10 February 2006

More Market-Related Food For Thought

A report in Monday’s Charlotte Business Journal discusses the challenges facing Charlotte in its efforts to lure the Marlins. Chief among them is the a lack of financial support because of the size of the Charlotte market and the fact that two teams – the NBA’s Bobcats and the NFL’s Panthers – already occupy it.

The piece referred to an analysis by the paper’s online sibling, In the analysis “used data on team revenue and ticket prices to estimate how much total personal income a market needs to support a pro sports team.” This was done in 179 markets, which should presumably provide a pretty good data sample. (The parent company runs the East Bay Business Times, Silicon Valley/San Jose Business Journal, and San Francisco Business Journal.)

The overall conclusion was that the Charlotte market was $86 billion short of being able to support a baseball team, in terms of the market’s annual total personal income (TPI). The minimum amount required? $89.2 billion.

I’m trying to figure out how derived this figure, but for now let’s for the sake of discussion accept it based on their due diligence. Values were given to other leagues’ franchises as well. Here’s the breakdown:
  1. MLB - $89.2 billion
  2. NBA - $38.4 billion
  3. NHL - $35.7 billion
  4. NFL - $33 billion
  5. MLS - $16.1 billion
Step back and look at that for a second. According to it takes over twice as much total personal income to successfully back a major league baseball team as it does any other sport. That makes some sense because of baseball has twice as many games as the NBA and NHL. Then again, the winter sports’ average ticket prices are usually higher. The NFL only has 10 or so home games per season and its tickets are the most expensive, but its national TV contracts are so lucrative that local support is far less necessary than with MLB (this also justifies the blackout rule).

Taking this a little further, I went over to the Commerce Department’s Bureau of Economic Analysis and pulled the latest (2003) MSA-based economic data. Since the Bay Area is split into five different statistical areas, one has to do a little hunting to compile the information correctly. Here’s how the Bay Area looks:

While the Bay Area is high in per capita income (and the associated high costs of living), we don’t have a particularly high population at less than seven million people. Pool the required income for all six major teams, and the deficit appears above. There are obviously other factors to consider like the state of facilities, transportation, and location, but the figures point to the idea that we are somewhat oversaturated with sports. Add the various event-oriented sports like golf and tennis tournaments and motor sports, plus minor league teams and college sports, and it is clear that we have more than enough sports in the Bay Area to go around. Which is why we should get down on our knees every morning and thank whoever’s in charge that we have this luxury. Not to sound like a homer, but combine these amenities with our fabulous weather, and it’s easy to see why the Bay Area consistently ranks at the top of annual “Best Places to Live” lists.

What’s more interesting is how the Bay Area compares to other regions. Other than the three largest markets in the country (NY, LA, CHI), few regions have a substantial surplus. In fact, many operate at a sizable deficit. That doesn’t mean those cities can’t field teams, it just highlights how competitive those markets are and can help explain why some teams struggle with sagging attendance, low TV ratings, etc.

The Washington-Baltimore market provides the best comparison to the Bay Area. It has six teams (the Nats’ stadium problems not withstanding), a fair amount of geographic spread, and differing TV markets, just like the Bay Area. Though it has one million more people than the Bay Area, it pulls in only slightly more TPI, just enough to put it “in the black” relative to having six teams. Add the region’s MLS team, and suddenly the market is in the red. Philly appears to be in good shape even though it is stuck between two larger markets. Boston has the pull of the entire New England market to compensate for its slight deficit. San Diego has its hands full with two teams. Portland has a $27 billion surplus, but that’s not nearly enough to handle the burden of a MLB team added to its portfolio. Sacramento faces a similar situation. Even Las Vegas, which has no teams currently, falls over $40 billion short when trying to accommodate a MLB team. Again, this concept of TPI is only one of many factors that determine a market’s fitness. Markets like Green Bay, WI, are anomalies due to the sheer size of their rabid regional fanbase and intangibles like legacy and tradition.

Now go back to the first table. In an ideal situation where income levels are equal throughout the Bay Area, it may serve the individual teams best if they were distributed throughout the region instead of concentrated in primarily two places: San Francisco and Oakland. For instance, San Jose has a single major league team, but in the Sharks’ wake numerous minor league teams (baseball, arena football, lacrosse) have stepped in to claim some of the South Bay’s surplus ($44 million). It might make more sense to move a NFL franchise south to even things out. Or it might make sense to move the Sharks to the North Bay and the A’s or Giants to the South Bay. Obviously, this is not realistic of the venue situation and the fact that Bay Area residents by in large have little trouble driving wherever they need to go, including sporting events. Nor does it take into account preferences, since the individual sports don’t substitute for each other equally among hardcore fans. It does show a more mechanical way the teams could service the market based on each micropolitan area’s individual wealth, similar to the way Starbucks places its stores by using census-based income information.

However, these figures highlight one issue in particular: there is little room for failure. There is so much entertainment variety that it’s easy for the casual fan to substitute other entertainment for a game. Many outsiders and the Bay Area’s own media blame the market’s fickle, fair-weather fans for attendance woes. In the end, does this have more to do with simple market dynamics? It’s true that when teams do poorly on the field/court/ice, their marketing departments have to do quite a bit of “circle the wagons” strategizing to hold onto their season ticket holders and suite lessees. They are, after all, competing with each other for the same limited fanbase. Just as it’s easy to find a Giants fan in Danville or an A’s fan in Novato, a corporation can switch allegiances once their lease is up.

A team can turn its fortunes around, making itself more attractive to the casual fan. This should be viewed as a virtue since competitive drive should keep all teams active to make their respective products as attractive to Bay Area denizens as possible (the 49ers are about to find this out the hard way, the Raiders have been suffering the last few seasons). With the market as limited and competitive as it is, teams have to place incentives for fans to go. The best incentive is a championship of some sort. A sparkling new venue with new amenities is another. When Lew Wolff talks about the A’s being competitive, he’s not just talking about the American League. He’s talking about the Bay Area as well. So far with the increased season ticket subscriptions that are being reported, the Bay Area is responding to the A’s offseason changes on and off the field. Isn’t that the way things should be?


Bleacher Dave said...

Nice info.

"A team can turn its fortunes around, making itself more attractive to the casual fan." Just what impact does winning percentage have on attendance?

It seems that winning percentage has only a rather mild effect on attendance - a teams fans come out more frequently, but they don't acquire new fans.

For example, the A's have been winning for several years, but their attendance seems to be capped around the present levels. Barring a championship or new stadium how do they acquire new fans?

It seems that "coolness" is a huge factor in getting new folks out to the game. Whether via a superstar player whose name recognition transcends the game, new stadium, or ticket scarcity, the A's need some buzz to break through to new attendance heights. Tarping the upper deck seems to be a step in the right direction.

My recent favorite has to be Moreno's reduction of Anaheim's beer prices. That has become legend. That guy's GOOD.

The Cactus Leaguer said...

ML, I saw that article in the Charlotte Business Journal as well and I was floored. They have been putting out this study every year for the past several years and they publish the detail in Excel format so you can see how they derived the figures. Apparently Charlotte got an advance copy of this year's findings (or they aren't publishing it this year).

Without going into detail, I have a couple of observations:

1. I think that the BizJournal uses different definitions of the market than the ones you pulled from the Fed's website. For example, Portland metro was listed at $90 billion last year because they included Salem and Eugene.

2. I am amazed how they keep ratcheting up the threshold for MLB while the other sports are stagnant (this is worth a whole article in itself) --- I think MLB was put at $56 billion in 2003, $70 billion in 2004, and now it's $90 billion in 2005? That's nuts.

Old Blue Guy said...

By my screen name, it's clear I'm a Dodger fan. However, in the past 16 years here in the Bay Area, I've become a big A's fan. I live in San Jose.

This is very enlightening. It really kind of clarifies some of the issues here. I read this as the SF-Oakland area has too many teams and the South Bay has too few. The Giants have gotten a jump start from the new stadium and from Bonds. Bonds will be gone soon and the stadium push is already wearing off. As noted, the 49ers are seeing what the lack of success does.

The one thing I quibble about is the inclusion of Fremont in the SF-Oakland area. Fremont is actually about equidistant between the Coliseum and San Jose. Fremont also has a Silicon Valley identity and a lot of money. I know this was done by county—with Fremont being in Alameda County—but shift Fremont from SF-Oakland to the San Jose metro area and you see a change in the math. The conclusion I draw, the one I've always thought made the most sense, was this: put the A's in Fremont. That's close enough for San Jose, Santa Clara and Sunnyvale. I-880 is getting fixed, plus there's I-680.

The A's will not get a new stadium in Oakland—the city has alread shot its wad on the Raiders and the Warriors—and they plead poverty when it comes to building their own venue. Opposed as I am to public financing of sports stadiums, the only hope for the A's is to get a consortium of Fremont, San Jose, etc., to do it. If anybody will do it, that is. Actually, I think the A's would thrive if they built their own stadium closer to the South Bay. They would steal a ton of Giants' fans. Cal Train is not exactly a great way to go to SBC or ATT park.

Otherwise, they're gone. And don't be surprised if the Raiders pick up stakes. Oakland just doesn't cut it.

The Cactus Leaguer said...

ML - I found the link to the most recent bizjournal ratings --- as you'll see, they use broader metro definitions then the ones you pulled from BEA:

(I think Orlando's figures are vastly inflated by a lot of rich people who "live" there to avoid state taxes).

Marine Layer said...

The definitions are broader in some cases because of the use of "combined statistical areas," which tend to make the large MSA's even larger. This is especially true of LA and NY. Most other MSA's are only slightly larger. The combined Bay Area adds Santa Cruz and San Benito counties, which are really just incremental and are difficult to include for baseball teams that play over 90 minutes away. bleacher dave can attest to how he attends games coming from Hollister. The MSA model is imperfect. It works great for football, which has this event-based model and allows for lots of time for fans to get to games and spend an entire day at the stadium. Baseball's daily, serial schedule is much more difficult, and I think that's why its value jumped over the last few years. Now that the novelty for many teams' new stadiums has worn off, what remains is how difficult it is to consistently pull attendance.

If I include Salem and Eugene to Portland, the tally comes to $83 billion. Still short, but not as bad.

Regarding turning a team's fortunes around, that doesn't mean a good or great regular season record. It means playoff success. Though it should be interesting what happens to attendance if the A's get off to a hot start and stay hot throughout the season (knock on wood). 2.3 million wouldn't be out of the question.

old blue guy, you may be onto something with this "consortium" idea.

Georob said...

Regarding this "consortium", Is there any history of Fremont and San Jose working together on anything? I just don't see a precedent. Throw is the fact that they're in different counties, plus the territorial rights issues, and a Fremont/San Jose combo might be tough.

I think a Fremont-Oakland consortium would be more realistic, especially if you got all the cities in between them on board as well. Look, if Oakland cannot or is unwilling to find a site within city limits, they could make a deal to work with Fremont to get Alameda County fully on board in exchange for keeping the team name "Oakland Athletics"

But as always, Oakland officials continue to not take the A's situation seriously. They still have a stadium, flawed as it is; and that's a powerful bargaining tool.

When you're the only city in the US who has lost a major league team only to get it back(ie: the Raiders) it gives you a sense of invincibility whether it's real or imagined.

tony d. said...

I'm not an expert like Rhamesis, but I would think a hypothetical "consortium" between SJ and Fremont would be more of the business type rather than political. Meaning, many of the hi-tech/Silicon Valley companies stretching from Union City to San Jose could be on-board for a Fremont Ballpark. Touting it as a quasi "Silicon Valley ballpark" (with the backings of Cisco, Adobe, Nummi, whoever Rhamesis works for in Fremont) would do wonders to attract fans from San Jose/Santa Clara County and Alameda County. Now that's a hell of a "consortium,"...don't you think so Peter Magowan?

The Cactus Leaguer said...

RM - toss in Corvallis, Bend, and Longview, and that's how they got their number for Portland. For SF/Oak/SJ, I'm not sure but obviously they excluded Sacramento. I am aware that there are many ways of looking at this stuff... I'm just making the point because I think it's important to look at this from an apples to apples comparison. Bizjournal has very high values for required TPI but they are also interpreting the market broadly, probably the entire TV/Radio coverage area.

In any event, they are publishing their findings tomorrow (Monday Feb 13th) so we'll all find out soon enough about the latest figures and who knows, maybe a bit of insight into how they came up with required PTI #'s (I doubt it though).

The Cactus Leaguer said...

I meant to say TPI, not PTI... Kornheiser on the brain???

Georob said...

Okay everyone, just suppose that Fremont and San Jose interests could work together, which is a super premise, don't get me wrong.

Where would a stadium be built?

Even if territorial rights didn't exist, I can't see San Jose allowing a ballpark built anywhere BUT San Jose. I mean, they're the big player in this, they have the population, and have a city center that would most benefit from a stadium.

I know wer'e talking about a business consortium as opposed to a political one, but you still need the cities to make it work. And unless someone can convince the San Jose politicos that a "Silicon Valley A's" team based in Fremont benefits their city as well, it ain't happening.

"Silicon Valley A's" there any way Lew Wolff can secure rights to that name? Years ago, I remember Houston Oilers owner Bud Adams securing rights to the name "South Texas Oilers" when he was considering a move to San Antonio. Of course, he instead moved to Nashville.

Jeff said...

I wonder if a regional marketing approach would work well in a hypothetical consortium. SJ may see the wisdom in this if territorial rights can be presented as insurmountable. Oakland continues to lose credibility by it's inaction. Why would they be included in a "Silicon Valley Regional Cooperative"?

munich1860 said...

Why not the San Jose A's of Fremont? The LA Angels of Anaheim won in court in the name case. Fremont should accept that name to get the ballpark built. Maybe San Jose will put some money into that project, if the team is named like I suggested.

Georob said...

The more I think of it, "Silicon Valley" would be a perfect name for a A's team in Fremont. The phrase has been around long enough and has national recognition.

The question is, do enough people equate "Silicon Valley" with San Jose to get their people on board? Remember, to a lot of people outside of Calif, the phrase can also imply San Francisco.

And since the bulk of what is considered "Silicon Valley" is part of the Giants' territory, does just using that name constitute a violation of territorial rights?

Like I said, Lew Wolff would be well served by securing rights to that name. And even if San Jose interests play no part at all in a Fremont move, the "SV" name should still be used.