Private Financing and Sports Franchise Values

Abstract

This article examines the impact of receiving a new stadium on team franchise values. The author argues that a new stadium will increase the franchise values of teams regardless of how construction was financed. A team playing in a stadium that it owns will be able to capitalize the value of the stadium in the team's franchise value and will thus have a higher franchise value. Using panel data for Major League Baseball teams from 1990-2002, the author finds that after controlling for team quality and metro area differences, regardless of the financing mechanism, a team playing in a brand new stadium realizes an increase in its franchise value. It is also found that a team playing in its own stadium has a higher franchise value than a team playing in a public stadium. However, the difference in franchise values between playing in a team-owned stadium and playing in a public stadium does not offset the average cost of constructing the stadium. The article thus provides a deeper understanding of the determinants of franchise values and of the motives of sports team owners in their lobbying efforts for public subsidies.