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In response to marginal revenue and marginal cost, explain why the NFL has 32 teams, while Bundesliga-1, the top German soccer league, has only 20 teams.

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Nusrat Fatima
Nusrat FatimaLv10
29 Sep 2019

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Related questions

Analyzing Managerial Decisions: Why Teams Fail

Along with Mom and apple pie, teamwork has become a sacred cow to American businesses. Yet, one survey by Mercer Management found that only 13 percent of 179 teams received high ratings. Somehow, we have to get past this idea that all we have to do is join hands and sing Kum Ba Yah and say, We've moved to teamwork. Many companies are narrowing the focus and time horizon of teams. A team manager at Texas Instruments counsels that not everyone has to be on a team and that only 5 percent of its workforce are on self-directed teams. Harvard Professor Amy Edmonson questions whether many firms might be barking up the wrong tree in stressing the use of teams: I've begun to think that teams are not the solution to get- ting the work done. Discuss potential reasons why teams often fail to deliver the hoped-for results.

Few fields of empirical economic research offer virtual unanimity of findings. Yet, independent work on the economic impact of stadiums and arenas has uniformly found that there is no statistically significant positive correlation between sports facility construction and economic development (Baade and Dye, 1990; Baim, 1992; Rosentraub, 1994; Baade, 1996; Noll and Zimbalist, 1997; Waldon, 1997; Coates and Humphreys, 1999). These results stand in distinct contrast to the promotional studies that are typically done by consulting firms under the hire of teams or local chambers of commerce supporting facility development. Typically, such promotional studies project future impact and almost inevitably adopt unrealistic assumptions regarding local value-added, new spending, and associated multipliers. They often use a regional input-output model that depends on outdated technical coefficients which are treated as invariant to shifts in supply and demand (Center for Economic and Management Research, 1991; Deloitte & Touche, 1994, 1996; KPMG, 1996; Economic Research Associates, 1996; KPMG, 1998; C.H. Johnson Consulting, 1999). The academic work on the economic impact of sports facilities and teams does not rely upon projection. Rather, it compares the local economic performance of areas with and without stadiums, arenas, and teams, controlling for other variables that affect local economic conditions. Among cross-section studies, for example, Baade (1994) found no significant difference in personal income growth from 1958 to 1987 between 36 metropolitan areas that hosted a team in one of the four premier professional sports leagues and 12 otherwise comparable areas that did not. Looking at 46 cities over the 1990-94 periods, Waldon (1997) found that higher high school graduation rates and more spending on police are what encouraged economic growth, while the presence of a major league sports team actually put a drag on the local economy. Both Baade and Waldon controlled for other factors affecting underlying trends in economic growth. Time-series studies confirm the cross-section results. Baade and Sanderson (1997), for example, found no perceptible net increase in economic activity or employment in 10 cities that acquired new sports teams between 1958 and 1993 after factoring out other economic trends affecting each area. They did observe a reordering of leisure expenditures within the cities that acquired new teams, but there was no evidence that the new sports teams brought output or employment growth to the local area. A more recent study, by Coates and Humphreys (1999), finds that new stadiums and sports teams actually reduce per capita income in the host communities. This result is consistent with a higher (negative) multiplier for the displaced leisure expenditures than for the expenditures on a new team or in a new stadium because the latter likely involve substantial leakages from the local economy to the remote residential locations of some players and team owners. The conclusion that sports teams and facilities do not stimulate economic growth is surprising to many people. With live telecasting of games, daily coverage on television news and in the sports sections of newspapers, professional sports play a huge role in U.S. culture. Yet sports teams are small businesses. Yearly average team revenues in 1999 are around $55 million in the NHL, $75 million in the NBA, $85 million in MLB and $100 million in the NFL. For a medium-sized city like St. Louis, the baseball team accounts for less than 0.3 percent of local economic activity; for a large city like New York, a baseball team contributes less than 0.03 percent of economic output. Sports teams typically employ between 70 and 130 people in their front offices. Beyond this, they hire approximately 1000-1500 day-of-game personnel who work in unskilled, low wage, temporary, part-time jobs. An NFL team is assured of playing 10 home games a year (including preseason games). At four hours of work per game, an NFL team provides day-of-game employment for the equivalent of 20 to 30 full-time, year-round jobs. As we shall see, however, it is problematic to attribute even these jobs to the sports team. Of course, the controversy about the economic impact of professional sports teams on their local economy is not just about the teams themselves, but also about how specific local restaurants, hotels, and other businesses might be affected. However, even if one assumes, optimistically, that on average people spend as much outside the sports facility as they do inside, the economic impact of sports teams in proportion to a typical metropolitan economy is diminutive. Apart from their relatively small size, there are three key reasons why professional sports teams do not promote economic development: the substitution effect; extensive leakages; and the likely negative effect on local government budgets. The analysis of these three effects that follows describes the situation when a team or a facility is new to an area. Of course, in many cases, the choice is whether or not to build a facility for a team that is already there. In such a case the incremental consumer surplus, external benefits or new spending will be considerably less. From the city's perspective, however, the opportunity cost of not building a facility with public funds may be perceived to be the loss of the team and all of its attendant benefits.

-------------------------------------------------Question

1. . The authors discuss the role of leakages in determining the impact of sports teams on the local economy. What are they talking about? Be specific so as to convince me that you read the article carefully

Minicase: How much is Manchester United's brand worth?

In recent years, the valuation of sports teams has become an increasingly important financial topic. Part of the reason is the astronomical salaries that sports stars command. Additionally, some stars become celebrities outside of the arena also, with lucrative sponsorships, extravagant lifestyles, and an icon of the rich and famous David Beckham, the British soccer player is one prominent example. As a personal brand, Beckham was valued by Forbes at $20 million in 2013 (http://www.forbes.com/pictures/mlm45jemm/4-david-beckham/). Beckham came up with Manchester United, often cited as the world's most valuable soccer club. The Red Devils, as they are called, were bought by the Glazer family from the United States in a leveraged buyout in 2005. To cash in on its brand value and pay down debt, the new owners decided to go public in 2012. The IPO on the New York stock exchange offered shares at $14 apiece, making the capitalized value of the club about $2.3 billion. The shares did poorly at first but soared in 2013. By end of January, the share price stood at just under $17, with Manchester United's stock outperforming the S&P 500. The increase in its stock price pushed up Manchester United's value (equity plus debt) to $3.3 billion, the highest value of any team in the world. But in the ensuing Champions League tournament, Manchester did not perform all that well, and the club was overtaken by competitors. One was Real Madrid, a perennial foe. The Spanish team posted greater returns in its annual report for 2012-2013, with the highest returns of any team in sports ($650 million during the 2011-2012 season), and revenues up 62% over the last 3 years. Signing superstars Cristiano Ronaldo and, more recently, Gareth Bale has led to increasing income from advertising and sponsorships as well as attendance and television. The club has an equipment supply deal with Adidas worth $42 million a year. It has signed a new sponsorship deal with Emirates Airlines to put its name on the team's shirts, a contract worth $39 million annually for 5 years. As a result, the value of Real Madrid increased to $3.4 billion, narrowly beating out Manchester United. Real Madrid did better than Manchester United in the Champions League but was still beaten in the semifinals. In the final, two German teams met. Bayern Munich, a 10-time finalist, defeated Borussia Dortmund by a score of 2-1. As a result, the winning German club vaulted to first place in the soccer team brand ratings, as published by BrandFinance, a brand equity rating firm headquartered in London that covers brand equity sports ratings. BrandFinance calculates the value of the brand equity in terms of an equivalent royalty rate: if a team would license its name to a third party, how much would it be able to charge. This allows the company to focus only on brand equity, expressed in terms of dollar value. The brand equity rankings after the 2013 Champions League final from BrandFinance show the top three teams as follows:

1. Bayern Munich - Brand value: $868 million
2. Manchester United - Brand value: $845 million
3. Real Madrid - Brand value: $627 million.

The estimated value of Bayern Munich using the enterprise value (equity and debt) calculation used for the Manchester United and Real Madrid above is about $1.3-1.5 billion. That is, the enterprise values of the three teams as of late summer 2013 are as follows:

1. Real Madrid - Team value: $3.4 billion
2. Manchester United - Team value: $3.3 billion
3. Bayern Munich - Team value: $1.3-1.5 billion

In fact, Bayern Munich is also beaten by one arch-rival, Barcelona, at $2.6 billion, and is virtually tied by London's Arsenal.

Questions:
1. Why is there a difference between the stock market valuation of a sports team and its brand value?
2. If brand equity represents allegiance to a brand, what would you say determines the brand equity of a soccer team (or any sports team)?
3. What factors would you say determine the value of a soccer team (or any sports team)?
4. Use the difference between your answers in Questions 2 and 3 to explain why Bayern Munich could lead in brand equity but still not be the most valuable team.

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