Tuesday, February 9, 2010

Impact of Team Success on Communities, a Response

I posted the following in the comments at the post on my paper at The Sports Economist. The names refer the authors of the original post and the comments to that post.


I would like to defend the results of our paper to a couple of comments that have been made.


Brian: "The D&E results, themselves, point to problems for this front -- showing an NFL presence lowers wages/incomes while an MLB presence raises them. Given the relative popularity of the two sports in recent decades, that result makes little sense."

Donald: "The first is that the (partial) effect of having an NFL team is estimated as negative (but positive for MLB)."

I'll admit we did not really look at the baseball franchise variable since we were not really that interested in that variable. I would interpret the football franchise variable as being important when combined with the winning percentage variable. If there is no impact on income from having an NFL team, but there is a positive impact from winning relative to losing, the NFL franchise variable would have to be negative while the NFL winning percentage is positive. As Brian suggested, given all of the other NFL variables in the regression, it is difficult to interpret the simple dummy variable for the presence of an NFL team.


Donald: "The second is that the marginal effect of having a good team becomes negative at just slightly better than a winning record."

We do discuss why the impact peaks at just over .500. There are a couple of reasons to think this could happen:

1) The impact peaks as the team reaches an almost certain playoff team. That could be consistent with what fans care about.

2) Fans could care more about loss avoidance, which would imply that they just want to get to a decent team. An argument against this possibility is that the psychological literature actually suggests that fans do care more about winning than loss avoidance.

3) There are a lot less teams when you get to the extreme values for win percentages.

4) A square term is going to find a peak somewhere unless it goes off exponentially at the end.

My personal view is that it is a combination of points 1 and 4. Fans' moods are pretty equally good from about 11 to 16 wins. A plateau at 11 wins is not possible just using a quadratic term, so the functional form forces us into a peaking at 11 wins.


Donald: "Of somewhat more importance is the lack of any sort of theoretical foundation for the possibility of the success of a professional sports team having a positive impact on per capita income."

While we did not include a formal theoretical model, I think we gave a couple of reasonable scenarios for why the income would increase. The psychological research shows that there are compelling reasons that sport team success (or failure) could affect mood. Other studies suggest that there are reasons to think that mood would affect both spending and productivity. Depending on your view of macroeconomics, a substantial increase in consumption (Keynesian) or productivity (RBC) should lead to an increase in income. Admittedly the intermediate portion of the model would be interesting as well. Two ways to proceed with that would be a formal model of the relationship between mood and income (regardless of sports) or to estimate the mood of the population (which would be nearly impossible).


Donald: "… I'm inclined to think their result is mostly chance."

It is always possible that any result is due to chance. However, we did follow accepted statistical techniques to get our results. Further studies may eventually confirm or disprove our findings.


Greg: "Trying to winnow out a positive effect on community income or hard economic values of any kind from an NFL or MLB franchise is an exercise largely in justifying huge public expenditures and rationalizing political benefits." 

Brian: "Again, let me reemphasize, even the existence of large effects does not provide an open-and-shut case for supporting publicly-financed stadiums."

We really did not intend our study to be specifically related to the issue of stadium financing. I think our only policy recommendation was that if cities do build stadiums that the funding be conditional on team success to some degree. This policy would also be consistent with some of the contingent valuation studies. I think that the owners' reactions would be fascinating. They definitely would not want it in there, but they also would not want to argue against it.

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