Home Games

What’s in it for the teams?

Why I hate the Dodgers

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

Dodgers different Most profitable team in MLB Alone accounted for 47% of NL’s profits

Key Lesson of Dodgers’ Move

No city “safe” Starts involvement of cities

Before 1950 – only 1 stadium publicly built By 1980 – almost all were

Some cities now say “no” Newark

Some still say “yes!” Memphis

Some say “no – I mean, yes!” Charlotte

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

Monopoly Power: Limit Output

Leagues slow to expand By 1953: U.S. demographics had changed

Los Angeles had no baseball teams – St. Louis had 2 Baseball & Football moved rather than expand

NFL did absorb 5 teams from rival leagues Browns, Colts, 49ers, and Cardinals remain

MLB expanded (1961-62) Prevent new league (NY, Houston) Avert Congressional intervention (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

Can’t get .8 of Mets Why sell foot-long

hot dogs? At Pe

Consumers buy Qe

Get Consumer Surplus

Surplus

P

Q

D

Pe

Qee

All-or-Nothing Demand

Team can grab surplus Too much beats

nothing Gives seller leverage

Forces Q off demand curve

Extracts consumer surplus

How far can QA go?

Surplus

Loss

P

Q

D

QA

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

2004: Athens Spends almost $10 Billion

2008 Beijing Spending about $35 Billion

Winner’s Curse

Buyer pays more than product is worth The setting: auction with an uncertain

payoff Who wins?

Winner expects greatest payoff – could be: Best suited to exploit opportunity Most optimistic Most intent on winning per se

Olympic “competition” for host site

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 #3Forbes Field Cleveland

Municipal Stadium

Network Associates Field

Wrigley Field Atlanta-Fulton County Stadium

Continental Airlines Arena

Shibe Park Milwaukee County Stadium

Ericsson Stadium

Crosley Field Tampa Stadium

Minute Maid Field

Ebbets Field Oakland-Alameda County Stadium

US Cellular Field

Era #1

All have “Park” or “Field” in name Cites origin of baseball Trivia: 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 Most not there any more

Era #2

4 of 5 built after 1950 Lone exception: Municipal Stadium

Built to attract Olympics to Cleveland 3 of 5 built after 1960

Exception built to lure Braves to Milwaukee

Name reflects change of funding source Municipally built Leased to teams

Era #3

“Naming rights” sold by team Typically ~$2 Million/year

Not necessarily privately built Most have extensive public funding

What do firms get from naming rights? Is it worth it?

PSINet & Enron in Chapter 11 ProPlayer no longer exists 3Com stopping rights deal

The embarrassment of corporate mergers The Core States/First Union/Wachovia Center

Size Matters

Saw that baseball teams seldom sell out Best: Giants, Red Sox & Cubs

Have new – or very old – ballparks Why?

Optimal size for baseball stadium 30-40,000 Why was Veterans Stadium 60,000+? 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

Municipal “Cookie Cutters” Designed by committee

No one happy Lose unique shapes

Shibe Park built to fit in city grid Polo Grounds built to fit between tracks &

lot 250’ shot heard round the world 450’ fly out

Location, Location, Location: The Urban

Ballpark New breed of ballparks

Retro look Retro location?

Municipal stadia often not even in home city Irving Cowboys vs East Rutherford Giants

Left decaying stadia in decaying neighborhoods

Old ballparks not built downtown Yankee Stadium built in “Goatville” Shibe Park on site of hospital for Contagious

Diseases

Location, Location, Location: Cars and Costs

Fans have moved to suburbs Urban neighborhoods decay Need place to leave cars

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

Center City v. Outskirts Why are NY hotels taller

than in Crookston, MN? Cost of land falls as

move from center of town

Height of buildings mimics cost curve

Cost of land

Distance from city center

Reason for Rent GradientA Linear City

Why is central business district central?

Hotelling Location Theory City along Main Street

People evenly spread Competing stores at A & B

Identical except for location

What does A do? How does B respond? What is equilibrium location?

A B

Reason for Rent GradientA Circular City

People evenly spread Identical stores on

diameter What do A & B do? Again move to center

Central business district Implication for housing

prices?

A B

The Shifting Bottom Line:Stadia and Team Values

Problems in stadiums built since 1993 10 of 12 teams drew less in ‘03 than last year in old park

Some as much as 20% less Giants drew more – in wake of World Series Reds drew more – but lowest total for new park since 1989

Brewers, Pirates, and Reds all cutting salary 4 most valuable teams in 2002 (Yanks, Red Sox, Mets,

Dodgers) all in pre-1965 facilities New facilities still seem lucrative in NFL

8 of 10 most valuable teams in new facilities Cowboys - & luxury boxes – one of exceptions