Pay Dirt: The Business of Professional Team Sports.

• Author: Johnson, Bruce K.

Since Rottenberg's seminal paper |1~, interest in professional team sports and the economics of sports has grown rapidly. Attendance at major league baseball, football, basketball, and hockey games has quadrupled, while the literature on the economics of sport has multiplied enough to merit a subject classification in the Journal of Economic Literature. One of the latest publications, Pay Dirt, is also one of the most ambitious, covering a wide variety of issues common to all four of the major team sports in North America. While baseball gets more space than the others, Pay Dirt devotes considerable attention to football, basketball, and hockey, too.

Perhaps Pay Dirt's most useful feature is the vast quantity of data it contains. Its nine chapters include 88 statistical tables and 61 graphs giving league and team information on such topics as franchise sale prices and dates, stadium and arena revenues, competitive balance, and rival leagues. In addition, the 134-page data supplement at the end contains ownership histories for every franchise in the five extant leagues as well as for such defunct leagues as the American Basketball Association, the All American Football Conference, and the Federal League (baseball), among others. The data supplement also includes annual attendance records and broadcasting revenues for every franchise in the five extant leagues.

After a brief introduction in chapter 1, chapter 2 treats the market for sports franchises, examining league expansions, team sales, and relocations. Several detailed franchise histories are given.

The chapter asks why the sales prices of franchises have grown so rapidly and suggests two competing explanations: a Bayesian adjustment to an unexpected increase in cash flows from team operations, or a bubble. While the evidence is insufficient to determine which explanation is correct, both imply a fall in the future growth rate of franchise prices.

Chapter 3 analyzes the effect of the tax code on the value of sports franchises, in particular several-time baseball owner Bill Veeck's innovation of depreciating player contracts after teams are bought. A technical analysis of the effect of player depreciation on franchise values under differing assumptions indicates that under the present tax code and its interpretation, about ten percent of the typical franchise's value is the capitalized value of player depreciation, less than in the past. The chapter comprehensively recounts the court...