What’s the economic impact of doping in sport?

“The steroid era was a black eye for [Major League Baseball] on one hand, a saviour on the other […] From 1995 to 2001, the year Bonds eclipsed McGwire’s home-run mark, attendance at games was up 44% […] Major League Baseball revenue increased by some 115%”, John-Erik Koslosky (2014)

Why should doping be regulated?

Doping has been a controversial issue since competitive sports first began. There is even evidence of drug use by ancient Greek and Roman athletes. The first modern regulation of doping was instated in 1928. Since then, bans on performance-enhancing drug have received constant attention in the media. While most people believe doping should be regulated, few agree on why, where to draw the line, and how to manage enforcement.

• The main rationale offered by the medical community and some sports experts and ethics scholars is that constraining doping is necessary to protect the health of athletes.

However, many sports themselves are inherently dangerous. Taken literally, the protection argument would call for pro-safety interventions that go beyond regulating such drugs. This would not be supported by most people.

• Others argue that sports competition requires a level playing field.

However, doping is just another technology to improve performance and there are rules to deal with what contestants can and cannot do to win.

• A final rationale is that doping harms the public.

Broadly interpreted, this means that doping imposes a negative externality. A sport generally involves many stakeholders (athletes, teams, league, broader sports organisations, sponsors, and the public) who have vested interests in organised competitions. Fans commit to a sport and make specific investments to support a team. When doing so, they care about the quality of future events and may suffer a negative externality if they value the sport less when athletes do not comply with doping rules.

With prevailing large stakes, athletes and teams benefit from doping if it increases the chance of winning. A league may also benefit if doping increases the entertainment value; that is, as long as the public does not find out. The economic rationale for regulating drug-use rests on the assumption that fans value a sport less when athletes use them.

Evidence of how doping harms a sport

There is much survey evidence that the public feels drug use is a threat to sports and that it damages a sport’s reputation (Solberg et al. 2010, Engelberg et al. 2012) and some evidence on TV audience responses (Van Reeth 2013). The view that doping harms a sport is also shared by many sports professionals, lawmakers, and the media. Finally, there is circumstantial evidence from the Tour de France that live broadcasters are less willing to cover an event, and sponsors less likely to endorse it, after doping has been revealed (Buechel et al. 2014).

Our recent work offers the first definitive evidence that the demand for a sports event is negatively affected by news about drug use (Cisyk and Courty 2015). The evidence is based on ticket sales (rather than random respondents interviewed in surveys) and measures actual demand responses instead of consumer opinions. We leverage the 2005 introduction by Major League baseball of a new set of random tests for drug use. Under this new policy, a positive test is immediately announced publicly and the player is removed from the team. This policy yields unique data for investigating the impact of drugs violations on attendance.

Using these data, we identify 29 drug suspensions given to 27 different players. For the same set of players, we look at injury events that were also publicly announced. Figure 1a compares game attendance before and after a home-team player is suspended because he fails a test. The right panel (Figure 1b) uses injury events to control for the possible change in the quality of the gameplay when a player is removed from the team. If the public cares about drug use, we would expect a decrease in attendance following a suspension, which is, in fact, clearly illustrated. Interestingly, there is no decline in attendance for injury announcements.

Figure 1. Event impacts on attendance

As foreshadowed by the figure, we find that suspensions decrease attendance at baseball games by as much as 8% after controlling for the gameplay effect associated with the loss of the player.

The loss of attendance associated with a suspension wanes within the next 12 days. The 8% figure is likely to be a lower bound for the true effect, since season ticket holders and fans who purchased tickets in advance of any drugs suspension announcement are simply unable to illicit any response using paid attendance.

Rough economic estimates suggest that a performance-enhancing drug violation costs the violating team 1.1% of annual revenue, or $451,000, after accounting for the savings from not having to pay the suspended player. We also show that violations by any player in the league have an impact on the league’s demand. While this additional effect is small, it is economically important because the league includes 30 teams. This demonstrates that violations impose negative externalities across teams in a league.

Although drug use may lead to alleged exceptional gameplay, the potential for consumer backlash is a cause for concern. The lack of enforcement of performance-enhancing drug use regulations could be a source of market failure.

Concluding remarks

A reason to enforce doping regulation is to protect consumer interest. Yet, who should regulate doping? Teams lack motivation to align with the public interest. The same holds for leagues. The incentives to self-regulate and honour the interests of fans are limited. Again, this is because leagues compete for audience attention and they may not internalise all externalities associated with doping. Leagues also face a time-inconsistency problem when they discover that doping takes place. Our work demonstrates that doping reduces fan interest, and players, teams, and leagues may not fully internalise these losses.

References

Buechel, B,  E Emrich, and S Pohlkamp (forthcoming), “Nobody’s innocent: The role of customers in the doping dilemma”, Journal of Sports Economics.

Cisyk, J and P Courty (forthcoming), “Do Fans Care about Compliance to Doping Regulations in Sports? The Impact of PED Suspension in Baseball”, Journal of Sports Economics.

Engelberg, T, S Moston, and J Skinner (2012), “Public perception of sport anti-doping policy in Australia.” Drugs: education, prevention, and policy 19(1), pp. 84–87.

Koslosky, J-E (2014), “How the Steroid Era Saved Baseball”, The Motley Fool, 14 January.

Solberg, H A, D V Hanstad, and T A Thøring (2010), “Doping in elite sport–do the fans care?: public opinion on the consequences of doping scandals”, International Journal of Sports Marketing & Sponsorship 11(3).

Van Reeth, D (2013), “TV demand for the Tour de France: The importance of stage characteristics versus outcome uncertainty, patriotism, and doping”, International Journal of Sport Finance 8(1), pp. 39–60.

This article is published in collaboration with VoxEU. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Jeff Cisyk Associate in the Competition and Antitrust Practice, Charles River Associates. Pascal Courty is Professor of Economics at the European University Institute and CEPR Research Fellow.

 Image: Match referee Jon Moss uses vanishing spray to mark the boundary of the ball during a free kick in the English Premier League soccer match between Arsenal and Crystal Palace at the Emirates stadium in London August 16, 2014. REUTERS/Stefan Wermuth.