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DETERMINANTS OF NFL FRANCHISE REVENUE GENERATION
A THESIS
Presented to
The Faculty of the Department of Economics and Business
The Colorado College
In Partial Fulfillment of the Requirements for the Degree
Bachelor of Arts
By
Andreas Vlassopoulos
May!2009
Table of Contents
ABSTRACT... . .. . . . .. . ... . .. .. . .. . .. . .. . ... .. . ... . .. .. . ... ... .. . . . . . .. . . . . .. . .. . .. .. . . . ... 11
ACKNOWLEDGEMENTS.............................................................. IV
LIST OF TABLES...... ... ........................ ........................... ............ V
LIST OF FIGURES....................................................................... VI
INTRODUCTION .................................................................. .
2 LITERATURE REVIEW............................................................ 5 General Revenue Generation.................................................... 6 Attendance......................................................................... 7 Team Performance and Competitive Balance................................. 9 Television DeaL................................................................... 12 Ticket Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Star Players........................................................................ 16 Stadiums. . . . . . . . . . . . . .. . . . . . . .. . .. . . . . . . . .. . . . . . .. . . . ... . .. . . . . . . .. . . .. . .. . . . . . . .. . 18 Concessions........................................................................ 21 Merchandise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 22
3 METHODOLOGy......................... .......................... ............... 24 Variables........................................................................... 26 Data...... ......... .................................................................. 29 Statistical Methods.......................................... ....................... 29
4 RESULTS. .......................................................................... ... 32 Modell... ............ ... ... ......................................................... 35 ModeI2...... ... ..................... .............................. ... ............... 36 ModeI3...... ............ .................................... ... ... .................. 39 ModeI4............ .................................................................. 39
5 CONCLUSION... ............... ................................................ ...... 41 Implications for Managers of Football Teams...... ............ ...... ......... 42 Further Research................................................................... 45 Final Discussion................................................................... 47
SOURCES CONSULTED................................................................ 48
DETERMINANTS OF NFL FRANCHISE REVENUE GENERATION
Andreas Vlassopoulos
May, 2009
Economics and Business
Abstract
This study attempts to explain the determinants of NFL franchise revenue generation. Seven variables will be examined and tested in order to determine which of those variables have the most significant effect on revenue. Data were collected from the 2000 through 2005 regular seasons. Regression analyses were used to analyze the data. The results of this study were that ticket price, attendance, and television deals all have a large positive effect on NFL franchise revenue generation.
KEYWORDS: (NATIONAL FOOTBALL LEAGUE, SPORTING EVENTS, REVENUE GENERATION)
ON MY HONOR, I HAVE NEITHER GIVEN NOR RECEIVED UNAUTHORIZED AID ON THIS THESIS
I would like to thank my thesis advisor, Larry Stimpert, for the guidance as well as the support throughout this research project. I would also like to thank my family for always being there for me especially my mother and father. Without your support, this would not be possible.
LIST OF TABLES
4.1 Correlation Matrix..................................................................................... 33
4.2 Results of Regression Analysis.......................... .............................. ......... 34
LIST OF FIGURES
4.1 Effect of Population, Star Players, Ticket Price, and Win Percentage On Attendance............................................................................................. 37
4.2 Effect of Attendance, Television Revenue, and Stadium Age On Revenue................................................................................................. 38
CHAPTER 1
INTRODUCTION
"Money has to be put in the way a club feels it should. If you put money in a new
ballpark, that helps to generate revenue so you can spend more money. It should be spent
to make the club's operations the best. That will help in the end, and it will mean
enhanced payroll." - Bud Selig (Major League Baseball Commissioner) on revenue. This
quote by the MLB commissioner stirs up several questions about sport franchises and
revenue. In order for a franchise to maximize revenue, they must find what makes them
economically successful and go after that section of the market. But, finding what makes
a team economically successful is tough for many franchise owners. This brings up the
subject of what exactly are the determinants of a sports franchise's revenues and what are
the most significant? This paper will use the NFL as its main league of study and will
look further into what makes money for National Football League (NFL) teams. The lack
of research performed on the determinants of NFL franchises' revenues has led to the
curiosity of the subject. Although sections of this subject have been studied, other
determinants that do exist have been somewhat left in the dark. In general, determinants
such as new stadiums, attendance, television network deals, concessions and
merchandising, ticket sales and pricing, team performance, sponsorships, star players,
and market size have all been looked at in some way or another but have not yet been tied
together. This chapter will look deeper into the determinants of NFL franchises' revenues
and discover what determinants have the greatest effect, if any.
2
The NFL consists of 32 teams spread out across the United States. Football
games are one of the most popular sporting events to attend and the NFL provides
viewers and fans with nonstop action every year for 20 weeks at a time. With so many
fans attending NFL games, it's easy for people to acknowledge that NFL franchises bring
in large revenues. The average revenue generated by the 32 NFL teams in 2006 was
$204,343,750. Average attendance for the 2006 season was 550,189 spread out over
eight home games while the average ticket sold to each game was $62.38. Quite a bit of
money does come from ticket sales but other aspects definitely contribute to gross
revenue.
This topic has been studied before, not only with the NFL, but also with other
major sports in the US as well as several other parts of the world. The main reason of
research is to discover what makes teams economically successful and what does not.
The NFL is also one of the most popular sports in the world, so looking at what makes
NFL franchises successful is interesting to many. Along with the sport being so
interesting to many, looking into what makes a team successful can also tell the public a
few other things. If a franchise wants a new stadium, many owners look to the public to
fund the building of the new stadium. If a new stadium will help generate profit for the
team, will it also help generate money for the city or state in which it is located? If
attendance is the main reason for increased revenues, does this mean that more people
attending these games will increase crime rate? If winning percentage plays a large role
in revenue, then does that mean that teams need to sign high-dollar players? High dollar
players could mean a better winning percentage, which in tum could bring prestige to a
city. There are several factors of this study that affect the public directly, which is the
reason why many scholars have looked at this area in the past.
3
As stated earlier, determinants such as new stadiums, attendance, television
network deals, concessions and merchandising, ticket sales and pricing, team
performance, sponsorships, star players, and market size can all be argued as revenue
makers for NFL teams. Looking deeper into each of these branches will clarify which of
these plays a significant role in the revenue of an NFL team. The dependent variable will
be revenue while the independent variables will be attendance, television network deals,
win percentage, star players, ticket prices and market size. Whether or not a team is
playing in a new stadium will be the only dummy variable in this research study.
As discussed previously in this chapter, research has been performed on this same
topic. Although there is past research, in some way or another, on determinants of NFL
franchises' revenues, the further research and connection of other variables will help
explain the matter more clearly. Also, significance has not been tested for many of the
independent variables being studied so this furthers the support for this project.
The method that will be used to determine the significance of the determinants of
revenues will be a regression analysis. Several other economic tests can be used to
discover the significance of variables and what effect variables have on each other. Some
of these tests will include an F-test, White Test, and Durbin-Watson test. The data that
will be studied for this research project will mainly be supplied from the Internet as well
as books and other scholarly journals. All data for this research project will be
quantitative. A scholar by the name of Rodney Fort has collected large amounts of data
for several different sports. Most of my data will be coming from his website. Other
4
data such as concessions and merchandising may be more difficult to come across but the
NFL offices can be contacted for further data inquiries. Much of the research in this field
has been performed by other scholars, but I am hoping to tie different areas together in
specific years. All of my data that will be studied will be from all 32 current NFL teams
over 5 years. 2002-2006 will be the years looked into and will provide enough evidence
to answer the research question.
The outcomes of this research project may surprise many. All variables that will
be studied will have a positive effect on total franchise revenue but only a few will be
significant. Television network deals will have the greatest significance while team
performance and new stadiums will be shortly behind. All of the other variables will
have some type of positive effect but none that one could say is significant.
This research project will consist of five major chapters with the first being this
introduction chapter. The second chapter will consist of the literature review in which all
of the past research that has been performed on this subject will be included. The third
chapter will consist of the method used, the model, and variables and data. The fourth
chapter will act as a summation chapter and will provide the results of the study. The
fifth and final chapter will consist of the implications this research project has provided
as well as a summary of the study.
CHAPTER 2
LITERA TURE REVIEW
The lack of research performed on the determinants of NFL franchises' revenues
has led to curiosity about the subject. Although aspects of this subject have been studied,
other determinants that due exist have been somewhat left in the dark. In general,
determinants such as new stadiums, attendance, television network deals, concessions
and merchandising, ticket sales and pricing, team performance, star players, and market
size have all been looked at in some way or another but have not yet been tied together.
This chapter will look deeper into the determinants of NFL franchises' revenues and
discover what determinants have the greatest effect, if any.
5
6
Revenue Generation in General and Franchise Value
A few scholars have taken a similar approach as me in studying revenue
generation in professional sports. A few scholars have produced scholarly articles but
most of the research has been published in books. With Leeds von Allmen being the
most prolific of the authors who have researched this area, many other authors have
followed in his footsteps in studying the basics of sports economics.
Franchise revenues obviously playa large role in determining the value of a
sports franchise. Figuring out what makes a team profitable and "attacking" that area is
what makes many teams economically successful. Current researchers performed a study
on the economic determinants of professional sports franchise values. The article
"examines the effect ofteam nomenclature, team relocation, and new stadiums on
franchise values for the four major professional sports". The research through this study
found that market size, team performance, and a new facility increase the value of a
major sport franchise. l This study will help in further research of the topic and is a
starting point in discovering what other determinants are involved in revenue for a
franchise.
Another study performed looked closely at expenditure, revenue and franchise
values in professional sports. This study was performed based on information from the
1994 season. Multiple sports were used to find out what aspects of a sport are most
significant in expenditures, revenues, and values of a franchise. The study found that
major revenue streams for the NFL include media rights, ticket sales, concessions,
1 Alexander, Donald L., and William Kern. "The Economic Determinants of Professional Sports Franchises Values." Journal of Sports Economics 5 (2004): 51-66, 51.
7
parking, merchandise sales, and the sale of player contracts. 2 This thesis will either
counter this claim or will further fortify it. This study was only based on one season
while this thesis will use five seasons for its data.
In another study, researchers took a single aspect of the values of a franchise a
looked further into it. Similar to this thesis, they looked at revenue generation in
professional sports. For this study, the men used the 2002-2003 NFL, NBA, MLB, and
NHL seasons. Over 35 variables were used but the study was later narrowed down to 13
factors that had the greatest effect on revenue generation. The results of the study were
that product and place considerations had the most effect on generating revenue
promotions and prices had minor effects. The authors conclude that additional
sophisticated modeling be used in the next study so that other factors may be revealed.3
This article strongly relates to my current research although I am only using the NFL in
my study and other variables not studied by the authors will be included.
Attendance
Quite a bit of research has been performed on attendance and why it is either the
main source of revenue for a team or just an average moneymaker. The belief behind
attendance is that if you are filling your seats, then you are going to be pulling in money.
This is true but to what extent is attendance a major revenue generator? Several franchise
2 Leonard II, Wilbert M. "A Comparative Study of Expenditure, Revenue, and Franchise Value Functions in Professional Sports." Journal of Sports Behavior 21 (1998): 265-82.
3 O'Reilly, Norman 1., and John P. Nadeau. "Revenue Generation in Professional Sport: A Diagnostic Analysis." International Journal of Sport Management and Marketing 1 (2006): 311-30.
8
owners often ask themselves how important attendance is and what affects attendance.
Researchers performed a study on whether or not factors affecting attendance differed
across multiple professional sports. Seven different sports leagues with a total of 117
samples were included in their study. The findings were that the NFL and MLB showed
different factors affecting attendance including scheduling, team roster quality, price,
forms of entertainment competition and convenience for fans. 4 This thesis looks at
whether or not attendance is a major factor in generating revenue for franchises in the
NFL. If it is, then owners may want to look at a few of the factors that affect attendance
in order to maximize profits.
In another recent study, scholars conducted a study on what affects game day
attendance in the NFL. The two men used data from 392 regular season games in the late
1980's. Their findings suggest that attendance is "higher when the home team is of
higher quality than the visiting team and when the games are expected to be closer in
score". Results also show that fans are indifferent to games that are played either indoors
or outdoors and that attendance is lower when ticket prices are Up.5 Competitive balance
and ticket price are both variables in this study and are going to be tested to discover their
importance to revenue generation.
A similar study was performed by Donald Price and Kabir Sen, in which the two
looked into college football and the factors that have the greatest effect on game-day
attendance. They were able to discover, through their study, that the quality of both
4 Hansen, Hal, and Roger Gauthier. "Factors Affecting Attendance at Professional Sport Events." Journal of Sports Management 3 (1989): 33-43.
5 Welki, Andrew M., and Thomas 1. Zlatoper. "U.S. Professional Football Game-Day Attendance." AEJ 27 (1999): 285-98,285.
9
teams, traditional rivalry, and membership in specific conferences have the largest effect
on demand. The study also found that the presence of a nearby professional football team
took away from the attendance at college games. 6 If attendance contributes as a major
factor in revenue generation, then owners who are financially struggling may want to
look at similar factors of attendance of college football.
Team Performance and Competitive Balance
Team performance and competitive balance have always been major topics of
discussion when talk about revenue generation. As an owner, would it be better if your
team dominated every single game of the season or would it be better if your team was
successful but did not win every game. Obviously, people want to see their favorite
teams win but they also want to see intense, close-scoring games; the question is, what is
more beneficial for a franchise? Many scholars have looked into what effects each of
these topics and their research may prove to be extremely beneficial for franchise owners.
Two researchers in this area performed a study on organizational objectives and
winning in the NFL. All 28 teams were contacted but only ten agreed to participate.
This study was qualitative with several representatives of each team filling out
questionnaires. This study was conducted to discover whether or not team success was
related to objectives and organizational structure. The result of the study was that team
6 Price, Donald I., and Kabir C. Sen. "The Demand for Game Day Attendance in College Football: An Analysis of the 1997 Division I-A Season." Managerial and Decision Economics 24 (2003): 35-46.
10
success is definitely related to franchise objectives and organizational structures. 7 Many
theories of team success exist in professional sports but the authors of this article clearly
state that success starts from within the organization. This study directly relates to this
thesis in which team performance is believed to have a significant relationship with
franchise revenue.
If competitive balance is important for professional sports, then what causes it? A
scholar performed a study that examined what causes competitive balance and therefore
what alters revenue sharing in professional sports. The author states that it is known that
both of these areas are affected by the size of the markets the clubs are located but further
studies also show that these areas are affected by the objectives of club owners and team
quality.8 Also, the author has found that "the team's hiring strategies are a major
influence on competitive balance". Competitive balance may be an important
determinant of revenue generation and is always a topic of discussion.
Since some sports are always struggling with competitive balance, what can they
do as a league to even out the competition throughout the league? Another scholar
further examines two proposals in the MLB, which he hopes could bring more
competitive balance throughout the league. This article discusses reforms that would
restructure baseball making the sport more competitive as well as provide parity among
franchises' revenues. The author suggests the teams become the property of the city that
they operate in as well as a reserve clause, which would tie players to their teams for their
7 Latham, Donald R., and David W. Stewart. "Organizational Objectives and Winning: An Examination of the NFL." The Academy of Management Journal 24 (1981): 403-08.
8 Kesenne, Stefan. "Competitive Balance in Team Sports and the Impact of Revenue Sharing." Journal of Sports Management 20 (2006): 39-51, 39.
11
whole careers. Also, the author suggests that player salaries be based off of longevity
rather that current market situations, which in turn would lower the cost of ticket prices
allowing more families with average incomes to attend games. 9 Luxury taxes on player
salaries were mentioned as well which may ultimately lead to competitive balance within
the league. This article relates to this thesis in more than one way. If competitive
balance is a key revenue generator, why not reform the MLB so that more teams are
competitively equal. Also, if ticket prices playa large role in revenue generation, why
not lower ticket prices so that more people can attend games. Both aspects will be further
discussed throughout this thesis.
Another aspect of competitive balance is free agency. Joel Maxcy and Michael
Mondello looked further into the effect of free agency on competitive balance. Their
study goes into depth to discover whether or not free agency has a negative effect on
competitive balance. The NHL, NBA, and NFL were all used as samples in this study
and the findings were that the NHL and NFL have shown signs of increased competitive
balance throughout the league while the NBA has shown a decrease. 10 The authors
believe that these results are not independent and that competitive balance results in other
league rules on free agency. Competitive balance may be a significant factor in
generating revenue for NFL franchises and this thesis will look further into its
importance.
9 Richards, Donald G. "A (Utopian?) Socialist Proposal for the Reform of Major League Baseball." Journal of Sport & Social Issues 27 (2003): 308-24.
10 Maxcy, Joel, and Michael Mondello. "The Impact of Free Agency on Competitive Balance in North American Professional Team Sports Leagues." Journal of Sports Management 20 (2006): 345-65.
12
Stefan Szymanski and Stefan Kesenne performed a study on whether or not gate
revenue sharing benefited or hurt competitive balance in professional team sports.
People want to see competitive, intense match-ups between teams because those are the
most interesting games to watch but revenue sharing may be taking away from those
chances. The scholars found through a study that gate revenue sharing reduces the
competitive balance of a game. I I Some owners love the revenue sharing while others
dislike it. The fans definitely don't like it because they want to see close match-ups
between teams. It is a fine line to cross but there are benefits that both sides have to
offer. This article relates to this thesis because most of the revenue generated by teams is
shared throughout the league and if competitive balance plays a key role in revenue
generation, the NFL may want to look at other options for the league.
Television Deal
There is a lack of research on the relationship between television deals and
professional sports. It is a fact that revenue generated form television deals takes up a
large chunk of total revenue generated for most teams, especially in the NFL. Other
research has been performed that has examined similarities between major television
network deals and franchise revenue generation. A study performed by two well known
researchers looked at whether football games should be broadcasted on local TV if the
game is not sold out at least 72 hours before game time. The scholars used data from the
1996 season and discovered that the money franchises make due to the local blackout is
II Szymanski, Stefan, and Stefan Kesenne. "Competitive Balance and Gate Revenue Sharing in Team Sports." The Journal oflndustrial Economics 50 (2004): 165-77.
13
minimal compared to the loss of viewership rights. The authors suggest that there should
be some type of public policy intervention and that broadcasting on a local network could
inevitably lead to increased revenues for both the football franchise as well as TV
networks. 12 The authors also go on to say that "the banning of blackouts is a short-term
solution and that if all NFL games were broadcasted on local networks, there could be a
shortage of attendance during the NFL season" (Putsis, 1495). People would no longer
have to go to the stadium to watch a game. They can save money and time sitting at
home watching the game. With the advancements in technology and the clearness of
television pictures, this is definitely not a far-fetched idea.
Ticket Prices
Ticket pricing has always and will continue to be a heated topic for debate. Is it
beneficial for owners to increase ticket prices when their teams are winning? This might
be an option but at what point do ticket prices become too high? Franchise owners are
constantly trying to find that perfect price where they are selling the most tickets and
earning the most money. If attendance is a major revenue generator for teams, then ticket
pricing is one of the most important issues franchise must deal with. Several studies have
been performed on what exactly effects ticket pricing, effects of ticket pricing on revenue
and what effect does changing ticket prices have on attendance.
A nationally acclaimed researcher wrote an article discussing this very topic. The
article talks about the ways some owners are able to escape the chains of shared revenue.
12 Putsis, Jr, William P., and Subrata K. Sen. "Should NFL Blackouts be Banned?" Applied Economics 32 (2000): 1495-507.
14
Two topics are brought up in this article. One, owners are able to pick which seats are
considered premium in their stadium. Tickets sold for premium seats are not considered
part of shared revenue and therefore the revenue gained from those seats is pocketed by
the franchise. And two, coaches salaries are not under the team's salary cap, which
means that the wealthier teams can hire the better coaches because they have the money
to do it. Along with those two aspects, the study also found that teams in wealthier areas
are more successful than other teams. 13 This study can be related to this thesis due to
ticket prices being a variable of total revenue.
Another study was performed by two scholars in which they go into depth about
the criteria used to establish ticket prices. All owners in the NFL want to find the perfect
ticket price in order to make the money. Finding that right price will bring in the most
money as well as increase attendance. Through a questionnaire distributed among the
team offices of the NFL, the author discovered that the biggest determinant of ticket price
was team performance. Other criteria used to set prices were revenue needs of the
organization, public relations issues, and average league prices. 14
Some franchises also have other problems when setting ticket prices such as the
Chicago Cubs. Ronnie Bitman wrote an article that discusses the unique predicament
that the Chicago Cubs of the MLB face. The Cubs have no problem selling tickets to
their games but they do have a problem with the building owners that surround the
stadium. These building owners have found a way to build seating on top of their
13 Hamlen, Jr, William A. "Deviations From Equity and Parity in the National Football League." Journal of Sports Economics 8 (2007): 596-615.
14 Reese, James T., and Robin D. Mittelstaedt. "An Exploratory Study of the Criteria Used to Establish NFL Ticket Prices." Sport Marketing Quarterly 10 (2001): 223-29.
15
buildings in order to sell tickets to fans who want to watch the ball game from a distance.
The Cubs are complaining that the building owners are breaking laws and are illegally
making money off of the Chicago Cubs. IS Although the Cubs do not have any trouble
selling their tickets because of the enormous demand, many can understand their
argument. If the Cubs were having trouble selling tickets while these building owners
were prospering, their claims would be even more understandable. The argument of the
relationship between ticket prices and revenue is always a hot topic and is an aspect in
which many other variable come into play. This thesis will look further into the effect of
ticket pricing on the consumers' decision to attend a game or to find another way to watch
or listen to the game.
Other researchers performed an interesting study about ticket price changes in the
MLB. The journal they wrote discusses the effect of changing ticket prices based on the
day of the week, the opponent, the time of year, and whether or not the game is played on
a holiday. The authors of this article came up with the results that MLB teams in the
1996 season would have increased revenue by 2.8%.16 Several franchises are not fond up
pricing variability but it could be a way for teams to bring in a bit more revenue than
normal. This may even be more effective for teams that are struggling economically.
This article relates to this thesis because ticket price variability may be an answer for
some owners who are struggling in that area of sells.
15 Bitman, Ronnie. "Rocking Wrigley: The Chicago Cubs' Off-Field Struggle to Compete for Ticket Sales with its Rooftop Neighbors." Federal Communications Law Journal (2004).
16 Rascher, Daniel A., Chad D. McEvoy, Mark S. Nagel, and Matthew 1. Brown. "Variable Ticket Pricing in Major League Baseball." Journal of Sport Management 21 (2007): 407-37.
16
Star Players
How economically beneficial is it to have a star play on a roster? Another hot
topic for discussion, owners are constantly trying to fill their rosters with big names with
the hopes of attracting fans to their games. Without a doubt, people want to see big time
players play but if the big name players are not performing, does the franchise still
benefit? In this thesis, a star player is considered a Pro-Bowler.
Dominic Rivers and Timothy DeSchriver performed a study on whether or not
star players had a major effect on game day attendance. The study was performed in
2001 on Major League Baseball. Their findings were that if the star player is not
contributing to the on-field success of the team, then they do not affect attendance. 17
This study relates to this thesis because franchise owners in the NFL may think that
paying a big time player big bucks is going to bring people to the stadium but this could
not be the case if they do not perform up to their expectations. Owners may want to look
at other options in order to draw bigger crowds to their stadiums.
While many athletes are getting paid millions of dollars, people often wonder if
they are really worth the money. A highly acclaimed scholar performed a study based on
this exact question. His study looks at whether or not athletes are overpaid in American
Football and European Football. The author believes that since there are restrictions on
salaries in the NFL, players are often underpaid compared to what they bring to a
team ... On the other hand, European Football players are often overpaid because there are
17 Rivers, Dominic H., and Timothy D. DeSchriver. "Star Players, Payroll Distribution, and Major League Baseball Attendance." Sport Marketing Quarterly 11 (2002): 164-73.
17
few restrictions on salaries. 18 He then mentions that "TV network deals play the biggest
role in deciding player salaries" (Simmons, 457). In conclusion, the author goes onto to
say that "the belief that athletes are overpaid will always exist and that it is something
that has to exist in order to keep athletes happy" (Simmons, 457).
DJ. Berri, M.B. Schmidt, and S.L. Brook looked at a similar topic relating to star
players. Their study discusses the effects that star players have on ticket sales. The
normal belief would be that if a team has a star player, people want to see that star player
play so they will most likely buy a ticket to watch. Also, star players do not necessarily
mean a better team success rate but it definitely may contribute to more success. The
study was performed on the NBA and the results were that there was a positive
correlation between star players and increased gate revenue. Although the relationship
was positive, it was found considerably weaker than the relationship between team
performance and gate revenue. 19 This study directly relates to this thesis in which star
players will be defined as pro-bowlers for that specific season in the NFL.
A similar study was performed by Jerry A. Hausman and Gregory K Leonard in
which they looked at whether or not superstars contribute to the revenue of a franchise in
the NBA. Their research, conducted using data from the early 1990's, suggests that
18 Simmons, Rob. "Overpaid Athletes? Comparing American and European Football." WorkingUSA: The Journal of Labor and Society 10 (2007): 457-71.
19 Berri, D. 1., M. B. Schmidt, and S. L. Brook. "Star at the Gate: The Impact of Star Power on NBA Gate Revenues." Journal of Sports Economics 5 (2004): 33-50.
18
superstars definitely do bring in more revenue, not only for their team but for other teams
as well.2o
Along with star players being considered revenue generators in several sports,
young star players are an even higher commodity. A study performed by Timothy D.
Deschriver looked at the effect Freddy Adu had on attendance in the MLS during his
rookie season in 2004. Adu was making $500,000 that year but the study confirmed that
that amount of money he was receiving was well worth it. The study showed that every
game that Adu played, revenues for that specific game were substantially higher. 21 This
is evidence that a young star player like Freddy Adu definitely is beneficial for a
franchise from an economic standpoint. This thesis will look into this belief further and
will examine whether young star players have a similar effect in the NFL.
Stadiums
The building of a new stadium has been shown to bring about economic growth.
Many believe that the only people that benefit from the building of a new stadium are the
people directly affected by the stadium such as the team, owners, and the fans.
Oftentimes, the argument that stadiums bring economic growth to the city in general is
also brought up. Many discussions arise when owners want to build a new stadium and
several studies have been performed on the issue.
20 Hausman, Jerry A., and Gregory K. Leonard. "Superstars in the National Basketball Association: Economic Value and Policy." Journal of Labor Economics 15 (1997): 586-624.
21 DeSchriver, Timothy D. "Much Adieu About Freddy: Freddy Adu and Attendance in Major League Soccer." Journal of Sport Management 21 (2007): 438-51.
19
An article written by a scholar brings up the argument of franchise relocation.
Although this is not a study, the author brings up important points about relocation in the
NFL. All owners in the NFL are looking for ways to maximize their profits and one of
the major ideas behind profit maximization is the relocation of a team so that a new
stadium can be built for the team to play in. Owners believe that a new stadium attracts
more people, which eventually brings in more money. The author of this article believes
that NFL franchises should not be able to move whenever they want because taxpayers
take the biggest hit and that cities who lose teams should be able to retain the logo,
colors, and name of the team in case they host another team. 22 Also, the author suggests
that "heavier taxes should be placed on the money that is used to build new stadiums and
that teams should not be able to relocate until all debt has been retired from the building
of the new project".
Another study performed by similar researchers looked at whether or not a new
stadium directly correlates with a higher win percentage. Oftentimes, owners think that
having their team play in a new stadium will increase team performance, which would
then lead to increased revenues. The authors performed a study on the four major sports
and their results show that building a new stadium for the belief that success will increase
is false, except in the MLB. 23 All other sports "showed no significant change in
increased success".
22 Leone, Katherine C. "No Team, No Peace: Frachise Free Agency in the National Football League." Columbia Law Review 97 (1997): 473-523,473.
23 Quinn, Kevin G., Paul B. Bursik, Christopher P. Borick, and Lisa Raethz. "Do New Digs Mean more Wins?: The Relationship between a New Venue and a Professional Sports Team's Competitive Success." Journal of Sports Economics 4 (2003): 167-82, 167.
20
Another study observed who actually benefits from a sports team. The reason
why this article is important is because tax dollars are often used to build new stadiums.
The author offers an example of a city that spent over $500 million on a new stadium.
Why should people who are not affected by the sports team have to pay money out of
their pocket to fund a new stadium? The study shows that fans, players, and owners are
the beneficiaries of a team's location. The authors go onto to provide a solution for the
problem. They came up with the idea to somehow tax only the people who benefit from
the team, which means increased ticket prices, concessions, and taxes on salaries. 24 New
stadiums may playa significant role in generating revenue and is a topic that will further
be examined in this thesis.
Another scholar looks further into whether or not sports stadiums bring in revenue
to city in which they are built. Many tax dollars go to the building of new stadiums with
the hope that the new stadium will also bring economic prosperity to other businesses in
the city. The test performed by Santo used data from stadiums of the NFL and MLB built
in the 1960's and 1970's. The study concluded that only eight out of nineteen
metropolitan cities in the analysis showed any type of economic gains from constructing
a new facility.25 This is important because people want to see their tax dollars used in a
way where they will eventually see some type of return.
A study performed by other researchers looked into the relationship between
profit maximization and building a new stadium. The study uses seven NFL franchises
24 Swindell, David, and Mark S. Rosentraub. "Who Benefits from the Presence of Professional Sports Teams? The Implications for Public Funding of Stadiums and Arenas." Public Administration Review 58 (1998): 11-20.
25 Santo, Charles. "The Economic Impact of Sports Stadiums: Recasting the Analysis in Context." Journal of Urban Affairs 27 (2005): 177-9l.
21
between the 1995 and 1999 seasons. The scholars perfonning the study found that teams
in the NFL meet their wealth maximization when they build a new facility.26 It is
believed that new stadiums do bring in a lot of revenue but is that amount really
significant to a team? Further research will tell whether or not a new stadium is
economically the best thing for a team.
Concessions
Concessions at sporting events are considered a major profit generator. For many
owners, their goal is to get people into the stadium because that is when they spend most
of their money. Beverages, food, snacks, and candy can all be bought at stadiums around
the world. The advances made in the concessions department throughout the years at
sporting events have been astounding. The amount of money franchises charge for
concessions is sometimes mind-blowing but people still come back for more. How
important are concessions at sporting events and how much revenue do they generate.
Two major researchers perfonned a study on price elasticity in professional
sports. Both authors looked into the profit motive of owners and found that it is entirely
possible to find profit-maximizing owners pricing tickets in the inelastic region of
demand to sell more concessions.27 This study relates to this thesis because concessions
26 Brown, Matthew, Mark Nagel, Chad McEvoy, and Daniel Rascher. "Revenue and Wealth Maximization in the National Football League: The Impact of Stadia." Sport Marketing Quarterly 13 (2004): 227-35.
27 Krautmann, Anthony C., and David J. Berri. "Can We Find It at the Concessions? Understanding Price Elasticity in Professional Sports." Journal of Sports Economics 8 (2007): 183-90.
22
are considered an important variable in team revenues. If owners are looking for ways to
maximize profits, concessions may be an important area that owners must look at.
Merchandise
Merchandise sales are always a big revenue generator for teams but just as some
ticket sales are shared among teams, merchandise sales are spilt equally among all the
teams. Popular teams are hurt by this league rule while teams not so popular benefit
tremendously. If merchandise sales are a major generator of revenue, then what are some
of the factors that contribute to these sales? Although there has not been a substantial
amount of research performed in this area of sports economics, there have been a few
studies performed on team identification and impulse purchases of sports merchandise.
Multiple researchers and scholars performed a study in which they looked deeper
into the impulse buying of sports teams' licensed merchandise. The authors wanted to
look further into what contributes to the impulse buying of licensed gear from sports
teams. Through the study, which consisted of 464 college students, the authors found
that impulse buying of sports merchandise is correlated with a psychological attachment
as well as your financial situation.28 Merchandise sales are filed under shared revenue in
the NFL and is considered a significant revenue generator. If people are purchasing
merchandise on impulse, then importance of team success may be stressed even more.
People want to feel a part of a winning organization and purchasing the merchandise of a
28 Kwon, Harry H., Galen Trail, and Jeffrey D. James. "The Mediating Role of Perceived Value: Team Identification and Purchase Intention of Team-Licensed Apparel." Journal of Sport Management 21 (2007): 540-54.
23
successful team may lead to a sense of optimism for many people. Increased purchases
of merchandise means increased revenues for franchises.
Other research has been performed on private licensing of team merchandise. A
scholar by the name of Grassmuck discusses how many colleges and universities have
taken the independent licensing route in order to profit from selling goods with their logo
on them.29 This field has grown tremendously over the years and bootlegging is at an all
time high. The amount of money schools are making is significant and losing cash from
illegally made merchandise is something that schools want to crack down on. The NFL's
merchandise sales are extremely significant as well. The revenue generated from
merchandise sales are considered shared revenue so many teams take merchandise sales
seriously.
There are several determinants of NFL franchises' revenues but some stand out
more than others. Past research provides us with detailed information on this thesis topic.
The research on stadiums as well as television deals and attendance shows tremendous
significance in revenue generation. Team performance also played a big role in revenue
generation for NFL franchises. When star players are performing up to their potential,
they have been shown to be major revenue generators for teams as well. Merchandise
sales, concessions, market size, and ticket prices were all shown to have positive effects
on revenue as well. With the research that has been performed in the past, the further
research of these determinants, and the collections of data, the true determinants of an
NFL franchises' revenues will be studied and which of these determinants that is the most
important will be decided.
29 Grassmuck, K. "Colleges Fight Bootleggers as Sales Boom for Goods that Bear Logos and Emblems." The Chronicle of Higher Education (1990): 32-36.
CHAPTER 3
METHODOLOGY
This chapter describes the methodology employed by this study, which examines
the factors influencing revenue in the National Football League along with the
methodology used in the regression analysis. The research study examines revenue
generators in the NFL and will use a quantitative analysis to determine which of the
variables are most influential. Along with the effect on revenue, each variable will be
comparatively tested to show their effects on each other. Other professional football
leagues will not be included in this study although there is a possibility that this study
could also have similar results as other professional football leagues. Based on the
literature review, the research study will use the following model for revenue generators
in the NFL:
Revenue = Attendance + Win % + Television Deal + Ticket Price + Star Players +
Stadium + Population
24
A more accurate model would include sponsorships, concessions, and
merchandise. Although sponsorship, concessions, and merchandise also playa role in
revenue generation for NFL franchises, proper data collection could not be obtained.
Since data on those two areas were not available, the model above will be used for this
research study.
25
The dependent variable used in this study will be revenue. There will be six
independent variables including attendance, win %, television deal, ticket price, star
players, and population. Along with the independent variables, there will be one dummy
variable, which is stadium. Not all of the independent variables are independent from
each other so a comparative analysis of the variables will also be studied.
For this research study, the 2002, 2003, 2004,2005, and 2006 seasons were used.
All 32 NFL teams were included in the research. These specific seasons were picked
because there were no franchise relocations and no expansion teams acquired by the NFL
during this time period. This study will look at each variable and its effect on revenue for
each team during the five seasons chosen. The amount of data collected will provide a
substantial amount of evidence to imply whether a variable is important to revenue or
not.
26
Variables
The dependent variable used in this research study will be revenue. Revenue
generation has been studied before in the NFL as well as other leagues but different
variables sets were used. This research study will use a set of independent variables that
are believed to have the greatest effect on revenue. The independent variables in this
study should all have either a negative or positive effect on revenue. The first
independent variable is attendance. Attendance is believed to have a positive effect on
revenue based on the idea that the more people you have at your game, the more money
you are going to be making. Most football fans enjoy large crowds because the stadium
is louder and the atmosphere is energetic. People want to enjoy their time at a football
game and when there are large crowds enjoying their favorite teams play, people seem to
be more inclined to attend future games. If attendance is up, that means ticket sales are
up and more people are going to be buying food and merchandise as well. A positive
correlation does exist between attendance and revenue but the significance between the
two will be further studied.
Another independent variable is television network deals. Television network
deals are also a main contributor to the revenue of an NFL franchise. With the NFL
owning national television deals with CBS, FOX, ESPN, ABC, and NBC, much of the
teams' revenues come from their games being televised. There is definitely a positive
correlation between the television network deals and revenue. From the 1998-2005
seasons, there was $2.2 billion dollars being split up among the 32 teams every season.
In 2006, the NFL acquired a new deal in which the 32 teams split a Whopping $3.7 billion
dollars. In 2006, each team was receiving $116,718,750 from the NFL's network deal.
This is a substantial amount of money and for many NFL teams, more than half of their
total revenue.
27
A third variable is ticket pricing. Ticket prices will be positively correlated to
revenue. The more tickets that are sold, the more money a team will be receiving. On
the other hand, ticket prices are a bit more delicate. Owners want to see their stadium fill
up, but having the right ticket price plays a large role in that. Owners want to maximize
the number of people in their stadium but also want to maximize their ticket prices in
order to get the most revenue. Many teams have figured out the perfect line between the
two while other franchises have struggled. Ticket price definitely has a positive effect on
total revenue for an NFL franchise but the significance of the effect is still in question.
Looking at two teams explains that higher ticket prices don't necessarily mean higher
revenues. For the 2006 season, an average ticket for a Buffalo Bills game cost $53.81
while and average ticket at a Cincinnati Bengals game cost $74.31. Although the Bills
ticket cost $20.00 less, the Bills were still able to gross more total revenue than the
Bengals.
A fourth variable is team performance. Team performance plays a major role in
revenue for a team and it is also a positive one. When a team is winning, more people
want to see that team play, leading to increased sales in concessions, merchandise, and
tickets. People want to be part of a winning franchise. There are many die-hard fans
who enjoy seeing their team win but there are also casual fans who enjoy a good time of
entertainment when they attend a football game. People do not want to spend money and
watch their team lose. Team performance is a major part of revenue and is the reason
28
many franchises continue to generate major amounts of revenue each year. Also, team
performance in the past is a major factor as well because people also want to be a part of
a storied history of their favorite team.
Two other variables that playa positive role in total revenue are star players and
state population. The reason for a positive belief is that if you have star players on your
team, people are going to want to come out and see them play. People here about new
and upcoming players and are interested in what they can do on the field. Not only are
rising stars contributors to revenue generation but star players that have been in the
league for a while are also revenue generators. People enjoy seeing big-time plays and
big-time skill and most star players bring that to the field. Also, star players can lead to a
better win percentage, which also encourages people to come out and watch. State
population may have a positive effect on revenue because the larger the population of a
state, the better chance you will have of filling your stadium. Although the belief is that
both of these variables have a positive effect on revenue, the significance is still up for
question as well.
The one dummy variable that will be included in this project is whether or not a
team is playing in a new stadium. If a team is playing in a new stadium, there will be a
positive correlation between the stadium and total revenue. If the stadium was built
within 3 years of the year being studied, the stadium is considered new and will receive a
1. All other stadiums will receive a 0 while running the model. People enjoy sitting in
nice seats and enjoy state of the art facilities. Many of these new NFL stadiums are
luxurious offering several amenities while older stadiums are not up-to-date and do not
offer anything special. People enjoy going to a nice, clean stadium and watching their
29
favorite football team. New stadiums definitely attract more people because people want
to experience what the stadium has to offer as well.
The data for this research study come from multiple sources. Data for attendance,
ticket prices, and win percentage come from Rodney Fort's data page. Rodney Fort is "a
recognized authority on sports economics and business, both in the U.S. and
internationally. ,,30 The NFL's television deals are public information and can be obtained
from many sites including the NFL's home website. Information on stadiums and when
they were built was also acquired from the NFL's home website while state populations
were acquired from the US Census Bureau's website?l Information on Pro-Bowlers was
obtained from a Pro-Bowl link from the NFL's home website.32
Statistical Methods
All of the data that were gathered are placed into spreadsheets in Microsoft Excel.
The method that will be used to determine the significance of the determinants of
revenues will be a regression analysis. "The goal of regression analysis is to determine
the values of parameters for a function that cause the function to best fit a set of data
30 http://www.rodneyfort.coml
3l http://www.census.gov/
32 http://www.nfl.com/probowl
observations that you provide. ,,33 The actual data analysis recognizes that there are
actually path dependent relationships among the variables within the overall model. So
the actual regression models that were tested are as follows:
Modell
Attendance = pO + PI Population + P2 Star Players + p3 Ticket Price + P4 Win%
The first model examined the effects of population, star players, ticket price, and win
percentage on attendance.
Model 2
Revenue = pO + PI Attendance + P2 Television Deal + p3 Stadium
The second model showed the relationship between revenue and attendance, television
revenue, and stadium age.
Model 3
Revenue = pO + PI Attendance + P2 Television Deal + p3 Ticket Price
33 http://www.nlreg.comlintro.htm
30
31
The third model examined the effect of attendance, ticket price, and television revenue on
overall team revenue.
Model 4
Revenue = ~O + ~ 1 Attendance + ~2 Win% + ~3 Television Deal + ~4 Ticket Price +
~5 Star Players + ~6 Stadium + ~7 Population
The fourth model showed the relationship between revenue and all seven variables.
CHAPTER 4
RESULTS
This chapter will offer and discuss the results of the regressions analyses that
were discussed in chapter 3. In order to look and see if any multicollinearity exists, the
correlation matrix was ran and correlation numbers were produced. Although there were
no signs of multicollinearity, the highest numbers produced were correlations between
revenue and attendance and revenue and ticket price. Both had correlations below .6
which indicates that multicollinearity does not exist. No independent variables were
close to having strong correlations with each other which means my variables are all
explaining different parts of revenue without overlapping with the others.
32
Table 4.1
Correlation Matrix
Revenue Stadium Poeulation Attendance Star Pla,[ers Ticket Price Win % Television Revenue 1 Stadium 0.1219 1 Population -0.0639 -0.0844 1 Attendance 0.4546 -0.0009 -0.2303 1 Star Players 0.0991 0.0798 -0.0379 -0.0059 1 Ticket Price 0.5589 0.0578 -0.0383 0.2927 0.1834 1 Win% 0.0385 0.1152 -0.2074 0.1647 0.334 0.1185 1 Television 0.3737 0.0801 0.014 0.0925 0.0672 0.3076 0 1
33
34
Table 4.2
Results of Regression Analysis
Modell Model 2 Model 3 Model 4 Dependent Variable Attendance Revenue Revenue Revenue
Intercept 0*** 0.0594 0.538 0.5368 Stadium 0.1465 0.1344
Population 0.0101 * 0.7744 Attendance 0*** 0*** 0 Star Players 0.1738 0.5802 Ticket Price 0.0002*** 0*** 0***
Win 0/0 0.1197 0.2096 Television 0*** 0.0005*** 0.0009*** R-squared 0.1517 0.3268 0.4496 0.4629
f-stat 6.9277 25.2424 42.4825 18.7135
* P < .05 ** P < .01
*** P < .001
34
35
Modell
This first model examined the effect of population, star players, ticket price, and
win percentage on attendance. The reason why this regression was performed was
because all four of these variables were viewed as independent variables with attendance
being the dependent variable. All of these variables are believed to have some type of
positive effect on attendance, which in return has an effect on revenue as a whole.
The results of this regression model show that population and ticket price have a
major effect on attendance for NFL franchises. Population had a p-value of .05 and a t-
stat of -2.6. Ticket price had a p-value of .0001 and a t-stat of 3.85. Population had a
negative coefficient while ticket price had a very large coefficient.
Once again, Win% was believed to have a large effect on attendance. It is
understood that people want to see winning teams; they want to feel a part of a winning
tradition and winning teams always mean good times. Although win percentage failed to
reach significant levels, the numbers the regression provided show that win percentage,
although not significant, still playa role in attendance and revenue generation.
The model as a whole produced a weak R-squared of .15 and an f-stat of 6.92.
This means that the variables provided explained about 15% of the variation in
attendance generation in the NFL. Other factors such as weather and match-up are two
other variables that should be considered when looking at attendance in the NFL. (See
figure 4.1, pg. 37)
36
Model 2
This second model examined the effect of attendance, television revenue, and
stadium age on revenue. The reason why these three variables were picked to run a
regression against revenue was because this research project viewed these three variables
as the most significant. The model that this research project is based off of viewed these
three variables as the major independent variables of revenue generation.
The results of this regression were similar to that of the first model in which
television and attendance had highly significant p-values as well as t-stats. Once again,
stadium age was very close to being significant in both tests but failed to reach the
required numbers. As stated in previous chapters, it was known that television revenue
and attendance are major revenue generators for franchises and this specific model
showed exactly that.
This regression produced an f-stat of25.24 and an R-squared of .32, which entails
that these three variables explain about 32% of the variation in revenue generation. (See
figure 4.2, pg. 38)
37
Figure 4.1
Effect of Population, Star Players, Ticket Price, and Win Percentage on Attendance
Population
Star Players
Ticket Price
\Vin%
* p < .05 ** P < .01 *** P < .001
Attendance
Figure 4.2
Effect of Attendance, Television Revenue, and Stadium Age on Revenue
Attendance
Television
Stadium
* p < .05 ** P < .01 *** p < .001
.53 *** + Revenue
38
Model 3
This third model examined the effect of the three most significant variables on
revenue. Attendance, ticket price, and television revenue were the three independent
variables used and the dependent variable was once again revenue. This regression was
performed because although we do know that these three are extremely significant in
revenue generation, some of the numbers the regression offered were different from the
original regression with all seven variables.
39
All three of the variables' p-values were significant with attendance and ticket
price being extremely significant. All of the variables also had extremely significant t-
statistics with their numbers being way above the critical level of 1.96. The coefficients
were large except for television but all three were positive. The r-squared was .45, which
means the variables explain about 45% of the variation in revenue generation. This is
only 1 % less than the r-squared value from the original regression in which all seven
variables were used. This regression proves that these three variables, without a doubt,
have the most profound effect on revenue generation in the NFL.
Model 4
This fourth model examined the effect of all of the variables that were obtained in
this research project on revenue. The model contained seven independent variables.
Among those variables, three were significant at the 5% level. The significant variables
were attendance, ticket price, and television. Stadium and win percentage were also very
40
close but failed to be statistically significant. The results were a little surprising because
win percentage is believed to playa major role in revenue generation while ticket price
does not seem to carry much significance in revenue generation. The t-stat for attendance
was 5.23 with a coefficient of 155.97 while ticket price had a t-stat of 5.94 and a
coefficient of 11,38,293.617. Television also had a t-stat of 3.37 and a coefficient of .34.
All of these numbers are higher than the t -critical value of 1.96, which is also another test
for significance. The variable Win% had a p-value of .21 and a t-stat of -1.26. This
negative t-stat means that win percentage is either just believed to have an effect on
revenue or it does not have any statistically significant affect.
The results for the variable stadium were a little surprising. Since so much
research has been performed on stadiums and revenue generation, the research project
was believed to show more significant results for stadiums through the regression.
Although the t-stat and the p-value were both extremely close to significant levels, it was
believed that stadium would be either the second or third most significant out of all the
variables.
The model as a whole showed an R-squared of.46 which means the variables
used explain about 46% of the variation in revenue generation for franchises of the NFL.
The f-stat provided was 18.71
CHAPTERS
CONCLUSION
This chapter will go into depth about the conclusions drawn from this research
study. This chapter will also summarize the conclusions that were developed due to the
models that were used. Implications for franchise owners will then be offered in a way
that can be taken as future advice. This chapter will then provide ideas for further
research that may be performed in order to extend on this thesis. The last part of this
chapter will offer final thoughts. Positive and negatives of the research project will be
relayed in a manner that will hopefully benefit NFL franchises. This thesis used five
years and all 32 teams each year to calculate its regressions. Further research using more
years, such as ten or more, would be interesting and may provide different results than
this research project came up with. Comparing these results to a similar league such as
the NHL and MLB would also make for an interesting thesis. Seven variables were used
to further explain revenue generated by NFL franchises. All seven of the variables were
stadium, state population, attendance, star players, ticket price, win percentage and
television deal. Of those seven variables, and after running several regressions, it was
concluded that only three of those variables significantly affect attendance.
A path model was developed to further help understand what was effecting
revenue generation in the NFL. The path model examines factors that affect attendance .
41
42
and then other variables are included with attendance to see what affects revenue. This
two-step model helps break down the variables into smaller categories to help better
understand revenue generation. In the model that explains attendance, ticket price was
the only significant factor while population played a key factor as well. In the model that
explains revenue, attendance, ticket price, and television deal all had the largest effect on
revenue. The four other variables were not nearly as significant but they still playa role
in revenue generation.
Implications for Managers of Football Teams
The conclusions drawn from this research study are not extremely surprising but
will in fact help current and future franchise owners maximize profits in the NFL. First
off, ticket pricing is a major revenue generator for teams. Franchise owners are always
looking for that fine line between maximizing ticket prices while also maximizing ticket
sales. Several aspects go into deciding ticket prices that must be taken under
consideration while deciding on prices. There should be two separate types of prices set
for an NFL season. The first should be season ticket holders. Prices for season ticket
holders should receive some type of discount although it should not be much. Taking
into account what the season ticket holders paid last year and how many season ticket
packages were sold should give you a good understanding of how much ticket prices
should be set at. One must remember that your season ticket holders are you biggest fans
so treating them the best is a priority. They are going to be the ones coming back game
in and game out to cheer on their NFL team. Also, as evident in this study, they are the
43
people who spend the most money at games whether it is on souvenirs, merchandise, or
food. Also, the findings in this study imply that keeping your stadium filled is key in
revenue generation so making sure they want to come back is also a prime idea for
franchise owners.
Other ticket prices should be based on individual game ticket sales. Through
research on this topic, increasing and decreasing ticket prices based on the opponent is
not beneficial for the franchise, which makes ticket pricing for franchises easier. A set
ticket price for the season should be set at the beginning of the season. Ticket prices
should obviously be based on where the seat is located. Prices for prime seating should
be higher than prices of seats that are located in less prime areas of the stadium. The
results of my research suggest that owners should take into consideration whether or not
their team had a winning season the previous year. People want to watch winning teams
play and feel a part of a winning tradition. If a franchise does not have a winning
tradition, then current successful seasons definitely contribute to increased attendance.
Although star players are not a significant revenue generator, research from this study
suggests that Iif a franchise is receiving a star player or a big time college player is
coming in for his rookie season, ticket prices could also be increased, although revenue
generated from this aspect would not be significant.
Along with ticket prices, attendance is the biggest revenue generator in the NFL.
The more people you have at your games, the more money your franchise is going to
make. Money is spent on parking, food and drinks, tickets, merchandise, and souvenirs.
In order to keep attendance up, people must be having a good time. In order for people to
come back, there have to be incentives to come back to a stadium. Through the research
44
performed, incentives are easily obtainable for teams. Giveaways and games are always
a hit with fans. Making sure fans are enjoying their time at the stadium is also taken into
account when people are deciding whether or not to come to a game. Research also
suggests that making sure employees at the stadium are treating the fans with respect is
an easy but impressively important way to get fans coming back to games. A franchise
with a storied history is something that not many teams have but those that do can use it
to their advantage. Making people feel that they are a part of history is something that
many people look for. Fans are always interested in seeing where their team came from
and what kind of success they have had throughout the years. If a storied history is not
the case for a franchise, the beginning of a storied history could be eye-catching and just
as important. Filling up a stadium is always going to be beneficial for franchises and for
each franchise, it is going to take a different aspect to get people coming back to fill those
seats. The findings of my study imply that the key to revenue generation is, as an owner,
to find what attracts people to your stadium and excelling in that area; this may be easy
for some owners while very tough for others.
The third and final most important aspect of revenue generation that was
discussed in this thesis is the NFL television deal. The NFL consists of 32 teams all over
the United States and each of these teams is one of the most popular pieces of
entertainment people can find. Along with baseball, many consider football to be our
national sport as well considering its popularity among children and adults all over the
U.S. The current NFL television deal is worth billions of dollars and is divided up evenly
throughout the NFL. All 32 teams receive the same amount of money from the NFL due
to the television deal and each team receives millions of dollars, which inevitably
45
explains most of teams' revenue generation. As a matter of fact, for some teams, the
television deal makes up more than half of their revenue generation for a year. Research
shows that without this television deal, teams wouldn't make nearly as much as they do
now. It is important that the NFL keeps strong ties with television networks because not
only do people want to watch games when Sunday rolls around but these television
networks are a big reason why franchises are able to pay players big dollars. Paying
players big dollars means a team is paying for high talent, which could then lead to
increased output. It is a large economic circle that exists within football and the NFL
television deal is a maj or source of that circle.
Further Research
Although several key variables were used in this study, future research in other
areas as well as continued research in areas covered would lead to a more complete
research project. This section will discuss future research ideas that can build on this
thesis. After looking at seven different variables that are all believed to have some effect
of revenue generation, only three of those variables ended up being large contributors to
revenue for NFL franchises. Merchandise and concessions, parking, and sponsorships
were also believed to help revenue generation but further research would need to be
performed in order to include those in a similar study. The belief that all four of those
areas contribute to revenue generation is very strong. Several franchises in professional
sports either directly own concession and parking sales which provides quite a bit of
money to the franchise on game days. Other franchises simply rent those areas out so
46
that they do not specifically have to take care of them. Another company comes in and
does the job and in the end, splits the revenue with either the franchise or the stadium
owners, maybe even the city. Merchandise revenue is split among the 32 NFL teams but
further research on where that information could be acquired would be needed.
Sponsorships are also a major revenue generator in the NFL. Whether it is a league
sponsorship, an individual sponsorship, or a stadium sponsorship, companies are willing
to pay top-dollar to see their name represented by such a popular sport or franchise. The
amount of money teams receive from sponsorships depends on the negotiations they
make but sponsorships, without a doubt, are a large revenue generator.
Among these variables that were left out, I would look into the history of each
NFL team. More specifically, I would look into the number of Superbowls won as well
as the overall win percentage of every team. I feel that a storied history contributes
greatly to the amount of revenue franchises are bringing in. People want to feel a part of
a winning tradition and when teams have a winning tradition, they seem to have more
fans. Also, teams that have been around longer seem to have a larger fan base so maybe
something like looking into the number of years a team has been around in the NFL could
also be another variable. Further research on this same topic could include the number of
professional sports team in the same area. Multiple sports teams in the same location
could lead to less attendance at all of the venues. Lastly, looking into teams' individual
schedules could be another aspect to consider. Rivalries are a large part of professional
sports so scheduling the maximum amount of "rivalry games" could be another large
factor contributing to revenue generation. Along with "rivalry games", match-ups should
be scheduled that feature major metropolitan cities.
47
Final Discussion
The purpose of this study was to identify the factors that affect revenue generation
in the National Football League. This research has been the most up to date study
performed in the NFL and uses multiple variables that are all believed to affect revenue
generation. With the NFL continuously becoming more and more popular and taxpayers'
dollars being used to build stadiums, it is important that studies be performed to
understand the factors associated with revenue generation. This information can be used
to keep officials as well as the public and franchise owners knowledgeable about revenue
in professional sports. With a few factors identified, NFL franchises can focus on these
areas in order to maximize their profits each season. Every season is a new start for
franchise owners and the must decide how to maximize the revenue of their team.
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Miscellaneous
http://www.rodneyfort.com/
http://www.census.gov/
http://www.nt1.com/probowl
http://www.nlreg.comJintro.htm
