NBA Expansion and Relocation: A Viability Study of Various Cities

An examination of possible expansion or relocation sites for the NBA is undertaken using a two-equation system requiring two-stage probit least squares to estimate. The location model forecasts the best cities for an NBA team based on the underlying characteristics of current NBA teams. The results suggest that Louisville, San Diego, Baltimore, St. Louis, and Norfolk appear to be the most promising candidates for relocation or expansion.basketball; NBA; franchise location; probit; regression; econometrics; two-stage

A Test of the Optimal Positive Production Network Externality in Major League Baseball

Unlike most businesses, firms in a sports league need viable competitors. While a certain amount of domination is optimal, from an individual owners perspective, too much will result in league dissolution, and thus a lower utility for every owner. Hence, there is a limited positive production network externality. This paper examines the optimal level of the externality in professional baseball using data from each game of the 1996 MLB season. Both absolute and relative quality are important determinants of the demand for sports contests. In fact, fans prefer a game in which two high quality teams are competing, but the home team has approximately twice as good of a chance as the visiting team of winning.uncertainty of outcome; censored regression; cluster correlation; demand; baseball; network externality

The Use of Simulation Technology in Sport Finance Courses: The Case of the Oakland A’s Baseball Business Simulator

Teaching a graduate level sport finance class can be quite complex. With a variety of concepts, such as pricing, budgeting, and public funding, to convey in a limited amount of time, new forms of pedagogy are necessary to assist instructors as this technologically-advanced generation enters into academia. Subsequently, technology has been created to apply basic concepts related to finance to the complexity of a professional sports organization. One such program is the Oakland A’s Baseball Business Simulator. Through interviews and “emotional recall” (Ellis, 2004), this evaluative case study seeks to determine the effectiveness of this technology within this environment.Business simulation; sports business; sport finance; web-based simulations; business of baseball; case study.

Neither Reasonable nor Necessary: “Amateurism” in Big-Time College Sports

The NCAA and its member schools are a joint venture that fixes the compensation of its most important workers, the athletes, at a level that is substantially below what would otherwise occur in a competitive market. Claims of amateurism and the need for competitive balance obscure the more than $3.5 billion dollars in revenue generated mostly on the backs of those athletes. From the point of view of rule of reason antitrust analysis, the NCAA’s justification for its concerted wage fixing has obvious weaknesses. Recent phenomenal growth in revenue has made the claims of the necessity and reasonableness of concerted action to restrain wages increasingly dubious.amateurism; monopoly; cartel; NCAA; college sports; competitive balance; collusion

Illustrations of Price Discrimination in Baseball

Price discrimination of this nature, focused on differing degrees of quality, bundled goods, volume discounts, and other forms of second-degree price discrimination, is commonplace in MLB. Indeed, it is safe to say that every single MLB ticket is sold under some form of price discrimination. As teams grow increasingly sophisticated in their pricing strategies, price discrimination is becoming more precise, more wide-spread, and more profitable, while at the same time providing for more opportunities for more fans to find tickets at a price they are willing to pay. Unlike a baseball game, where one team must lose and one must win, price discrimination allows for win-win economic outcomes for teams and fans alike.price discrimination; bundling; variable pricing; dynamic pricing; secondary ticketing; two-part tariff; loaded ticket

Simulation in Sport Finance

Simulations have long been used in business schools to give students experience making real-world decisions in a relatively low-risk environment. The OAKLAND A’S BASEBALL BUSINESS SIMULATOR takes a traditional business simulation and applies it to the sport industry where sales of tangible products are replaced by sales of an experience provided to fans. The simulator asks students to make decisions about prices for concessions, parking, and merchandise, player payroll expenses, funding for a new stadium, and more. Based on these inputs, the program provides detailed information about the state of the franchise after each simulated year, including attendance, winning percentage, revenues vs. expenses, revenue sharing, and stadium financing. The use of simulations such as this one enhances students’ organizational skills and students’ ability to think critically and imaginatively about the data while applying relevant knowledge and an appropriate strategy to achieve the best possible results. This is particularly important in the field of sport management where few, if any, other simulators exist that are specific to the field.baseball business; computer-based learning; simulation/gaming; stadium/facility financing; sport finance; sport management

Do Fans Want Close Contests? A Test of the Uncertainty of Outcome Hypothesis in the National Basketball Association

The National Basketball Association claims to sell entertainment. Part of that entertainment is close, competitive contests with uncertain outcomes. However, hometown fans want the home team to win. Hence, the optimal probability that the home team wins a game, from the perspective of maximizing demand, lays somewhere between 0.5 and 1.0. Using data from individual games for the 2001-02 season, this optimal probability was estimated to be approximately 0.66. Fans want their home team to have about twice the chance to win a game as the visiting team.uncertainty of outcome; basketball; linear regression; home court advantage; demand; attendance

The use of Public Funds for Private Benefit: An Examination of the Relationship between Public Stadium Funding and Ticket Prices in the National Football League

During the past decade there has been a proliferation of sports stadia being built in America’s municipal districts. While it used to be common for the public to fully fund stadium construction projects, over the past twenty years factors such as political motives, tax reform and increased public awareness of tax equity have forced sports teams to share increasing amounts of the financial burden (Crompton, Howard, & Var, 2003). As public funding for stadia construction has decreased, franchises have continued to strive for maximized profits. Concurrently, the cost of attending events in sports stadia has increased for consumers in terms of higher ticket prices even though changes in fixed costs should not affect pricing (Leeds & von Allmen, 2004). The purpose of this study was to examine the relationship between the use of public funds to build stadia and the profit maximizing goals of National Football League (NFL) franchises. A hypothesis was formulated that stated the impact of the public share of the construction cost would have no effect on relative ticket prices for those that consume the product. The cross-sectional data for a ticket price model, which consisted of seasonal data from every NFL team to play from 1991 through 2003, was investigated. The results showed an increase in public funding by 10% lowers ticket prices by 42 cents. As shown, the bulk of the variation in ticket prices was due to a general increase over time and MSA per capita income.sunk costs; stadium; financing; public finance; football; ticket prices; fixed costs

Executive Interview: An Interview with Dennis Wilcox

No abstract available

Franchise Relocations, Expansions, and Mergers in Professional Sports Leagues

All three sections in this chapter are interrelated. Expansions and relocations, especially in the early years of a league, are often the response to upstart rival leagues. More recently, relocations have occurred because another city offers a better facility lease regardless of whether the league as a whole is better off or not. Relocations, more so than expansions, often end up in court whether as an antitrust case accusing the league of monopolistically restricting business or as an eminent domain suit attempting to prevent a team from relocating. Recent rulings have allowed a league to enforce a relocation fee that is commensurate with the harm caused to the rest of the league because of the move. Rivalries often begin with a few teams in major cities competing head-to-head with the existing dominant league. Inevitably, the sport ends up with one major league providing top level play, begging the question of whether sports leagues are natural monopolies. This occurs either with a merger, a partial merger, an acquisition or, most commonly, a failed rival league. Often the incumbent league emerges from the rivalry a stronger, more stable business, having been forced to address a weakness exploited by the rival (e.g., MLB failing to recognize the western markets). Additionally, the new locations of franchises have often been vetted by the upstart rival to determine which few are most profitable and sustainable.competition; expansion; relocation; merger; football; baseball; basketball; hockey; sports