What’s a piece of research that you’re particularly proud of?

DE: I think a lot of the research that I focus on is within the financial services sector, so just trying to understand the role of small banks and credit unions in providing credit to small businesses. I have several research papers in those areas. It’s a concern because you have banks that are becoming larger and larger. In the financial crisis we see the big banks are just getting bigger, and it’s an ongoing concern because the big banks focus on big clients and don’t have time for small businesses. To some extent there are economic reasons why larger economic institutions focus on certain types of customers. … So just understanding the impact of consolidation throughout the industry and focusing on the question of whether small businesses are still able to obtain credit from the financial sector I think is a very interesting area. I’ve done some research, but there’s still an awful lot more that can be done.

MS: What’s one economic concept that you feel the general public should have a better grasp of?

DE: I think from the public’s perspective, I think these days what’s very important for the public to understand is the role of the Federal Reserve. You have the Federal Reserve and other central banks, too, playing such a key role in the heath of the economy. In terms of implementing macroeconomic policy, the Federal Reserve really has to be responsible for that. If the public understands the importance of the Federal Reserve and understands some of the basics of monetary policy — what quantitative easing represents, interest rate policy, why that’s important to the economy — I think that’s very important. And then having a central bank that’s independent of the political process I think is very critical. Just understanding the basic pricing model I think is a key concept students need to take out of an economics class. Something else students tend to take away that’s important is the concept of market structure, and why it’s important.

MS: How do you feel about using sports as a prism to teach economics? Does that make it easier?

DE: In a lot of ways. There are a couple of concepts that don’t translate, but it’s nice to focus on just one industry because you can go a little more in detail when you talk about some economic concepts rather than trying to be broad. I think it’s fun to do because in a regular setting I will talk a little about sports examples, but I have learned to stay away from that because in a general group of students some are avid sports fans and others know very little. There are just some cases where you can draw some really good examples in sports, and when you talk about market power and the challenges of negotiating between the leagues and the players’ unions, it’s hard to come up with better examples than that. Pricing again, it’s a very rich industry to go to for pricing with all the tactics the clubs use for pricing, it’s a very sophisticated market when you think about the seat options and the bundling.

MS: What do you like about that first case you had us complete where we analyzed a sports organization’s ticket pricing? Why do you use that one?

DE: I just want people to go out and understand how complex and how sophisticated the tactics are that these organizations are using. They spend a lot of time thinking about them. You can also begin to think about why ticket prices are as high as they are and why so much revenue can be generated from them.

MS: For our second case, we analyzed the bidding war between Sacramento and Seattle for the Kings. Where do you see sports franchise valuations going from here?

DE: I suspect they’re still going to go up. I think the real big question with franchise value is whether we have a fundamental change in how broadcast rights are bought and sold. If we ever got to a system through acts of Congress or however where the cable systems and the sports organizations that are selling that content to the cable providers, if that power structure changes such that consumers of sports content are able to pick and choose and purchase — the a la carte model here — if that goes then I think that the value of these broadcast rights is going to drop pretty dramatically, and that’s going to have a big impact here on the franchise values. We see that really is just driving so much of the increases in franchise values these days. You can only generate so much revenue through ticket sales and the rest of it is the broadcast rights.

MS: Would a la carte help anyone aside from possibly the consumers?

DE: For the real popular channels, the ESPNs, they may be able to raise their prices if they just need to sell their content and not be dragging everyone else with them I suppose. But along with that we also need to see how other distribution channels are created and what happens to distribution of content over the Internet, NetFlix and the other types of models that are distributing content here, and if that becomes popular then broadcast rights could fall because of that, too.

MS: We also complete a final project on a sports economics topic of our choice. What’s the purpose of that project?

DE: I just wanted to give people a chance to do something more in-depth. We talked about many of those topics in class, but we didn’t really have time to do much research or talk in detail about it. It was nice having the choices because people could pick and choose what they wanted to work on.

MS: The Oakland A’s took advantage of market inefficiencies to build a winner on a budget earlier this decade as detailed in Michael Lewis’ Moneyball. Economically speaking, do you think there will always be such inefficiencies to exploit or do you think teams are just getting smarter? I mean, here the A’s are in the playoffs again, but everybody knows about Moneyball and on-base percentage.

DE: I think it’s more difficult to exploit those now. You do have after that not only the clubs that are looking at this data and trying to find underpriced players but you have other analysts and academics and so forth doing it, too. I think finding those individuals is something that the teams are better at doing, but we have to understand, too, that that only takes us so far. It’s not like you can build a team of underpriced players, and everybody that tries to do that won’t necessarily be successful.

MS: Because then they’re not underpriced.

DE: That’s right. If everyone identifies the same underpriced players that forces up the prices. There’s a lot that goes into determining who makes playoffs and who has a better record. It might be interesting to look at what the Pirates have done differently and why they are successful. I grew up in the Pittsburgh area, so I’m pretty happy to see where they are now. It would be pretty interesting to look at the prices in Pittsburgh now where you have the Pirates doing well but the Steelers are 0-4 now.

MS: So one final concept we talked about, should leagues aim to promote competitive balance?

DE: Oh yeah. I think all the evidences suggests here that competitive balance is a desirable property. There are of course degrees of competitive balance. If you’re the Yankees, you don’t want everybody to be equal. You like having some balance but you like being the team that has the best record, that makes the playoffs and so forth there, has the resources to construct the most competitive team. But all the evidence is very clear here that if it’s not much of a competition then the fans aren’t going to show up. In professional sports you see somewhat that balance, but in college sports and so forth when you see blowouts start to evolve at a game all the fans start to take off. There’s just no interest in the game once it’s clear it’s going to be a blowout.