Brand Equity, Efficiency and Valuation of Professional Sports Franchises: The Case of Major League Baseball
DOI:
https://doi.org/10.18533/ijbsr.v5i1.666Keywords:
Brand equity, data envelopment analysis, efficiency analysis, sports franchises.Abstract
Values of professional sports franchises have outpaced even investment returns in recent bull markets. Financial World found the value of professional teams like the Dallas Cowboys, Miami Dolphins and the NY Yankees to exceed $200 million each. In 1996, the average estimated value of Major League Baseball (MLB) teams was $134 million, and most showed double-digit growth in value, although 13 of the 26 teams were in the red. Our research proposes a model to determine the value of a professional sports franchise, by treating the franchise as a brand whose value is enhanced by its key attributes. This approach is appropriate because each franchise represents a single brand firm. Our model takes into account equity enhancing factors like the franchise longevity, historical performance, the number of marquee/award-winning roster players, and market factors such as market size, competition and franchise efficiency. We determine the extent to which a franchise is managed efficiently with respect to inputs like investments in players (player costs) and outputs such as franchise revenue and team performance (win-loss ratio). Using data from 1990-1995 to illustrate our model, we are able to determine (1) the brand equity of MLB franchises, (2) how efficiently each team is managed, and (3) the contribution of marketing factors like brand equity, market size, competition, as well as efficiency, to franchise value. While this paper focuses on MBL, the methodology can easily be extended to other professional sports.
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