Brand Equity, Efficiency and Valuation of Professional Sports Franchises: The Case of Major League Baseball

Srinivas K Reddy, Antonie Stam, Per J Agrell

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.


Keywords


Brand equity, data envelopment analysis, efficiency analysis, sports franchises.

Full Text:

PDF

References


Aaker, David A. (1991), Managing Brand Equity, New York: The Free Press.

Ailawadi, K. L., Lehmann, D. R., & Neslin, S. A. (2003). Revenue premium as an outcome measure of brand equity. Journal of Marketing, 67(4), 1-17.

Ali, A. I., Lerme, C. S., & Seiford, L. M. (1995). Components of efficiency evaluation in data envelopment analysis. European Journal of Operational Research, 80(3), 462-473.

Anderson, T. R., & Sharp, G. P. (1997). A new measure of baseball batters using DEA. Annals of Operations Research, 73, 141-155.

Athey, T. H. (1982). Systems Approach to winning Baseball. Journal of Systems Management, 33 (4), 9-13.

Atre, T., Auns, K., Badenhausen, K., McAuliffe, K., Niklov, C., & Ozanian, M. K. (1996, May). Sports the high stake game of team ownership. Financial World, 55.

Banker, R. D. (1993). Maximum Likelihood, Consistency and Data Envelopment Analysis: A Statistical Foundation. Management Science, 39(10), 1265-73.

Banker, R. D., Charnes, A., & Cooper, W. W. (1984). Some models for estimating technical and scale inefficiencies in data envelopment analysis. Management science, 30(9), 1078-1092.

Balfour, A., & Porter, P. K. (1991). THE RESERVE CLAUSE IN PROFESSIONAL SPORTS-LEGALITY AND EFFECT ON COMPETITIVE BALANCE. Labor Law Journal, 42(1), 8-18.

Bruggink, T. H. (1993). National pastime to dismal science: using baseball to illustrate economic principles. Eastern Economic Journal, 275-294.

Bukiet, B., Harold, E. R., & Palacios, J. L. (1997). A Markov chain approach to baseball. Operations Research, 45(1), 14-23.

Butler, M. R. (1995). Competitive Balance in Major League Baseball. American Economist, 39 (2), 46-52.

Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring the efficiency of decision making units. European journal of operational research, 2(6), 429-444.

Charnes, A., Cooper, W. W., & Rhodes, E. (1979). Measuring the efficiency of decision-making units. European Journal of Operational Research, 3(4), 339.

Charnes, A., Cooper, W. W., Golany, B., Seiford, L., & Stutz, J. (1985). Foundations of data envelopment analysis for Pareto-Koopmans efficient empirical production functions. Journal of econometrics, 30(1), 91-107.

Clement, R. C., & McCormick, R. E. (1989). Coaching team production. Economic Inquiry, 27(2), 287-304.

Dortch, S. (1994). Do Big Bucks build better Baseball? American Demographics, 16(10), 9-11.

Dortch, S. (1996). The Future of Baseball. American Demographics, 18(4), 22-8.

Doyle, J. R. and R. H. Green (1991). Comparing Products using Data Envelopment Analysis. Omega, 19(6), 631-38.

Estenson, P. S. (1994). Salary Determination in Major League Baseball: A Classroom Exercise. Managerial and Decision Economics. 15(5), 537-541.

Färe, R., Grosskopf, S., & Lovell, C. K. (1985). The measurement of efficiency of production (Vol. 6). Springer.

Financial World (1991). Annual Sports Valuations. June issues of 1991, 1992, 1993, 1994, 1995 and 1996.

Gramlich, E. M. (1994). A natural experiment in styles of capitalism: Professional sports. The Quarterly Review of Economics and Finance, 34(2), 121-130.

Holbrook, M. B. (1992). Product quality, attributes, and brand name as determinants of price: The case of consumer electronics. Marketing Letters, 3(1), 71-83.

Holbrook, M. B. (1996). Market success as a criterion for assessing player contributions in sports businesses via a regression-based approach using adjusted performance measures and quasi-dummy variables. Marketing Letters, 7(4), 341-353.

Horsky, D., & Nelson, P. (1996). Evaluation of sales force size and productivity through efficient frontier benchmarking. Marketing science, 15(4), 301-320.

Howard, L. W., & Miller, J. L. (1993). Fair pay for fair play: Estimating pay equity in professional baseball with data envelopment analysis. Academy of Management Journal, 36(4), 882-894.

Jessell, H. A. and K. MCavoy (1997). Baseball Scores: $315 million from Rights. Broadcasting and Cable, 127(7), 24-5.

Kahn, L. M. (1993). Managerial Quality, Team Success, and Individual Player Performance in Major League Baseball. Industrial and Labor Relations Review, 46(3), 531-47.

Keller, Kevin Lane (2003). Brand Synthesis: The Multidimensionality of Brand Knowledge. Journal of

Consumer Research, 29 (4), 595-600.

Knowles, G., K. Sherony and M. Haupert (1992). The Demand for Major League Baseball: A Test of Uncertainty of Outcome Hypothesis. American Economist, 36(2), 72-80.

Knowles, G., K. Sherony and M. Haupert (1995). Baseball Attendance and Outcome Uncertainty: Reply. American Economist, 39(2), 88-9.

Kochman, L. and R. Badarinathi (1995). Baseball Attendance and Outcome Uncertainty: A Note. American Economist, 39(2), 87.

Leuthesser, L., C.S. Kohli and K.R. Harich (1995). Brand Equity: The Halo Effect Measure. European

Journal of Marketing, 29 (4), 57-66.

Lord, R. G. and J. A. Hohenfield (1979). Longitudinal Field Assessment of Equity Effects on the Performance of Major League Baseball Players. Journal of Applied Psychology, 64(1), 19-26.

MacDonald, D. N. and M. O. Reynolds (1994). Are Baseball Players paid their marginal Products? Managerial and Decision Economics, 15(5), 443-57.

Maindiratta, A. (1990). Largest Size-Efficient Scale and Size Efficiencies of decision-making Units in Data Envelopment Analysis. Journal of Econometrics, 46(1/2), 57-72.

McCormick, Robert E., and Robert C. Clement (1992). Intrafirm Profit Opportunities and Managerial Slack: Evidence from professional Basketball, in G. W. Scully (Ed.). Advances in the Economics of Sport, Jain Press, Greenwich, CT, 1, 3-35.

Murphy, John (1992). Assessing the Value of Brands, in J. Murphy (Ed.), Branding: A Key Marketing

Tool, McMillan, London, 184-98.

Oorlog, D. R. (1995). Marginal Revenue and Labor Strife in Major League Baseball. Journal of Labor Research, 16(1), 25-42.

Ozanian, M. K. (1996). Valuation Scoreboard. Financial World, 165(8), 54-5.

Parsons, L. J. (1991). Assessing Sales force Performance with Data Envelopment Analysis. TIMS Marketing Science Conference, University of Illinois.

Porter, P. K. (1992). Market Advantage as Rent: Do professional Teams in larger Markets have a competitive Advantage, in G. W. Scully (Ed.). Advances in the Economics of Sport, Jain Press, Greenwich, CT, 1, 237-48.

Porter, P. K. and G. W. Scully (1982). Measuring managerial Efficiency: The Case of Baseball. Southern Economic Journal, 48(3), 642-50.

Quirk, J., and M. El-Hodiri (1974). The economic Theory of professional Sports Leagues, Chapter 2 in R. G. Noll (Ed.). Government and the Sports Business, Brooking Institute, Washington, DC.

Sandomir, R (1997). Murdoch Bids for Dodgers simply to bolster a Lineup. New York Times, May 16, 1997.

Scully, G. W. (1989). The Business of Major League Baseball. University of Chicago Press, Chicago, IL.

Scully, G. W. (1992a). Coaching Quality, Turnover, Longevity in professional Team Sports, in G. W. Scully (Ed.). Advances in the Economics of Sport, Jain Press, Greenwich, CT, 1, 53-65.

Scully, G. W. (1992b). Is managerial Termination rational? Evidence from professional Team Sports, in G. W. Scully (Ed.). Advances in the Economics of Sport, Jain Press, Greenwich, CT, 1, 67-87.

Scully, G. W. (1994). Managerial Efficiency and Survivability in professional Team Sports. Managerial and Decision Economics, 15(5), 403-411.

Seiford, L. M. (1996). Data Envelopment Analysis: The Evolution of the State of the Art (1978-1995). Journal of Productivity Analysis, 7, 99-137.

Silverman, B. R. S. (1981). Systems Approach to Baseball Player's Compensation. Journal of Systems Management, 32 (9), 6-13.

Sommers, P. M. and N. Quinton (1982). Pay and Performance in Major League Baseball: The Case of the first Family of free Agents. Journal of Human Resources, 17(3), 426-35.

Telser, L. G. (1995). The Ultimatum Game and the Law of Demand. Economic Journal: The Journal of the Royal Economic Society, 105, 1519-23.

Thomas, S. M. and M. A. Jolson (1979). Components of Demand for Major League Baseball. Michigan Business Review, 31(3), 1-6.

Thorn, J. and P. Palmer (1997). Total Baseball: The Ultimate Encyclopedia of Baseball. 5th Edition, Harper Perennial, New York, NY.

US Bureau of the Census (1996). Census of Population and Housing, US Government Printing Office, Washington D.C.

Vrooman, J. (1995). A general Theory of professional Sports Leagues. Southern Economic Journal, 61(4), 971-90.

Vrooman, J. (1996). The Baseball Players' Labor Market reconsidered. Southern Economic Journal, 63(2), 339-60.

Vrooman, J. (1997). A unified Theory of Capital and Labor Markets in Major League Baseball. Southern Economic Journal, 63(3), 594-619.

Whitney, J. D. (1988). Winning Games versus winning Championships: The Economics of Fan Interest and Team Performance. Economic Inquiry, 26(4), 703-24.

Wikipedia (2015). http://en.wikipedia.org/wiki/Brand_equity

Zappe, C., W. Webster and I. Horowitz (1993). Using Linear Programming to determine Post-Facto Consistency in Performance Evaluations of Major League Baseball Players. Interfaces, 23(6), 197-213.

Zech, C. E. (1981). An empirical Estimation of a Production Function: The Case of Major League Baseball. American Economist, 25(2), 19-23.

Zimbalist, A. (2006). 9. Economic Perspectives on Market Power in the Telecasting of US Team Sports1. The Economics of Sport and the Media, 160-178.




DOI: http://dx.doi.org/10.18533/ijbsr.v5i1.666

Refbacks

  • There are currently no refbacks.




Copyright (c)

 ...........................................................................................................................

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

............................................................................................................................

If you find difficulties in submitting manuscript please forward your doc file to support@thejournalofbusiness.org. Our support team will assist you in submission process and other technical matters.

In order to get notifications on inbox please add  this domain thejournalofbusiness.org in your email safe list.

International journal of business and social research (Print)
ISSN 2164-2540

International journal of business and social research (Online)
ISSN 2164-2559

[International Journal of Business and Social Research (IJBSR) previously published by MIR Center for Socio-Economic Research, MD, USA. From February 2018 this journal is published by the LAR Center Press, OR, USA]