MARKET FOR FRANCHISES Teams have all power Threat to move All or nothing Winner s curse Stadium design LESSONS OF DODGERS MOVE No city safe not even Green Bay Increased public subsidy of sports franchises Before 1950 only 1 stadium publicly built By 1980 almost all were Some cities now say no Newark New York Some still say yes Memphis Arlington Some say no I mean yes Charlotte Sandy TEAMS MARKET POWER Three factors play in teams favor 1 2 3 Limited number of franchises lots of cities All or nothing demand curve Winner s curse Similar to power over ticket prices and players wages FAN LOYALTY Hitler Stalin and Walter O Malley Left Brooklyn after 1957 season Dodgers most profitable MLB alone accounted for 47 of NL s profits Pacific Coast League threatened MLB Ended golden era of baseball 1903 53 absolute stability Art Modell Moved Browns to Baltimore in 1996 Wanted a new stadium one football teams equals 30 libraries Michael White sued for name DAVE PETER AND JON RSL expansion team at Rice Eccles in 2004 demanded a new stadium Salt Lake Murray Sandy Orem competing in 2005 Rocky Anderson offers the Fair Grounds Peter Corroon rejects 30 million subsidy plan as unviable in 2007 Monday Dave Checketts threatens buyers in St Louis Tuesday Gov Jon Huntman offers 35 million Thursday Voter initiative fails three months later TOO MUCH LIMITING Leagues slow to expand By 1950s U S demographics had changed Los Angeles had no baseball team St Louis had two NFL did absorb teams from rival leagues Browns Colts and 49ers from AAFC MLB expanded in 1961 and 62 To prevent new league NY Houston To avert Congressional intervention Senators until 71 NFL expansion tied to AFL First expanded 1960 attempting to kill AFL Next expanded 1966 to merge with AFL LARGER CITY WILLING TO PAY FOR MORE ALL OR NOTHING DEMAND Demand is willingness to pay Can t get 1 2 of a franchise All benefits direct intangible ripple externality NO and Oklahoma City split 2005 6 for Hornets Why sell season tickets Offer area under demand curve Limited by season length Deals not in cash Why sell foot long hot dogs Form of 1st degree price discrimination Offer up to the entire area under demand curve Luxury boxes Sweet deals Ravens pay nothing White Sox 1 New arenas Take it or leave it CASE IN POINT THE OLYMPICS 1976 Montreal Summer Olympics Spends C 1 6 Billion Debt C 1 0 Billion Stakes raised after 1984 LA Olympics Only city to bid on 1984 Summer Olympics Proved profitable due to corporate sponsorship 2004 Athens Spends almost 10 billion getting German bailout 2008 Beijing Spends about 35 billion Salt Lake 2026 EXTERNALITY EFFECT OF OLYMPICS 1980 2001 BASELINE days t 2 06 0 06 timet R 2 0 88 5 0 35 7 12 0 4 0 5 0 3 0 4 0 2 0 Utah skier days millions 1 0 0 0 1950 Utah skier days millions 3 0 2 0 1 0 1960 1970 1980 1990 2000 2010 0 0 1980 1985 1990 1995 2000 2005 2010 MULTIPLE REGRESSION SAMPLE MIDTERM PROBLEM days t 2 05 0 06 time t 0 339 2001 1 t 26 1 9 19 0 232 post 2001 t 1 76 1 61 R 2 0 93 WINNER S CURSE NBC S CURSE The setting auction with an uncertain payoff who wins NBC bid 2 billion in 2003 for rights to Vancouver and London Winner expects high payoff Second place Fox at 1 1 billion more optimistic and enthusiastic thinks she is best suited for opportunity More intent on winning than profit Thus winner pays more than product is worth NBC overestimated viewer numbers West coast time zone Promoting drama for Team USA Lost 250 million on Vancouver Games Olympic competition for host site RISK AVERSION TV ratings for 2010 uncertain when NBC bid in 2003 In 2007 future Rio Tinto revenues uncertain Risk averse people emphasize potential losses Governments ought to be risk averse CITIES OUGHT TO OWN TEAMS Prohibited by NFL Charter Green Bay an exception Even Green Bay threatened to move Joan Kroc tried to give Padres to San Diego MLB blocked move West Valley City owns 40 of Grizzlies Forgave 600K rental debt Universities never have this problem Utes move to UVU to get more luxury boxes WHAT S IN A NAME What is true about each facility In Era 1 In Era 2 In Era 3 Era 1 Era 2 Era 3 Forbes Field Cleveland Municipal Stadium AT T Stadium Wrigley Field Atlanta Fulton County Stadium Energy Solutions Arena Fenway Park Milwaukee County Stadium Ericsson Stadium Crosley Field Tampa Stadium Minute Maid Field Ebbets Field OaklandRio Tinto Alameda County Stadium Stadium ERA 2 4 of 5 built after 1950 Lone exception Cleveland Municipal Stadium Failed attempt to attract Olympics 3 of 5 built after 1960 Except Milwaukee County Stadium to lure Braves Name reflects change of funding source If you put a team in Tampa Reinsdorf can t extort money from the City of Chicago by threatening to move to Tampa Donald Fehr Executive Director MLBPA No team in LA is a strategic advantage to all NFL teams in other cities SIZE MATTERS Baseball teams seldom sell out The best Giants Red Sox have new or very old ballparks Optimal size for baseball stadium 30 40 000 Why was Cleveland Stadium 100 000 Veteran Stadium 60 000 ERA 1 All have Park or Field in name true to origin of game All have name of owner All are old some now closed ERA 3 Most have extensive public funding Naming rights sold by team Typically 2 million year What do firms get from naming rights Energy Solutions Rio Tinto Maverick UNCERTAIN BOTTOM LINE Problems in new stadiums In 2003 10 of 12 teams drew less than last year in old park Some as much as 20 less Giants drew more in wake of World Series In 2002 4 most valuable teams Yanks Red Sox Mets Dodgers all were in pre 1965 facilities Football has larger optimal size Used to rent space from baseball teams in offseason Municipal stadiums built when football boomed New facilities still seem lucrative in NFL 8 of 10 most valuable teams in new facilities THE END