Research by Centre College economics students says
"Thumbs up" for team in Louisville, "thumbs down" for an NBA squad
A team of Centre College economics students came up with some surprising results when they recently investigated the viability of a professional sports team for Louisville. Economist Bruce K. Johnson, who taught the students in a recent course, says that his students' analysis shows that an NFL franchise has a good chance of thriving in Louisville -- while an NBA franchise would be far less likely to succeed.
The student researchers -- Tommy Wallace of Campbellsburg, Micah Salsman of Bowling Green, Rocky Reiser of East Bernstadt and Jesse Taylor of Philadelphia, Penn. -- set up an econometric model to determine factors that affect the revenue generated by professional sports teams. They used data from existing teams to develop a model for projecting team income based on population, stadium features, and win-loss percentage.
They found that the National Football League and National Basketball Association differ so greatly in their financial policies that NFL franchises can survive in much more divergent circumstances than NBA franchises. NFL teams are entitled to 40 percent of the ticket take when they play on the road, which means that teams from small cities (like Green Bay, Wis.) share some of the income generated by big cities like New York. In contrast, the NBA gives the visiting team none of the ticket revenue.
An even more important difference, in this age of megabucks television deals, is that the NFL's central office sells all television rights to national networks and divides all TV money equally among the teams. No NFL team may sell local television rights. In contrast, the NBA allows each team to sell its broadcast rights to local television stations.
This has two effects. First, it gives large-market teams such as those in New York and Chicago a huge source of revenue not available in small markets. Second, because the national network telecasts of the NBA have to compete in each NBA city with telecasts of the home team, the national TV deals signed by the league central office are smaller than they would be without the local broadcasts.
The NBA approach to TV rights produces huge disparities in income between NBA teams from large and small areas, and makes it difficult for NBA teams in small and mid-size cities to pay the same salaries that the big-market teams can afford to pay for star players.
These factors and others prompted the Centre students to conclude that Louisville -- similar in size to NFL cities such as Jacksonville and Charlotte, and far larger than Green Bay -- shows good potential for supporting an NFL team but would be marginal as the host city for an NBA franchise.
According to the students' econometric model, if Louisville fielded an NBA team that won half its games, its projected annual revenue would be around $58 million, or $8 million below the average for NBA teams. If the winning percentage dropped to 25 percent, the income would drop to around $51 million. With an outstanding win-loss percentage (winning three-fourths of all games), the projected income climbs to $72 million. However, it would be difficult to sustain such a won-loss ratio on revenues so little above the league average. The Louisville team would simply not be able to generate the income to hire the best players and still turn a profit.
In contrast, an NFL team in Louisville with a weak season record (win just one-fifth of their games) and playing in a stadium with no luxury suites, could generate around $73 million in annual revenue. If 100 luxury boxes were added, the revenue could jump to $79 million.
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Bruce Johnson, 859-238-5242
600 W. Walnut Street
Danville, KY 40422