All Cities Are Not Created Equal
Over the past year, SEAT presented a series on the state of the suite market for the Big Four leagues (NFL, NBA, NHL and MLB). The researchers now aggregate all teams from these leagues, breaking them down by geographic location to further influence their understanding of the sports business landscape.
If you recall our series of articles from the past year, we found that in the NFL, the value for all teams in the NFC outweighs the teams in the AFC. In the NBA and the NHL, the Eastern Conference has a higher value than the Western Conference. And in MLB, the American League outranks the National League (unless the New York Yankees are removed from the equation). After reviewing all the data, we wondered which city or region really has bragging rights over the competition. To satisfy our curiosity, we investigated what would happen if we treated all four leagues as just one giant league known by us as the Great North American League.
All of the teams were broken up into regions regardless of sport. Geographical location (Northeast, South, Midwest, West), as determined by the U.S. Census Bureau, played a significant role in the value of a team. We combined all Canadian teams into one geographical area containing its eight teams. This methodology allowed for a truer gauge of what is going on in sport by geographical location and by state, and not by league, conference or division. While a particular sport may not be of interest to everyone, aggregating the results based on all sports impacts the landscape.
Teams are broken down and color-coded by region and sport in Chart 1. The South has the most teams with 36. The next highest region is the Midwest with 29 teams, followed by the West with 27 teams. The Northeast comes in next with 22 teams, followed by Canada with eight teams.
While the Northeast has the smallest region in the United States, it has the highest mean value per team at $665 million (See Chart 2). When we look at the data for each league, the Northeast again wins three of the four leagues. The fourth league is the NHL, where Canada still enjoys bragging rights as the birthplace of the sport. In this category, the Northeast comes in a strong second place.
We learned fun facts by breaking team values down by region, such as what areas of North America have the most number of teams based on certain sports. For example, MLB is the leader in the Midwest with 14 teams. The NBA and the NFL share first place in the South with 11 teams in each league. Finally, the NHL has a tie for the lead with seven teams in both the South and the Northeast.
Next, the authors considered rankings by state to see if any were significantly different from the others. We grouped the states into those with four or more teams and three or fewer teams. This approach is akin to big/small conference champions. In the “big conference”, California has the most teams with 15 and has the highest total value at $7.43 billion. However, when you break it down by the mean value, Massachusetts, with just four teams, comes out on top with an average value of $746 million, as shown in Chart 3.
Now we shift our attention to the “small conference” championship (See Chart 4). Wisconsin, with three teams, has the highest total value at $1.63 billion. When comparing mean values, Maryland takes top honors with just two teams and a mean value of $728 million. Even if we had not broken the states into big and small conference champions, Maryland would have come in second place overall. Not bad for a state that only has five Fortune 1000 companies in its marketplace.
This information is relevant because sport is not immune to marketplace factors or the economy. Teams have relocated for a new stadium or arena just to help their bottom line profitability. Leagues often consider expansion as a means to increase revenue for their brands. Conversely, leagues also sometimes talk of contraction when a team is not profitable. But the last time a professional sports team folded in the Big Four was in 1952.
Contraction also almost occurred in 2011 when MLB owners voted to eliminate the Minnesota Twins and the Montreal Expos. The league avoided contraction when the Expos moved to Washington, D.C., changed their name to the Nationals, and moved into a new stadium in 2008. The Twins stayed in Minnesota and moved into a new stadium in 2010.
This information can empower leagues and teams by understanding which states or regions in the country support a particular sport, although there will always be exceptions with only one team in markets like Oregon, Utah and Oklahoma. In addition, Canada has provinces that only have one team as well, such as Montreal, Vancouver, Calgary, Ottawa and Edmonton. This evidence says a great deal about these communities and the degree to which they support a professional team.
However, if leagues are making decisions based solely on profitability and location, the Northeast region appears to be the strongest candidate for a new team in all sports, as does Canada for acquiring another NHL team. Sometimes a community will step up and bring out the welcome wagon to attract a team. A great example is St. Louis, who put together a sweetheart deal to get the Los Angeles Rams in 1995. The city provided the Rams a guaranteed three-year sellout of skyboxes and luxury seats, paid $29 million in relocation fees to the NFL, and guaranteed ticket sales of 85% of the Edward Jones Dome capacity for the next 15 years.
In North America, the sports landscape is still deciphering how big it can get and in what markets to expand. Just like any industry, sport has growing pains, and not all teams and locations have the same value. The old adage, “location, location, location”, applies to the business of sports where not all cities are created equal.