Suppose that a league is contemplating expansion, and it expects the new team to finish "growing up" in its fourth year (t=0 to 3). Determine the expansion fee if, each year, the overall value of ownership (V) is expected to be $1,000; cost (C) (including the new owner's opportunity cost) is expected to be $700; and the interest rate (r) is 6%. Assume initially that there are neither expected impacts on the national TV contract nor local costs for current owners.

1. What franchise fee would we expect existing owners to charge new owners?

Now suppose that addition of the expansion team will add $200 to the national TV contract (N) each year but will impose local costs (L) of $100 for all existing teams (combined) each year.

1. How will the franchise fee be affected?

Suppose that existing owners are wrong, and that the combined local costs for existing teams are much higher (say $500).

1. Does this mean that the league charged too little or too much for an expansion fee? Briefly explain (and calculate what existing owners would charge).

1. If the existing owners properly estimated the local impacts and adjusted the fee accordingly, would the prospective new team be willing to pay the fee and join the league? Explain.

2. How would the threat of a rival league emerging impact franchise (expansion) fees in an existing league?

3. In 2023, the NFL implemented a rule where the fair catch of a kickoff inside of the 25-yard line gets placed at the 25-yard line. Explain how that is an economically motivated rule, including how it incentivizes certain behaviors.