Budget and Finance Final Exam Diemer

What are some of the definitions of "Sport" people have used in the past? (ESSAY)

Coakley (2003) characterized sports as activities involving gross motor skills, competition, and an organized set of rules. Fort (2006) qualified Coakley's (2003) competition criteria to include only competition based on objective scoring and further restricted sport to activities using only simple devices, such as bats and balls, or no devices at all, in the case of sports such as running and swimming.

c. Is NASCAR included in Fort's definition? Why or why not? Should it be in your opinion?

No! NASCAR is excluded from Fort's definition under the ''simple devices criterion." Being as though the car is the main performer and not actual physical abilities by the human driving the car

What was the total sales in the accommodations industry in 2007 according to the NAICS?

$180,044,424

Briefly explain Gratton's "pyramid"

Even though most of the sports that majority of people may watch, pay for are largely important, there are a large number of sports that people don't watch or just do freely that have more active participants. Popularity in viewing doesn't always match participation numbers.

How many people watched the NFL in 2005? What percentage of the US population was this?

105,874,000

Which league has the highest mean salary? Which has the lowest mean salary? Why do you think this is the case?

H: NBA - $4.9 million L: NFL - $2.11 million NBA players earn the most money because there are fewer players on each team and the star players make a big difference, while NFL players earn the least because there are lots of players, the players' group has less power, and careers are shorter.

2. Briefly describe the recent wave of changes to the rules in the NCAA that govern compensation to players. Why is the "Name, Image and Likeness" so important?

The NCAA recently changed its rules to let college athletes earn money from their Name, Image, and Likeness (NIL), allowing them to make deals for endorsements, social media posts, or appearances, which is important because it gives athletes a chance to profit from their personal brand while still playing in college. (Coello, 2025)

Explain the financial crisis the US went through that began in 2007-2008. How did the government attempt to resolve the crisis (in your answer please include TARP)?

Banks gave loans to people who might not pay them back. When lots of loans went bad, banks got into big trouble. Some banks even failed. On October 3rd 2008, The US Congress approves a $700 billion bailout package for US banks, the Troubled Asset Relief Program (TARP). (Turner, 2023)

Explain the concept of the Time Value of Money

The time value of money (TVM) is a core financial principle also known as the present discounted value (PDV). It states that money today is worth more than the same amount in the future. (FERNANDO, 2025) Time value of money is the concept that money now is worth more than what it would be in the future due to inflation and you could also invest it

What are the five forms of financing, and how is each used in sport?

1. Debt Financing- Construction of a stadium 2. Equity- Investors buying stakes in a new WNBA team 3. Retained Earnings- Renovation of a stadium from ticket revenue 4. Government Funding- Building a multi-sport complex for the community 5. Gift/donations- Alum donations to renovate facilities

Of the MLB, the NBA, or the NHL, which league has the most risk and which has the least? Why?

MLB has the most risk because it needs local revenue streams such as ticket sales, streaming networks, and sponsorships. Since baseball is a long season with many games, it needs more revenue to be generated. The NBA is the least at risk due to its global status and the international revenue it can bring in, along with American revenue.

: How accurately did the credit agencies predict the default risk of the Collateralized Debt Obligations (CDO's) during the financial crisis of 08? "I Don't Think They Wanted the Music to Stop":

Credit Agencies were not accurate when predicting the risk of the CDO's during the financial crisis of 08 as they had predicted around 12% when it ended up being 28%

How many companies are licensed by the National Recognized Statistical Rating Organizations (NRSRO)?

There are 10 companies that are licensed by the NRSRO

Which are the three top companies and what percentage of CDOs did they rate? How the Rating Agencies Got It Wrong:

The three top companies are Moody's, S&P, and Fitch and the percentage of CDOs that they rated was around 97%.

Explain the difference between "Risk" and "Uncertainty" Act II: Leverage, Leverage, Leverage:

The difference between "Risk" and "Uncertainty" is that risk is something that you can put a price on and you at least understand the odds of taking the risk meanwhile uncertainty is a type of risk that is difficult to measure.

What was Lehman Brothers leverage ratio in 2007 and explain what that means. Act III: This Time Wasn't Different:

According to S&N Chapter 1, The Lehman Brothers leverage ratio in 2007 was 33 to 1,^73 and this means that there has to be $1 in capital for every $33 in financial positions that were held. This also means that Lehman Brothers could have negative equity if there is a small decrease in value of their portfolios.

How well did the White House's economic team forecast the unemployment rate with and without the stimulus? Out of Sample, Out of Mind: A Formula for a Failed Prediction:

The White House's economic team was not able to forecast the unemployment rate with and without the stimulus as well as the unemployment rate rose to a higher percentage than they thought it would under both scenarios. The unemployment rate rose to 10.1% at one point as the White House underestimated the decrease in demand for jobs.

Explain the example Silver makes to explain the forecasting problem called "out of sample". How does this tie into the financial crisis?

In the example that Silver makes to explain the forecasting problem called "out of sample", Silver brings up an example of someone who is a good driver and has only had 2 minor accidents out of 20,000 car trips. This person gets drunk and thinks to themselves that since they have only had 2 minor accidents then they should be fine for driving while drunk. However Silver explains that in those 20,000 car trips the driver was nowhere near drunk so they have no sample space of driving under the influence and shouldn't base their decision off of their previous 20,000 trips. This ties into the financial crisis as Silver explains that Moody estimating mortgage defaults based on former data was the wrong move as the mortgages in that former data do not relate to what was going on with the financial crisis.

Gold Standard (ESSAY)

Money Started as a barter system. It made sense to have a medium of exchange so they started with gold and silver as a commodity. They had to change this system because it was not good to just have gold laying around: if someone just had a bunch of gold laying in their house, it could easily get stolen. Institutions began popping up with paper money as a medium of exchange, but currency was still backed by gold. They found more gold out west, which started the gold rush, so more currency was found. Eventually, they got off the gold standard as you could not conduct monetary policy and the advantage was monetary policy. They wanted to untie the hands of the fed, so they moved to fiat money system.

How and why does the Government conduct the following?Expansionary Monetary Policy

How: The Fed buys government bonds, increasing the money supply and decreasing interEstrates.

Why: The goal is to encourage people and businesses to borrow/spend more, helping the economy grow when it isn't doing as well

How and why does the Government conduct the following?Contractionary Monetary Policy

How: The Fed sells government bonds, which removes money from circulation and raises interest rates, making borrowing more expensive.

Why: This process slows down spending and borrowing so inflation does not get out of hand.

How and why does the Government conduct the following?Expansionary Fiscal Policy

How: The federal government either increases government spending or decreases taxes.

Why: To create jobs and speed up the economy when it's slower

How and why does the Government conduct the following? Contractionary Fiscal Policy

How: The federal government either decreases government spending or increases taxes.

Why: To prevent the economy from overheating and to keep inflation low

Explain how the Federal Reserve conducts open market operations.

The Federal Reserve opens market options by buying or selling government bonds. When theybuy bonds, they give money to banks, and interest rates go down. When they sell bonds, theytake money out, and interest rates go up. Both ways are used to alter the market to make anynecessary changes need to the economy

What is the difference between general partners and LLPs?

General partnerships mean everyone is responsible for any debts or legal issues, whereas LLP protects each partner.

What is the difference between a C corp and an S corp?

C corps are taxed separately from their owners, whereas S corps are taxed through their owners 'personal taxes. S corporations avoid double taxation but have more restrictions on ownership

What is asymmetric information and why is it important in Finance?

Asymmetric information occurs when one party knows more than the other. Many problems canoccur during this situation since it could be unfair that one party knows more, which can causeadverse selection or moral hazard.

Describe the difference between the pre-2004 "50/5 rule" and the post-2004 "100/15 rule."How did this change affect the total value and timing of tax deductions for owners?

The 50/5 rule lets owners write off 50% of team purchases over 5 years, and 100/15 lets 100% bewritten off over 15 years. The new change increases deductions but spreads them out over alonger period

Using the Houston Astros example, illustrate how a team can appear to lose money on paperwhile remaining highly profitable in reality.

The Houston Astros depreciate and amortize to make it seem like they are earning less money when they are actually doing better. This allows them to spread out the cost of larger expenses, resulting in lower reported profit. Franchises can bring in other sorts of revenue that they profit from that isn't reported, like broadcasting and sponsorships.I

What did the traditional scouts see in Dustin Pedrioa and why?

Traditional scouts said Pedroia as "not physically gifted", short stature and a loop swing,speculating he would be a marginal player

Building a Baseball Forecast System:What are the three basic tasks a good baseball projection system must accomplish and why is thefirst of these tasks easy?

1. Account for the context of a players statistics2. Seperate out skill from luck3. Understand how a players performance evolves as he ages- what is know as the agingcurve

Why is baseball a good laboratory for forecasting

A hypothesis can usually be tested empirically, and proven or disproven to a high degree ofstatistical satisfaction.

Behold: The Aging Curve:Explain what James found about the aging curve

Bill James found that most baseball players improve until their late 20s and peak around age 27 before their skills start to decline

Explain what Silver means when he says "Real aging curves are noisy—very noisy..."

He means that players' careers don't follow a smooth path. In reality, performance goes up anddown due to injuries, luck, and other unpredictable factors.

How was PECOTA in terms of its prediction powers initially for MLB players?

At first, PECOTA was really good at making predictions about major league players. It did alittle better than other systems and even beat betting odds from places like Vegas."Indeed, each year from 2003 through 2008, the system matched or bettered the competitionevery time that we or others tested it, while also beating the Vegas over-under lines."

How did PECOTA do compared to prospects?

PECOTA did pretty well but not as well as the scouts when it came to predicting minor-leagueprospects. Players ranked highly by PECOTA went on to generate 546 major-league wins, whileplayers ranked by scouts produced 630 wins. In other words, scouts' predictions were about 15%better than PECOTA's for prospects.

ow much does an MLB team pay for one extra win?

4 million

Beyond the Five Tools:Explain what happens to statistics the further you get away from the majors (and why).

"The further you get away from the majors, the more you are trying to predict a player'sperformance instead of measure it, the less useful statistics are. Statistics at the more advancedminor-league levels, like Double-A and Triple-A, have been shown to be almost as predictive asmajor-league numbers. But statistics at the lower minor-league levels are less reliable, and thenumbers for college or high school players have very little predictive power."

List and briefly explain the intellectual and psychological abilities that help predict success in the majors.

Preparedness and Work Ethic ,Concentration and Focus,

Competitiveness and Self-Confidence ,Stress Management and Humility, Adaptiveness and Learning Ability

Information is the Name of the Game:Explain what Pitch f/x is and how may it change scouting?

A system of three-dimensional cameras thai have now been installed at every major-leaguestadium. It may change its emphasis toward the things that are even harder to quantify and wherethe information is more exclusive, like a player's mental tools.

Explain how Pedroia beat out the predictions

Pedroia made strengths out of things that would be weaknesses for other players

Which sport does the paper focus on and why? (Baade & Matheson, 2006):

The sport that this paper focuses on is American Football because it is the most popular sport in the US and it has the most comprehensive revenue sharing arrangement

When is government intervention justified? (Baade & Matheson, 2006):

Government intervention is justified when benefits are internalized as the government can actlike a private firm

Who has the most generous revenue sharing system?

NFL, but they do not have to share many of the revenue systems

What are the main tools of the Fed?

Reserve ratio, discount rate, open market operations.

Why do owners push for new stadiums?

To increase revenue and franchise value.

What is contractionary monetary policy?

The Fed sells bonds to raise rates and reduce inflation.

What is expansionary monetary policy?

The Fed buys bonds to lower interest rates and boost spending.

What is the Maturity Risk Premium

Extra return for holding a long-term bond due to uncertainty about future interest rates.

What is the Liquidity Premium (LP)?

Extra return required for assets that are difficult to sell or convert to cash quickly without losing value.

What is the Default Risk Premium (DRP)?

Compensation to investors for the possibility that the borrower may fail to make payments (default).

What is the Inflation Premium (IP)?

The portion of the nominal interest rate that compensates investors for expected inflation — since inflation erodes purchasing power, lenders demand higher returns when inflation is high.

What does Silver call "... one of the greatest mysteries in finance"

One of the greatest mysteries in finance is why so much trading occurs.

How are Bayes' theory similar to Adam Smith's Invisible Hand?

Both processes are consensus seeking that take advantage of the wisdom of crowds.

How do group forecasts perform compared to individual ones and by how much? (The Benefits

and Limitations of Group Forecasts)

Group forecasts, conducted by taking an average of everyone's forecast rather than relying on one Individual forecast, has been found to reduce forecast error by around 15-20 percent.

How do members of Congress perform in the financial market and why? (Three Forms of Efficient-Market Hypothesis)

Members of Congress often gain access to inside information about company while they are lobbied, and also have some ability to influence these companies through legislation. Therefore, members of Congress often see a return on their investments that beats market average on a rate of 5-10% per year.

Explain what a P/E ratio is and historically what is a healthy level?(Efficient Markets Meet Irrational Exuberance)

The price to earnings ratio is a formula used to measure a company's performance in the past (Shiller's is usually 10 years) and compare it with the value of the stock. A healthy level is 15, meaning the price per market share is generally 15 times larger than a company's annual profits.

How did Shiller use the P/E ratio to find a bubble in the financial market?

Shiller looked at the P/E ratio average across all companies In the S&P 500. In theory, high P/E ratios should be balanced out by those in decline, creating a consistent market P/E ratio. Shiller found that this has not been the case, and P/E ratio for all companies has ranged from about 5 to 44 between 1921 to 2000.

Explain Silver's example of how the Efficient Markets Hypothesis self corrects the stock market.

The Efficient Markets Hypothesis explains that errors in stock prices should correct themselves. He used the example of MGM resorts (a casino) stock price increasing by 10% every Friday, causing a short-term increase. Stock price goes up, but in the act of detecting this shift, you have managed to eliminate the pricing anomaly.

What is the "Winner's Curse" and describe how this impacts the market

The Winner's Curse occurs when the winning bidder overestimates the value of something, such a free agent in baseball, and thus overpays for it. They have essentially won the prize, but they have paid a price higher than its value. In the stock market, sometimes traders place too much confidence in their forecasting abilities and overestimate their ability to accurately predict prices. They end up surprised by large movements in stock prices.

Explain the John Maynard Keynes quote that "The Market can stay irrational longer than you can stay

solvent."

Buyers are more urgent to purchase stock quicker than the market moves.