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Economists as Well as Boxing Fans Should Watch Mayweather vs. Pacquiao

TAGs: Editorial, Floyd Mayweather, Manny Pacquiao, MGM Resorts, Rafi Farber

Economists as Well as Boxing Fans Should Watch Mayweather vs. PacquaioWant a useful economic indicator more valuable than any of the jargon-filled nonsense that comes out of mainstream financial news? Keep a close eye on how much money will flow through the boxing ring, how much people will pay to see two people beat the crap out of each other.

For the third time, Floyd Mayweather will be involved in the highest grossing boxing fight in world history. In May 2007 it was Mayweather vs. De La Hoya, which raked in $136M. Then it was Mayweather vs. Alvarez in September 2013 at $150M, considered the most profitable single sporting event ever. Now it will be Mayweather vs. Pacquiao in May 2015. Forbes has a piece out detailing the mindblowing insanity surrounding the pricing of this event.

Here are a few snippets, the first a quote from Bob Arum, the fight’s promoter:

“Because of the price of the tickets, MGM, for example, will only give ringside tickets to its customers who have a $250,000 line of credit.”The cheapest seat listed for the fight is $4,116 with a median price of $9,218. Floor seats start at $22,441. This compares to an average secondary price of $2,168 for Mayweather-Alvarez. Gregoire expects tickets for Mayweather-Pacquiao to eventual settle in at least twice as high The One.

This will result in a total gate of around $40 million for the 16,800-seat MGM Grand Garden Arena. It would double the previous biggest gate in boxing history, which was $20 million for the Mayweather vs. Canelo Alvarez fight billed as “The One” in September 2013.

Luckily for MGM, all three of these fights have taken place at its Grand Garden Arena in Las Vegas. Now, if you’re looking for some kind of correlation between big boxing fights and stock prices surrounding them to try to make a trade on MGM here, you won’t find one. At least I didn’t, not anything obvious or convincing to put money on. However, the ever increasing horde of cash that flows through these mega events does indicate something very important: There is a gargantuan pile of loose money flying around that is itching for a place to land.

Coincidentally, back in July I wrote about how to use MGM as an economic indicator. The idea is based on the Skyscraper Index, or the Skyscraper Curse, which correlates the completion of record-breaking skyscrapers with economic depressions. In order to build really expensive, really drawn out projects like record-breaking skyscrapers, there needs to be a lot of loose money flying around the system and very low interest rates. In other words, money supply growth must be at or close to a peak. Translating that to MGM, the largest employer in Las Vegas can be used as an economic indicator by tracking visitor volume at its casinos, which is a good indicator both of sentiment as well as how much loose money is floating around. Match up MGM volumes with money supply growth numbers and it can serve as a pretty good indication of where we are in the boom-bust cycle.

The same can be done with record-breaking sporting events. While you could say that boxing match records are being set because of “human nature” and the growing American “lust for blood” or something along those lines, human nature never really changes – certainly not over a few measly decades in the course of human evolution – and though violence is definitely part of the equation, the excitement is only the catalyst for cash that is already there to be unlocked and spent. If money supply growth were on a downtrend, no amount of American bloodlust or “change in human nature” could induce this kind of spending.

The numbers show it, too. On May 5, 2007 when De La Hoya and Mayweather fought at MGM and grossed a then-record $136M, annual money growth using the one-week average was at 9%. Anything above 5% is generally considered high. By September 14, 2013 for Mayweather vs. Alvarez, which took in $150M, money growth was above 10% by the same rubric. Annual money growth rate now is just above 7%, still very high, but we still have 5 weeks to go before the fight, and the numbers can easily climb up to 9-10% in the coming weeks.

In a way the boxing indicator is similar to the larger MGM indicator because it is a confirmatory sign of high money growth while also being a good gauge of consumer sentiment. In order to have high price inflation you need both money growth and a high willingness to spend the money rather than save it in cash balances. Speaking of that, the State Street PriceStats tracker, which catalogues billions of consumer prices from online retailers every day, currently has price inflation running at over 8% annually, .697% monthly. (See the US Daily Values link on the right side for daily tracking.) Imagine where it would be if the price of oil hadn’t collapsed.

Back to MGM proper, annual visitor volume is still breaking records at a 4% increase over 2013, so all boom indicators are on green. MGM, annual money supply growth of over 7%, boxing records, the S&P at records, and PriceStats at over 8% all indicate we are deep into the boom phase of the business cycle, at least in the US. Now we have to wait and see what the final revenue figures are on Mayweather vs. Pacquiao to see how heated the US economy really is.

So while this to-be-biggest grossing fight in world history probably can’t tip us off on timing a trade on MGM, it can and definitely is telling us that there is a lot of money in the system, those that have it are willing to spend it, and therefore, very high price inflation – certainly higher than the 2% target of the swarm of jargon-peddling PhD economists infesting the Federal Reserve expect – may be just around the corner.

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