Tuesday, January 19, 2010

Economist's Notebook: Sports Teams and Social Value

The Wall Street Journal has a nice article on the attempt to use contingent valuation (CV) to assess what the Minnesota Vikings are 'worth' to the people of Minnesota. The answer? $700 million. The problem is, of course, that what we answer to a hypothetical question like "how much would you be willing to pay to keep the Vikings in Minnesota?" may have little to do with how we would actually behave when it became time to pony up. One of the big problems is the free rider problem whereby you don't pay anything assuming that the fat cats will pay a lot. Environmental economists have, for many years, used CV methods to try and place a value on a forest, stream, or other environmental attribute (e.g. clean air). But this is the first time I have seen it for sports which surprises me. I would think that folks like Merritt Paulson would do something like this to try and convince city leaders that what he has to offer people care about.

Here are some excerpts from Conor Dougherty's article:

MINNEAPOLIS—Christopher Slinde, a lifetime Minnesota Vikings fan who has endured decades of heartbreak and lots of overpriced beer in supporting his team, believes Vikings fandom is priceless. According to economists, it's worth $530.65.


As fans pack stadiums and couches to watch the National Football League's divisional playoffs this weekend, they care about victory. Economists are tackling a more abstract challenge: putting a price on the emotional benefits of having a pro sports team in town.

The worth of fandom may seem theoretical, or even silly. But it's serious business for teams like the Vikings, who want Minnesotans to help them pay for an $870 million stadium to replace the Hubert H. Humphrey Metrodome in downtown Minneapolis. The Vikings' Metrodome lease runs out in 2011 and the team says it won't sign an extension without a deal for a new stadium.

The team hasn't explicitly said it will bolt without a deal. But it insists the Metrodome cannot support a modern NFL franchise. So, many fans are convinced that without a new stadium, the Vikings will take their quest for football greatness to a warmer state with no Nordic heritage.

Sports teams sell their facilities as economic-development projects that create jobs and generate tax revenue. But a slew of studies have shown that publicly subsidized stadiums—usually paid for by selling bonds and paying the cost and interest with tax revenue–rarely return the money governments put into them. Teams continue to argue, often successfully, that they are worthy of subsidies because they are a source of civic pride and purpose.

But what is that worth? Economists Aju Fenn and John Crooker tried to answer the question in a study published in July 2009 in the Southern Economic Journal.

The two used "contingent valuation methodology," which is a nerdy way of saying they surveyed people and used statistical models to turn the answers into an average price Minnesotans place on the Vikings.

The result: The Vikings' "welfare value" is $702,351,890— $530.65 for each of the roughly 1.32 million households in Minnesota.


You couldn't touch that money. It's an abstract figure meant to catch everything from the joy of donning blond braids and Vikings horns to the feeling of pride that even nonfans get from living in a "major league" city. In the broadest sense, Mr. Crooker says, "welfare value" represents the worth Minnesotans place on having the Vikings in Minnesota.

It's tough putting a price on feelings, which is why some economists are skeptical of contingent value studies.

"It's not that this is capturing nothing, it's just that it's not legitimate to interpret people's answers as if folks were spending their own money," says Peter Diamond, an MIT economist. He co-authored a 1994 paper titled: "Contingent Valuation: Is Some Number Better Than No Number?"


Survey questions were fine-tuned by the Metrodome experience. In the 2002 off-season (to minimize in-season emotions), Messrs. Fenn and Crooker mailed 1,400 surveys to households across Minnesota, capturing both fans and nonfans.

The study's figures were based on the mail surveys, which had 30 questions ranging from demographic information to how much time the person discussed the Vikings at home and at work. But the so-called welfare value was generated from a single yes or no question: Would you be willing to pay $X out of your own household budget for the next year to make a new stadium possible? There was one price on each survey (it ranged from $5 to $100).

Mr. Fenn cautions that the $702 million welfare value doesn't mean that helping the Vikings with a stadium would be the best use of the state's tax dollars.

"We're not suggesting that the state of Minnesota act a certain way, or that voters support [a new stadium], or not support it," he says. "We're just pointing out that the Vikings mean a lot to the average Minnesotan."

Also, here is a nice Q&A With Jerry Bell of the Minnesota Twins (who are building a new stadium).

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