Private financing and sports franchise values - The case of major league baseball

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 19902002, 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.