Good point. Not sure I was trying to make a sweeping statement that state involvement leads to gold medals and thus there is market failure. I think it is far more complex than that. More importantly, it is an empirical question without decent data (what makes a state sport system seems pretty difficult to resolve for starters. A guy at UniSA in Exercise Science has a pretty good paper on this).

But as you rightly note, one needs to back up the argument of market failure over state failure by firstly laying out the assumptions of pricing. In regards to your first point, if we, as Australians, don’t see medals as having an intrinsic worth, why are the AOC arguing for more state spending? Clearly the underlying rationale is that there is a value to an Olympic medal- otherwise why would we ask for more funding based on the Olympics rather than based on some form of grassroots participation metric?

So how do we calculate this funding?

Accepting the AOC’s argument that there is a “price” for a medal, then we can assume that there should be some form of public contribution for a medal. This is, as you note, independent of the effectiveness of state spending arguments.

But, obviously, a medal has significant private value. This is where the argument regarding switching costs comes in. If you accept that a medal has significant value to commercial sponsors, there will clearly be a private contribution.

Thus, value (how much, approximately, the medal is worth) is equal to the public value plus the private value plus some kind of personal value. I don’t really see, by the way, that the personal value would change THAT much. Everyone wants a medal. There will be, however, an ability to make a personal contribution.

Given that, going back to the initial supposition, total funding equals whatever the private contribution is plus whatever the public contribution is plus whatever the personal contribution.

Obviously, in systems where the private contribution by commercial sponsors are low, then the public and personal contributions will have to be higher and so on in order to keep the funding level the same.

Thus, if every medal has the same “value” (which, on the medal tally it does), and should thereby, in a perfect world, attract the same level of funding then countries with generous state funding will do well in sports where they are low amounts of private or personal contributions. Alternatively, if the private and personal contributions are held constant and one country invests much more than others, then you would expect their results to be better (although there are a bucket of other variables that need also be considered, as the start of the article says).

Finally, the total funding, or “value” will need to be higher in countries where there are other, non-Olympic sports which attract a large amount of private (or personal) investment, otherwise high-quality physiological talent will switch sports (eg basketballers and rowers going to the AFL).

I think your article confuses two separate questions in an attempt to appear ‘economic’.

There is no doubt that certain types of state involvement in sport leads to more gold medals. That is an empiricial question.

However, you attempt to make a wider point – that this indicates a “‘failure’ of markets to price sport at the Olympic level.” Here you are on shaky territory. Clearly state involvement implicitly prices medals more highly, but why assume this price is a reflection of some intrinsic worth of medals? Or even that the state price is efficient? It may be that the market correctly prices the puublic value of a medal at 0 and the private value of a medal at capturable endorsements value plus the personal value to the person who has won it. If this were the case using state spending to buy more medals is inefficient and demonstrates “state failure”. All this is independent of the question of whether additional government spending increases the medal haul.

I am not arguing that the market does price medals correctly. I’m arguing that your article provides no basis for prefering a conclusion of “market failure” ove one of “state failure.” Either requires some external account of how medals ought to be priced.

With respct.

I have a few thoughts about market failure in sports.

First: returns on investment take a long time to eventuate and are difficult to capture.
Most of the investment takes place over a 15-20 year period during a person’s youth. Capitalising that investment happens over 1-5 years at the peak of the person’s career. In the private sector, it would be very difficult to prevent the investment moving to a competitor since its largely embodied in a person. At the government level, people don’t often change their home country, so the investment is more easily captured.

The alternative model would be a “World Firm’s Games” where sprinters for Nike competed against Adidas and Nintendo. But ensuring the sprinter didn’t defect would be difficult.

Secondly, there’s a large natural monopoly effect.
The capital investments (sports centers, high-performance training equipment etc) are subject to increasing returns to scale.

Third, sports is a “hit” industry. Most of the investment goes to people who never make any return at all, similar to the music and movie industries. Some of the investment goes to someone who delivers massive returns. For these industries to work in the private sector, you need contract arrangements where profits on the “hits” are used to fund investment in the “misses”. This is possible (or we wouldn’t have private music or film industries) but not automatic.

Finally, consumers may be less willing to support an athlete who represents a firm that doesn’t represent that consumer. People pay for sports because they feel they’re part of the team they support. Most people wouldn’t get too excited about the Woolworths Hockey Team.

My 2c.