Emerging Markets in Baseball: An Econometric Model for Predicting the Expansion Teams' New Cities
Thomas H. Bruggink and Justin M. Zamparelli
Recent expansion in Major League Baseball (MLB) and announced plans for future expansion have created interest in the selection process for the host cities. According to the Major League Expansion Committee, the three criteria for evaluation of applying cities are: (1) market factors, (2) the financial backing of an investment group, and (3) stadium plans. 1 This study is concerned with the ultimate factor for long term franchise success under the current financial arrangements. Although location of business expansion has long been a topic of interest, the baseball industry has unique elements that force one to re-examine traditional location theory.
In this chapter we build an econometric model that uses market data on current and potential franchise locations to identify those metropolitan areas that are most deserving of inclusion in the next round of expansion. 2 Although we use this market viability model to identify emerging markets, it can also evaluate current problems in "small market" cities. A market viability model can also identify current home cities in which the team are predicted to do poorly. Thus it can be used in conjunction with a revenue sharing plan to distribute revenue among the teams.
MLB owners and officials must consider market demand when making an expansion location decision. There are a variety of factors that contribute to this demand, including population, consumer incomes, corporate financial backing, identity as a sports town, and distance from other existing teams. This last factor is somewhat unique to professional sports given the monopoly positions of sports leagues. In MLB, an expansion team will not be permitted to locate in a metropolitan area that is considered to be part of an existing team's territory even if the other factors indicate an attractive location opportunity.
Hotelling's retail location model ( 1932) is based on the assumption that consumers