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The global economy is a mess. Each day thousands of jobs are lost. Central banks are cutting interest rates to record lows. The housing market in the U.S. is crumbling. Retailers are prodding shoppers to open their wallets.

Experts warn we're in for a tough ride for a long time.

Did we mention that the New York Yankees signed pitcher CC Sabathia to a seven-year contract worth $161-million (U.S.), and former Blue Jay A.J. Burnett for five years at $82.5-million, and Mark Teixeira for eight years at $180-million?

Is the economic crisis hitting the arena of sports? Or are the Yankees an anomaly.

Brad R. Humphreys joined us for a discussion on Thursday. Professor Humphreys is an associate professor in the Department of Economics at the University of Alberta. His vast research on the economic impact of professional sports, including the financing of the Olympic Games, has been published in numerous journals, including Sports Illustrated, The Wall Street Journal and USA Today.

Prof. Humphreys believes we shouldn't expect sports to be unaffected. We're seeing the impact in several areas, such as new facility construction for the Vancouver Olympics.

There are other examples. Wayne Gretzky has confirmed that the NHL Phoenix Coyotes are in trouble. FedEx is sitting out the Super Bowl this year as an advertiser. General Motors has ended its marketing contract with Tiger Woods. The LPGA has cut three events from its 2009 schedule. Honda has pulled out of Formula I racing.

Thanks to all those who submitted questions.

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Jeff Labow, reportonbusiness.com: Thank you for joining us today Brad. We have a number of questions waiting so let's get right to them. Let me open by asking you this. Are you surprised at how quickly companies and associations have moved because of the economic climate?

Brad Humphreys: Not at all. Sports organizations are service industries. Their "output" is perishable, unlike some other businesses. Also, we tend to overlook that professional sports teams are profit-oriented businesses just like any other firm. They face the same pressures to turn a profit as the local doughnut shop. Sports organizations also have a lot of variable costs, mostly in their front office and scouting operations.

Jeff Labow, reportonbusiness.com: Most agree that if a recession takes deep root, the sports landscape will look different in five years. What are your thoughts?

Brad Humphreys: First, I am not sure that the recession will take "deep root." The average post-Second World War recession has been less than two years in duration peak to trough. We'll have to see how long this one lasts. Sports were not particularly harmed by the business cycle turmoil of the 1970's and early 1980's. The advent of free agency had a much bigger impact on sports than any of those recessions, some of which were quite deep. The big difference between now and then is the importance of television revenues to sports. In the 1970s and early 1980s, pro sports revenues were largely based on gate revenue. Now, pro sports revenues are much more dependent on media revenue.

Jeff Labow, reportonbusiness.com: You have done quite a bit of research on the Olympic Games. Vancouver is already encountering significant problems with funding the event's facilities. What are your thoughts about what the Vancouver Olympic Committee has already had to deal with? How do you see the situation developing?

Brad Humphreys: The economic impact of hosting the Olympic Games is always overstated by the organizers. There is little evidence that hosting the games has any positive tangible economic impact, except to the extent that new infrastructure (roads and transport, not venues) is put in place. On the cost side, venue construction is always the biggest cost of hosting the games, and the International Olympic Committee does nothing to defray the costs. Also, there are always significant cost overruns in Olympic venue construction. Since venue construction is a big-ticket item that has to be financed through borrowing, the credit market crisis has had a big impact on Vancouver. Fortunately for the games, and unfortunately for the taxpayers, Olympic venue construction can always be government financed.

Geordie Lad writes: On the Olympics/World Cup, etc., is it not time for permanent sites somewhere where transportation links are excellent?

Brad Humphreys: It's clearly time for significant reform of the system of allocating host sites for the Olympic Games. The "bidding" process designed by the IOC is simply a mechanism for extracting economic rents from host cities and regions. The competitors "bid" by promising more and more subsidies to the IOC. This rent extraction has allowed the IOC bureaucracy to grow from a four-person operation in 1960 to a massive, bloated bureaucracy with thousands of permanent employees, lavish headquarters in Switzerland, and million-dollar perks. There is absolutely no reason to have a 'bidding" process to award the games, except as a rent extraction mechanism. Given the expanding security costs of hosting the games, as well as the facility problem (most Olympic venues are too big for everyday use - the Birds Nest Stadium in Beijing is barely used now, less then six months after the Games.), a permanent Olympic site would be a very good idea.

Jeff Labow, reportonbusiness.com: Does hockey seem to be the most vulnerable of the team sports in this climate (with the dependence on gate receipts)? What do you see as the worst-case scenario?

Brad Humphreys: Hockey relies more on gate revenues, including luxury boxes and premium seating, than other pro sports. In addition, salaries are payable in U.S. dollars and the loonie has dropped. Canadian NHL teams earn revenues in Canadian dollars and have to pay salaries in U.S. dollars, which makes them sensitive to exchange rate movements. Some U.S.-based franchises are reporting financial problems. However, it is important to recognize that reports of financial difficulties may not reflect actual financial difficulties. Pro sports teams are privately held corporations and do not have to report audited financial information. Industry standard accounting practices make it quite easy to show accounting losses and still make economic profits. After all, Paul Beeston once said "I can take a $4-million profit and turn it into a $2-million loss and get every accountant in the country to agree with me." My worst-case scenario does not include the failure of franchises. No sports team has gone bankrupt in the "Big 4" leagues (NHL, NBA, NFL, MLB) in living memory.

Kevin Cochrane from Virden, Man. writes: With the economic crisis being especially harsh in the U.S. and a number of NHL teams in southern locales that were already in a precarious state before the downturn now facing an even worse predicament, is contraction in the league possible, or would relocation of some teams to more favourable markets such as Hamilton, Portland or even Winnipeg be more realistic?

Brad Humphreys: I would be shocked to see contraction take place. Since contraction entails the loss of jobs, the NHLPA would have something to say about that. I'm not certain what the 2005 Collective Bargaining Agreement has to say about contraction, but I could look it up - there is probably something in there. I know Bud Selig threatened contraction a few years ago in MLB, but no economist took that seriously. Relocation is a different matter. The great move south (and expansion south) in the NHL was in part driven by the weakness of the Loonie, which is still stronger now than in the 1990s. Relocation is probably a more likely scenario than contraction. It's not clear if that would mean moves back to Canada. There are a lot of viable open markets in the northern part of the US now. Seattle, for example.

Jeff Labow, reportonbusiness.com: Pro sports have a variety of revenue streams, of course, including ticket sales, concessions, licensing, and ad revenue both from the broadcasting of games and via corporate sponsorship. Given the current economic hard times, how much pullback will there be in advertising and sponsorship as well as other revenues, and how broadly (and how long) will that affect sports teams?

Brad Humphreys: It's unclear. Sponsorship will decline, but ad revenue based on broadcasting may not. After all, broadcasting revenue is based on TV viewership and radio listening. It is not clear to me that TV viewership will decline during a recession. It may go up, in which case media revenues could rise. There is actually not a lot of evidence on the effects of recessions on sports gate revenue. Concessions and licensed merchandise sales will decline, but they make up a small fraction of total revenues. The big unknown is what will happen to the sales of premium seats and luxury boxes. These are major revenue sources in all pro sports these days, and they are quite similar to high-end luxury goods like yachts and sports cars. We know that spending on these things are highly pro-cyclical. So gate revenue could go down a lot even though total attendance only drops a little.

Ian Moffatt of Moncton, N.B., asks: What really has to happen for the NHL to add more Canadian clubs? Doesn't it have to be more than having rabid hockey fans in cities like Winnipeg, Hamilton and Quebec City?

Brad Humphreys: League expansion is a very complicated economic issue. Each new franchise that gets added to a league means that all the existing teams get a smaller portion of the shared league revenues (national TV money, licensed merchandise sales, revenue from new media like webcasting) forever. Depending where they are added, more franchises can increase travel costs. Then there is the potential for short-run declines in attendance because expansion teams tend to be bad, and someone has to play them for a full league schedule. In addition, expansion increases demand for players and can drive up salaries for super stars. Balanced against these costs are expected increases in revenues due to a larger fan base. This possibly includes larger future TV rights contracts and more merchandise sales. Rabid fans in Winnipeg, Hamilton, and Quebec City are already watching NHL on TV and buying licensed merchandise. They are already contributing to the NHL revenue pool in important ways. So there will have to be something else. Maybe the NHL could institute a promotion and relegation system like they use in the European professional football leagues.

Martin Grimm from Charleston, S.C., writes: A two-parter if you don't mind: Do you think the economy is already affecting off-season player movement in MLB? As a broad guess, will the economic downturn influence small revenue teams significantly enough that on field performance will be noticeably affected? If so, will small revenue teams in salary cap sports be less affected than, say, MLB small revenue teams (luxury tax notwithstanding)?

Brad Humphreys: Interesting question. Economic theory clearly predicts that the downturn will affect free agents. Profit maximizing teams set salaries equal to the expected (marginal) revenues that the player will generate. If the downturn reduces team's expected future revenues, they will offer free agents lower salaries, or use cheaper players from their farm system instead. It will probably have a bigger impact on players in the upper end of the salary distribution, and a lesser impact on guys near the league minimum. The salary cap question is a difficult one. Salary caps are tied to league revenues. If total league revenues go down, the cap number goes down by the same amount for each team. In addition, baseball has guaranteed long-term contracts, while most other leagues don't. This gives baseball less flexibility in reducing payroll costs in the short run. The overall effect of the downturn on on-field success is complicated by the revenue-salary cap relationship. Not sure how that one will work out. But my instincts are that the effect of the downturn on team performance will be much less than the usual season-to-season variation in performance due to injuries, breakthrough years by young players, and other non-economic factors.

Jeff Labow, reportonbusiness.com: I'm going wrap things up now, Brad. One final question. What do you make of the Yankees committing so much money to free-agent contracts this off-season? I know it's New York, but do see any backlash? Is parity good for a pro sports league's finances or is it better to have the big, bad villain like the Yankees?

Brad Humphreys: The Yankees make huge revenues, and will make even more in their new stadium. Also, I would point out that big spending on free agents does not always mean on-field success. Still economic models of sports leagues predict that as long as there are disparities in revenues, there will be disparities in on-field outcomes. Sports needs a villain.

Jeff Labow, reportonbusiness.com: Thank you Brad for taking the time to be with us today.