"If You Can't Win, WhyShould I Buy a Ticket?":Hope, Fan Welfare, and

Competitive Balance

Norm O'Reilly', Alan Kaptan^ Ryan RahineP, John Nadeau^

Yunyi Liu

five sections

• (a) an acknowledgement of important concepts in CB• (b) a discussion of the goal of the firm in the context of

professional team sports and the role of CB in promoting this goal

• (c) a definition of a construct that may form the basis of a future metric to measure CB in line with a fan-welfare based goal of the firm• (d) an empirical investigation of the hope construct to

determine the resonance of the theoretical construct among fans and management

• (e)conclusions and future research suggestions.

Important Concepts• Competitive balance: the degree of uncertainty in the outcomes

of competitive sporting events (Humphreys, 2002);

• fan welfare :fan satisfaction

• fan types : loyalties and styles

• non-fan refers :an individual

• Uncertainty of Outcome Hypothesis(UOH):An individual receives more utility (happiness) when the outcome of the event is no known with certainty

Goal of firms

• Individual team: maximizing winning percentages or their teams' profits

• League: Maximizing fan welfare—understand the needs of fans—Maintain competitive balance

the role of CB in promoting fan welfare

Lower std dev win pct = More Competitive Balance

• Equal size of teams—uncertainty of outcomes—increase fan interest—equal weight of games for different teams

• Examples: Super Bowl 2014, Olympic Games

What is hope• hope is defined to be a dynamic and binary forecast

for a team's ability to engage in post-season play, made by consumers of that team

How to measure hope and CB

• First, a random sample survey was implemented during July of 2006 in a large urban center that is home to an MLB team.

• The second stage of the method aimed to pinpoint when the average fan loses hope and to determine whether all or most fans tend to lose hope with criteria based on their team's lag behind the performance leader.

three suppositions

• First, fans and team management are both equally knowledgeable and rational concerning their team's prospects.

• The second supposition is that management's decision to give up on a season is readily observable by fans and that fans will take it as a credible signal that management has "thrown in the towel," in turn influencing fans also to give up hope.

• Finally, the manner (e.g., the trade or release of a player who is a fan favorite, trades in which the team receives only cash and/or future draft picks in return, etc.) in which management gives up hope may actually further impair the team's chances

Method

• documented trades made by management at or around the trade deadline in MLB

• hypothesized that teams without hope in the current season often become sellers at the trade deadline and acquire young and/or inexpensive players to build for future seasons and/or to save money.

• We then analyzed the data to determine if there was strong empirical support data included trades made between June 1, 2006 and July 31, 2006 in Major League Baseball(proximity to the non-waiver trade deadline)

• Factors: the date of each trade, the particulars ofthe trade (player names, cash, etc.), the number of games behind a playoff spot a team was at the trade date, and the team's net increase or net decrease in salary incurred by the trade. • Teams that incurred net increases in salary

because of the trade were accorded a value of "1"; teams that incurred net decreases in salary because of the trade were accorded a value of "2."

Goal of observation

(1) we wanted to confirm whether management traded away salary (i.e.,did not have hope) when the team was "X" games or more out of a playoff spot at or around the trade deadline or traded into salary (i.e., did have hope) if the team was "X" games or less out of a playoff spot, and (2) we wanted to confirm whether the behavior was universal or close to universal for all teams.

Result 1

Result 2

Results

• the combined factor analysis and the underlying survey results support the hypothesis that the hope for post-season play is another factor in driving fan interest.

• The t-statistics in Figure 1 lend strong support to the hypothesis that team management does trade away salary(i.e., give up hope) when the team is X or more GBL and takes on salary (i.e., maintains hope) when it is fewer than X GBL. Moreover, although not conclusive, the consistency of the results suggests that managers of most

teams behave similarly.

Conclusions• The results suggest that maximizing fan welfare is a legitimate goal of the firm,

based on common goals utilized by for-profit firms most often propounded in the literature.

• The literature on CB was then extended by suggesting and empirically testing that "the hope of post-season play" is related to fan interest.

• Further, hope is adequately conceptualized as a binary construct implemented through GBL break points.

• In contrast to some of the CB literature, findings suggest that the number of teams (relative to the number of teams in the league) reaching the post-season every year is related to fan welfare.

• A next step is to develop a measure of CB based on hope and empirically measured over time and to test whether this metric more effectively explains the relationship of CB and attendance (a measure of fan interest) than previous measures.