Which MLB Team has the “Best” Home Fans? And Who has the Worst? Hint: It’s LA!

One of our favorite types of analyses at Emory Sports Marketing Analytics is to assess the brand equity (a proxy for fan intensity and loyalty) of sports teams.  Today, we present our analysis of MLB fan bases.  Thus far, in our short history, we have looked at the brand equity of college and pro basketball teams.   For those who are unfamiliar, brand equity is a common concept in marketing.  The basic idea is that well known and well regarded brands provide value to organizations.  Examples of high brand equity brands include Coca-Cola, McDonald’s and Apple.  These brands have value because consumers may have significant loyalty to the brand, or may be willing to pay a price premium.  There are a wide variety of methods for calculating brand equity.  Most methods involve surveys of consumers, and focus on data such as awareness levels, loyalty rates or consumer associations.

For our MLB brand equity analysis, we use a “Revenue Premium” method.  The intuition of this approach is that brand equity adds a premium to team’s revenues that goes beyond what would be expected based only on team quality and market size. To accomplish our analysis, we use a statistical model that predicts team revenues as a function of the team’s winning rates, division finish, market population, payroll, and stadium capacity.  We use this model to predict each team’s expected revenue.  To measure the quality of the team’s fan or brand equity we compare the forecasted revenue with estimates of actual revenue.  The key insight is that when a team achieves revenues that greatly exceed what would be expected based on team performance and market size it is an indication of significant brand equity / fan support. The reported results cover the past 5 seasons worth of data.

One complication in performing this analysis with MLB teams is that actual revenues are not public.  We get around this problem by using a couple of estimates of revenue.  The first projection is computed by multiplying average ticket prices by the team’s home attendance levels.  This measure is related to the size and passion of the fan base as it reflects the number of fans willing to travel to the stadium, and the economic sacrifice these fans are willing to make.  The second revenue measures we use are the team revenues estimated by Forbes magazine each year.  This measure has value in that television revenues are included.  For our analysis, we use both measures and then average the results.  We should add that the results are broadly consistent across the two different revenue estimates.

Our analysis finds some expected, and some surprising results.  We discover that the Red Sox and the Dodgers tie for having the “best” fan bases.  These teams are followed by the Cardinals, Giants and Cubs.  It is the next team on the list that first raises some eyebrows, as our model rates the struggling Houston Astros as having the 6th best fan base.  At the bottom of the list we have the Kansas City Royals, Miami Marlins, Chicago White Sox, Detroit Tigers and the Anaheim Angels.  The bottom five are also likely to cause debate and angst among Angels and Tigers supporters.

So why are the struggling Houston Astros rated above the Detroit Tigers? Over the last five years, Detroit has averaged about 2.8 million fans per year compared to about 2.4 million for the Astros.  But according to the Team Market Report the Astros have priced their tickets about 12% higher.  The end result is that the revenues of the two teams are fairly similar.  The key difference is that Detroit’s revenues are driven by a 53% winning rate compared to the Astros rate of about 43%.  Based purely on the quality of the clubs and adjusting for market size, we would expect that Detroit’s revenue would far exceed the Astros.  The fact that they don’t suggests that the Astros’ have the larger and more resilient fan base.  A similar comparison can be made between the Angels and the Dodgers.  Over the five years of data examined, the Angels won 56% of their games versus about 52% for the Dodgers.  But despite this difference the Dodgers still drew more fans (~ 300k per year) and had much higher ticket prices.

Finally, the last question is: What about the Yankees?  While the Yankees do have the highest attendance and ticket prices in the league, they also have the highest winning percentage, largest market size and by far the largest payroll.  In a straight comparison of revenues or a count of fans the Yankees would win.  The key is that our model adjusts for these advantages and in comparison to other teams the Yankees do not convert these advantages to revenues as well as some other teams.

Mike Lewis and Manish Tripathi, Emory University 2013.

Numbers Suggest Cubs Management Bluffing or Foolish about Move

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The Chicago Cubs are simultaneously a source of great joy and great pain to Chicago baseball fans.  Almost universally, fans love the Wrigley field area and the traditions of the Cubbies.  And given the Cubs’ history of (a lack of) success, the degree of loyalty exhibited by Cubs fans is amazing.  I should note that I grew up in the Chicago area, and watched many afternoon games on WGN during the summers.

The preceding comments about the loyalty of Cubs fans are on my mind due to the recent news that the Cubs are considering a move out of historical Wrigley Field.  For those who are unaware, the current Cubs ownership groups is attempting to grow its advertising revenues by installing a large video screen on which advertising and highlights can be shown.  The Cubs claim that this addition can generate $20M in incremental revenue.

However, the Cubs currently have contractual agreements in place with neighboring building owners and these owners are concerned that the screen will harm their rooftop viewing businesses.  Tom Ricketts threatened on Wednesday that if the Cubs are not allowed to execute their planned renovations to Wrigley, that they will consider moving the team.  According to ESPN, the city of Rosemont has even offered a free land deal on which the Cubs could build a new facility.

The close connection between the Cubs and the Wrigleyville neighborhood makes this an interesting marketing story.  My conjecture is that it is the Wrigleyville area (and a history of broadcast on WGN) that separates the Cubs from the White Sox.  I tend to think that the Cubs are a unique team that is largely insulated from the pressures faced by most MLB teams.

To investigate this conjecture, we performed a couple of statistical analyses this morning.  For the techies out there we used linear regression and Tobit models to examine the relationship between attendance in MLB and pricing, team winning percentage, team payroll and a large variety of other factors that are likely to affect consumer demand.  When this analysis is conducted across ALL MLB teams using the last 20 years of data, we find a significant positive effect between team winning percentage and attendance.  In contrast, when we limit the analysis to only the Cubs we do not find a significant relationship between winning rate and attendance.

This is an illuminating result as it suggests that consumer demand for the Cubs is largely independent of the Cubs on-field success.  Furthermore, we do find a strong positive coefficient for the Cubs payroll.  Collectively, these results suggest that the Cubs are more about entertainment and environment than the actual baseball product.

What does this mean?  Frankly it suggests that the Cubs are either bluffing about leaving the area or that the Cubs don’t understand their brand or their customer base. Finally, as a Chicagoan I would be very nervous about a move to Rosemont.  The Cubs should ask DePaul how a move to the suburbs worked out.

By Mike Lewis & Manish Tripathi, Emory University 2013

2013 MLB Competitive Balance Forecast

Since the advent of free agency in the 1970s, baseball fans have feared that competitive balance will decrease, and small market teams will become less competitive.  The logic is that large market teams like the Yankees will be able to acquire the best talent and small market clubs like the Pirates or Royals will be noncompetitive.

We have developed a competitive balance forecast for the 2013 MLB season.  This forecast is based on a statistical model of the relationship between the distribution of payrolls across teams and the amount of competitive balance observed in past seasons.  For the analysis, we defined competitive balance in a variety of ways.  A standard measure for competitive balance in the academic literature is the standard deviation of winning percentages in a given year.  This measure would be minimized if each team achieved a 50% winning rate, and become larger when teams show greater variation in winning rates.

The chart below shows the evolution of the standard deviation of normalized payrolls and the standard deviation of winning percentages.   The correlation between these two measures is .25 and a linear regression model suggests that the relationship between payroll dispersion and winning rate dispersion is non-significant.  However, when the dispersion in winning rates is examined at the division; level we do observe a significant relationship.

 

For our analysis, we focus on the range of winning rates.  For example, if a division winner wins 60% of their games, while the last place team wins 40% of their games, then the range would be 20%.   The reason we like this method is because it is easily translated into the common baseball measure of “games back”.  To predict the levels of competitive balance we use multiple measures of the dispersion or variation in payrolls across clubs.  Based on opening day payrolls, we predict that the AL East will be the least competitive division while the AL West will be the most competitive.

Of course, competitive balance or lack of balance is a mixed bag for fans.  If a fan roots for a high payroll, large market franchise, a lack of competitive balance may generally be a positive as the fan’s preferred franchise (sorry Cubs fans) will tend to win on average.  But for the small market teams, a lack of competitive balance can be a dangerous situation.  For further background on competitive balance and its impact on fan loyalty, the following research paper and NY Times OpEd may be useful.

Customer Equity and Player Diversity in MLB

Yesterday, Major League Baseball’s annual report on the diversity of players was released to the media.  The headline finding was that the percentage of African-American players is just 8.5%.  This percentage is much smaller than the NFL or NBA, and is down from 19% in 1995 and 27% in 1975.*

I found the report to be interesting in several respects.  When we started this blog, we began with a focus on brand equity.  Brand equity is the value of a brand like Coke or Apple.  Brand equity is useful because it is linked to customer loyalty, consumer awareness, and it may decrease consumer price sensitivity.  The issue of the diversity of MLB players brings to mind another class of marketing asset: customer equity.  In brief, customer equity is the value of a firm’s customer relationships.  It makes sense to think of customer relationships as economically valuable assets because customers tend to buy repeatedly, and their behavior is often a function of a firm’s marketing decisions.

I mention the topic of customer equity, because customer acquisition, and therefore customer equity can often be impacted by a brand’s current customers.  For example, Cadillac long suffered from being associated with an older demographic.  I even did some research that looked at how MBA program student demographics affected future student enrollment.

While the MBA student research was executed using sophisticated econometric techniques, at the heart of the research is a concept from sociology called homophily.  This is a simple concept that suggests that people often prefer to be parts of groups that consist of demographically similar members.  Player demographics therefore is a marketing issue, since a lack of African-American players could result in fewer African-American fans.  While the issue of lower percentages of African American players adversely affecting fan interest is a negative example of the aforementioned principle more positive examples also exist.  For example, Ichiro increased interest in the Mariners in Japan, and the Chinese-American community quickly embraced Jeremy Lin.  MLB fears that a lack of African-American players will reduce African-American fans, and consequently the future supply of African-American players.  This type of negative feedback effect could greatly reduce MLB’s customer equity in the African-American segment.

However, if I had to hazard a guess as to why MLB is suffering declining interest in the African-American community, I would identify a different culprit.  My conjecture is that MLB’s reliance on a farm system approach rather than a system where major universities develop talent, is the true  problem.  High school athletes are well aware of the lucrative nature of participating in professional sports, and how players like Lebron, Michael, Cam Newton and RG3 transcend being just athletes, and become brands.  These future professionals also know that stardom can be acquired in college or even high school through AAU basketball, or high profile college football recruiting.  Simply put, major college football and basketball offer opportunities for athletes to become stars at an earlier age!

*Note that there has been some criticism of the report’s methodology.  The major concern seems to be that the percentage provided in years like 1975 included all players of African heritage, while the current number only includes US born African Americans.