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, Bizjournals.com. In the analysis Bizjournals.com “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 otal personal income (TPI). The minimum amount required? $89.2 billion.

I’m trying to figure out how Bizjournals.com 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:

  • MLB – $89.2 billion
  • NBA – $38.4 billion
  • NHL – $35.7 billion
  • NFL – $33 billion
  • MLS – $16.1 billion

Step back and look at that for a second. According to Bizjournals.com 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:
msa-bayarea
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.
msa-othermarkets
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?

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