Economics of sports

Stadium Ownership and Incentives to Relocate

One economic model that has proven to be effective in determining why and how teams relocate uses three factors. The three factors that are used are: the franchise owner, the stadium owner, and the local government. The assumptions that are made are that the franchise owner is primarily concerned with the net revenues of his team, and that the goal is profit maximization. The major determinants of net revenue are players salaries, stadium rent, television income, ticket revenue, capital gains from franchise value, and subsidies from the local government. The stadium owner is also concerned about net revenue and the local government is concerned with two things: the presence of the team and the cost of subsidies to the taxpayer. The equation is as follows:

P(Mi = I) = ZiBn + B1Si + Ei

The probability of a team to move in year I, Mi, depend of a variety of franchise factors including: metropolitan population growth, annual attendance growth, team’s winning percentage, and league-wide team expansion. Other factors that will effect a team’s movement would be falling attendance, losing seasons, declining metropolitan economies, or stagnant metropolitan population.

In sports, where a significant source of team revenue comes from ticket sales and local or regional broadcast revenue, owners will prefer to locate their teams in large and growing metropolitan areas. The reason for this is that these larger cities allow for increased ticket sales (or higher ticket prices) for a given stadium capacity. A final factor that might cause the owner to relocate is based on the team’s success and popularity. If a team has a losing tradition or when fan loyalty is low the owner has more incentive to move. Conversely, if the team is successful they will have strong fan loyalty and will more than likely stay in the same city.

Based on the data from 1950-1995 we can see that baseball attendance has risen 2.2 percent per year between 1960 and 1995. Also it is interesting to see that until the 1970’s only one-third of baseball seats were occupied on average, whereas today that number has risen to 50 percent. The data also shows that the likelihood of a sports team moving has been in decline. In the 1950’s the probability of a baseball team to move in a given year was 3 percent. That number has cut in half in the 1960’s and again in the 1970’s. It is also of note that between 1950 and 1995 there have been 10 major league franchises to move cities, however, all of these moves have come prior to 1972. From 1972 to the present day no Major League Baseball team has relocated.