This year, all four major college football bowl games were decided way before halftime. Presumably this had a significant negative influence on t.v. ratings, and therefore made the advertising less valuable to advertisers than in a close contest. Were I an advertiser in the second half of these games, I'd be rather disappointed.
Take last night's national championship game between Miami and Nebraska. Advertisers and networks seem to face some structural uncertainty (in a fairly typical Austrian sense) regarding the expected value of their contract. You can't tell how mentally prepared a player/team will be. Based on the probablities (i.e., parametric uncertainty), Las Vegas said that Miami should have beaten Nebraska by 8 points. If so, the ratings would have been right where advertisers expected them to be, they would have paid the expected value (contract price) of the advertising, and no contingency would bind. But the margin of victory was 23 points, after Miami jumped to a 28-0 second quarter lead. This had to devastate the ratings (I even tuned out and I'm a huge fan of CFB and fan of Nebraska). QUESTIONS: 1. Does anyone know the contracting mechanism by which advertisers and networks deal with potential blowout games? I.e., is the network's fee a function of the ratings that a game gets? Since the teams receive a fixed payout, my guess is no. But why not? Is the potential lottery prize of a great game and higher than expected ratings worth it? 2. Is this a case of structural uncertainty, and so what? 3. For professional football, I believe networks use a flat advertising fee. Vegas is much more comfortable with pro ball. There are fewer upsets, fewer blowouts, and fewer games. I.e., there's less structural uncertainty. What are some testable implications here? Ed. Edward J. López Assistant Professor Department of Economics University of North Texas P.O. Box 311457 Denton, TX 76203-1457 Tel: 940.369.7005 Fax: 940.565.4426 NEW EMAIL: [EMAIL PROTECTED] Web: www.econ.unt.edu/elopez
