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Cities and Sports Franchises


									Chapter 6

  The Public Finance of Sports:
 The Market for Sports Franchises
How The Dodgers Changed
   Not first team to move
       Left Brooklyn after 1957 season
       Braves, Browns, & A’s moved earlier
            Ended “Golden Era” of baseball
            1903-53: Absolute stability
   The Dodgers were different
       Most profitable team in MLB in 1950s
       Alone accounted for 47% of NL’s profits
        Key Lesson of Dodgers’ Move
   No city safe from losing its franchise
   Starts involvement of cities in financing facilities
       Before 1950 – only 1 stadium publicly built
       By 1980 – almost all were
   Some cities now say, “No!”
       Minneapolis and Twins/Vikings
   Some still say, “Yes!”
       DC recently approved $320M for a stadium
   Some say, “No – I mean, yes!”
       Charlotte and the Hornets/Bobcats
      What Power do Teams Have?

   Three factors play in teams’ favor
   Monopoly Power
   All-or-Nothing Demand Curve
   Winner’s Curse
   Will examine each in turn
     Key to Monopoly: Limit Output
   Leagues failed to follow demographics
       In 1953 LA had no baseball teams – St. Louis had 2
       MLB & NFL preferred moves to expansion
            NFL also absorbed 5 teams from rival leagues
                 Browns, Colts, 49ers, and Cardinals remain
   MLB’s first expansion (1961-62) had two goals
       Prevent new league (NY, Houston key cities)
       Appease Congress (angered by loss of Senators)
   NFL expansion tied to AFL
       First expanded (1960) to try to kill it
       Next expanded (1966) to merge with it
            All-or-Nothing Demand
   Appears in many contexts P            D
       Can’t buy half a foot-long
        hot dog
       Charlotte cannot get .8 of
        NASCAR Hall of Fame
   Setting:
       At Pe consumers buy Qe

                                              Qe   Q
            All-or-Nothing Demand
   Appears in many contexts P               D
       Can’t buy half a foot-long
        hot dog
       Charlotte cannot get .8 of        Surplus
        NASCAR Hall of Fame
   Setting:
       At Pe consumers buy Qe
       Consumers get surplus

                                                    Qe   Q
              Firms Can Extract Surplus
   Give consumers choice                    P      D
       Buy all or buy nothing
       Gives firm leverage
       “Too much beats nothing”                 Surplus
   Buy Qm rather than Qe     Pe
   Extracts consumer surplus
            Consumers buy more than
             they want
            But loss is less than surplus
                                                           Qe   Qm          Q
          All-or-Nothing Demand
   Team can grab surplus  P       D
   Too much beats nothing
       Gives seller leverage
   Forces Q off demand         Surplus
   Extracts consumer
   How far can QA go?
Winner’s Curse
   Buyer pays more than product is worth
   The setting: auction with an uncertain payoff
       The person willing & able to spend the most wins
   Winner expects greatest payoff – could be:
       Best suited to exploit opportunity
       Most optimistic
       Most intent on winning for its own sake
   Olympic “competition” for host site
        Overspending on The Olympics

   1976 Summer Olympics a disaster
       Montreal spends C$1.6 Billion; Debt ~C$1.0 Billion
   Los Angeles was only city to bid on 1984 games
       Use of existing facilities and marketing make it
       Stakes raised after 1984
   Athens spent about $12 Billion on 2004 games
   China may spend up to $50 Billion on 2008 games
       China has political as well as financial motives
      What’s in a Name?
   What is true      Era #1          Era #2           Era #3
    about each        Comiskey Park Cleveland          Network
    facility in Era                 Municipal          Associates Field
                      Wrigley Field   Atlanta-Fulton   Continental
   In Era #2?                        County Stadium   Airlines Arena
                      Shibe Park      Milwaukee        Lincoln Financial
   In Era #3                         County Stadium   Field
                      Crosley Field   Three Rivers     Minute Maid Field
                      Ebbets Field    Veterans         US Cellular Field
Era #1
   All have “Park” or “Field” in name
       Reflects pastoral origin of baseball
       Trivia question: What was first “stadium”?
   All have name of builder/team owner
       Exception – sort of – Wrigley Field
       Originally “Weeghman” Field (Federal League)
       Team and stadium later bought by Wrigley
   All are OLD and most no longer exist
        Era #2
   4 of 5 built after 1950
       Lone exception: Municipal Stadium
            Built to attract Olympics to Cleveland
       3 of 5 built after 1960
            County Stadium built to lure Braves to Milwaukee
   Name reflects change of funding source
       Municipally built and leased to teams
       Named for city, geographic trait, or patriotic theme
   Also beginning to disappear
Era #3
   “Naming rights” sold by teams to firms
       Sponsors typically pay $2-3 Million/year
       Saw earlier – a dubious investment
   Most still have extensive public funding
        Size Matters
   Only a few MLB teams regularly sell out
       2005: Cubs (98%), Red Sox (97.2%) & Giants (94.5%)
            Have new – or very old – ballparks
   Optimal size for baseball stadium 30-40,000
   Era #2 ballparks were too big for MLB
       Football has larger optimal size
       Used to rent space from baseball teams in off-season
            Took baseball names too
            NY Giants; Chicago Bears; Detroit Lions
       Municipal stadia built when football took off
        Shape Matters, Too
   Shape changes with era
   Era #1 ballparks had unique shapes
            Shibe Park built to fit in street grid
            Polo Grounds fit between RR tracks & lot
   Era #2 ballparks were circular “cookie cutters”
       Designed to meet needs of MLB and NFL
       Satisfied no one
   Era #3 ballparks are now single-use facilities
       Return to unique shapes
       An aesthetic choice – not out of necessity
        The Urban Ballpark
   New breed of ballparks
       Retro look and retro location
       Municipal stadia often not even in home city
            Irving Cowboys vs East Rutherford Giants
            Teams Left decaying stadia in decaying neighborhoods
   But old ballparks were not built downtown
       Yankee Stadium built in “Goatville”
       Shibe Park on site of hospital for Contagious Diseases
        Cars and Costs
   Fans’ move to suburbs created a new need
       Where to park the cars?
       Connie Mack Stadium had only 200 spots
   Result: “a sea of asphalt”
   Stadium is “space intensive”
       Creates problems for a downtown location
       Space costs money
           The Cost of Space:
           The Rent Gradient
                                       Cost of land
   Explains several things
       Why facilities are generally
        not in the center of town
       Why hotels in NYC are taller
        than in Crookston, MN
   Cost of land falls as move
    away from center of town
       Stadium cheaper on outskirts
       Cheaper to build up than out
                                        Distance from city center
Reason for Rent Gradient
   Why is central business district
   Assume a “linear city”
       Evenly spread along Main Street
       A & B are competing stores
            Identical except for location
            Considering where to locate
            Start at ends of city
                                             A   B
   A moves slightly toward center
       More convenient – more business
       How does B respond?
       What is equilibrium location?
        A More Realistic Model

   Consider a circular city
       People evenly spread over circle
       Identical stores on diameter
   What do A & B do?                      A   B
       Again move to center
       Central business district
   Land prices rise as move to
         New Stadia and Team Values
   No guarantee in MLB in 2006
       The 5 most valuable teams (Yanks, Red Sox,
        Mets, Dodgers, Cubs) are in pre-1965 facilities
       2 of 5 least valuable (Brewers and Pirates) are in
        post-2000 facilities
   New facilities still seem lucrative in NFL
       9 of 10 most valuable teams in new facilities
            Cowboys - & luxury boxes – lone exception

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