Public dollars, sports facilities, and intangible benefits: The value of a team to a region's residents and tourists Final version of this article appears in Journal of Tourism, 2008, 9(2), 133-159.
Mark S. Rosentraub Dean and Professor Maxine Goodman Levin College of Urban Affairs Cleveland State University
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David Swindell Associate Professor Dept. of Political Science University of North Carolina Charlotte
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Sasha Tsvetkova Doctoral Student Public Policy Ph.D. Program University of North Carolina Charlotte
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Abstract The expected economic development from sports facilities and teams encourages community leaders to argue for public investments in professional sports facilities. Understanding if sports facilities and teams add to a city’s economy and taxpayers’ sense of economic value has become more critical as public investments in such facilities involve several hundred million dollars. This paper uses recent data from Indiana in monetizing the intangible values citizens derive from sports, highlighting the role of including such measures in cost-benefit analyses useful to public officials when determining whether to invest public dollars in a sports facility. For the Indianapolis Colts, the value of the intangibles helped convince the state and local governments to build a new home for the team. The paper also suggests how to integrate such analyses of intangibles into traditional models of economic impact for future economic development opportunities that confront decision makers when positive externalities are present. Keywords: Public Finance/Taxation, Contingent Valuation, Economic Impact Analysis
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Introduction From 1995 through 2003, teams and taxpayers spent over $7 billion on 23 new stadiums for professional sports teams (Crompton, Howard, and Var 2003). This total will break $10 billion by 2010 with the opening of several additional new stadiums. These totals are only for the top level North American teams (National Football League and Major League Baseball). New arenas for professional level hockey and basketball teams will add an additional $6 billion to this total by 2010. Stadium and arena construction continues unabated across North America, as well as in many countries around the world. And often, taxpayers’ dollars frequently constitute a sizeable portion of these investments, if not the entire investment. Such public investments are the outcome of a fairly routine behavior by team owners. There is initial concern expressed publicly about the financial health of the organization, suggestions about strengthening the bottom line of the team with new revenues that can only be generated by a new facility, and sometimes veiled threats of relocation should such a facility not be made available to the team. Boosters and public officials respond to the perceived threat of losing a valuable community asset and begin work (often directly with the team owner) to identify a way to accommodate the team’s needs in order to keep the organization in town (Rosentraub 1999). Sometimes, the public sector finances the facilities entirely. Other times, there is a public-private “partnership” in which the public officials and team owner negotiate a shared financing plan involving less public investment. What do taxpayers get in return for their investment? Political decision makers often argue that such facilities have sizeable economic impacts and lead to economic growth through jobs and new spending. Numerous economists and policy analysts have questioned the veracity of such claims. But another of the benefits taxpayers derive from sports is more difficult to measure. Sports is a central aspect of American culture and, as a result, citizens often enjoy intangible benefits from
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sports such as civic pride from being home to a team, a communal sense of belonging to something larger or sharing the excite from a winning performance, and basic shared experiences centered on sporting events. These intangible benefits receive less attention from analysts due to the difficulty measuring them, but such difficulty does not minimize the potential these benefits represent and their role in the decision calculus of officials weighing public investments in sports facilities. The analysis in this paper attempts to address these benefits through a contingent valuation approach measuring the value Indiana citizens place on the presence of the NFL Indianapolis Colts and citizens’ willingness to pay for a new stadium for the team to maintain those intangible benefits. The next section highlights the importance of sports in society and the nature of the intangible benefits that individuals enjoy related to sports and sports facilities. The paper then turns to an explanation of the contingent valuation method (CVM) and the methodology the study employed to derive estimates of the willingness to pay for intangible benefits among Indiana citizens. After the methods, the paper turns to the results of the analysis and then to the conclusions and recommendations that accompany the findings illustrating the need for a full accounting of all costs and benefits in such public investment debates.
Sports and Society For decades numerous social scientists have noted that the importance of sports lies not in its monetary effects, but in its role and value as both a social and socializing institution (for example, Andrews 2004; Edwards 1973). People value sports for the excitement and entertainment it produces, and these benefits are not limited to those who attend games (Bale 1989; Eckstein and Delaney 2002; Johnson and Sack 1996; Lipsyte 1975; Swindell and Rosentraub 1998). People in virtually any community can point to celebrations when teams win championships or communities
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stage sporting events (Euchner, 1993). That excitement, part of the intangible benefits of sports, is in addition to the fun people have just talking about teams and sports and represent a spillover effect (a positive externality) in addition to the event itself. Scholars have analyzed sports as a socializing institution in terms of immigrants’ experiences in adapting to a new culture. Achievement in sports has also been a source of pride for immigrants and other groups that used sporting achievements as symbols of acceptance and the ability to excel in a culture (Edwards 1973). While many would note the bus boycotts in the south and Rosa Parks’ act of courage as watershed events, Jackie Robinson’s breaking of baseball’s color barrier and Jack Johnson’s heavyweight wrestling championship are also of great importance relative to the ascent of black Americans. These are not the only intangible benefits produced by sports. Across more than two millennia, those in power have incorporated sports and sports facilities into social systems. Wilson (1994) is among a number of social scientists that have studied the relationship between sports and societies. Their works underscore the role of facilities and games in political systems and the physical and social statements made by and through games and facilities. For example, the Romans built the Coliseum and staged hundreds of events to attract and retain political support. In the modern era, governments such as Australia, China, Germany, Japan, and Korea have hosted games and built facilities to demonstrate the leadership and emergence of their societies. King (1998), among others, has noted the role of sports in the lives of people and the effects of sports on maintaining social order during the industrial age. More recently two books have used sports to explore carefully the aspects of domestic and international politics (Foer, 2004; Szymanski and Zimbalist, 2005). Given the societal importance of sports, one might be surprised that such social and cultural arguments are a rarer element in the public debates surrounding public investments in sports facilities.
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The debates inevitably revolve around economic development. When communities consider partnerships in order to build sports facilities to attract or retain teams, proponents commonly produce studies extolling the anticipated economic impacts (e.g., Berk and Associates 2007; Center for Economic Education 1996; Economic Research Associates 2004; PricewaterhouseCooper LLP 2004). Economists at universities and other policy analysts now commonly challenge the magnitude if not the actual existence of economic benefits (for example, Baade 1996; Baade and Dye 1990; Blair and Swindell, 1997; Cagan and DeMause 1998; Noll and Zimbalist 1997; Rosentraub 1999; Rosentraub, et al. 1994; Shropshire 1995; Zimbalist 1998). Some academic and independent policy analysts have noted that sports facilities produce small levels of new economic development at the regional level (Santo, 2005). Others have found that the placement of arenas, ballparks, and stadiums can realign recreation spending and produce important positive outcomes for downtown areas (Austrian and Rosentraub, 2002). However, when more parsimonious projections challenge exuberant estimates of economic development, voters must incorporate the dramatically different perspectives into their thinking as they decide if the use of public funds for sports facilities sufficiently advances the public’s interest. Thus, there is some irony in this concentrated focus on economic development, given the social-psychological benefits more clearly derived from public investments in sports. Some economists have begun to expand their analyses to incorporate intangible benefits in the measurement of the value of sports facilities and teams. Irani (1997) looked at the consumer surplus generated by Major League Baseball teams. Alexander, Kern, and Neill (2000) estimated the consumer surplus produced by teams from all of the major sports leagues, and Layson (2005) isolated the consumer surplus produced by the building of an arena for a hockey team. While the specific nature of the benefits that generated the consumer surplus was unclear, the findings were not. As
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Layson observed (2005: 232), “Even if liberal adjustments are made…the aggregate consumer surplus [from the arena] was sufficient to fully cover the income loss and debt service….” In addition to studies of consumer surpluses, other analysts have begun to focus on the use of the contingent valuation method (CVM) as a means of capturing consumers’ willingness to pay for the intangible benefits associated with sports. For instance, Johnson, Groothuis, and Whitehead (2001) used CVM in an attempt to measure the civic pride value of the National Hockey League’s (NHL) Pittsburgh Penguins. Johnson and Whitehead (2000) used a similar approach to measure the public goods value of a Lexington, Kentucky minor league baseball team. Johnson, Mondello, and Whitehead (2007) used CVM to estimate the willingness to pay for the public goods aspects of the NFL Jacksonville Jaguars and a possible NBA team. These studies failed to find sufficient values ascribed to the intangible effects of sports to cover the costs of associated facilities for these teams (though did find evidence of the values). There remains the very real possibility that the value placed by voters on the intangible benefits of facilities and teams as enumerated in the consumer surpluses or willingness to pay could be sufficient to warrant some expenditure of public funds to insure the existence of these public goods and offset any perceived subsidies. The possibility also exists that if the intangible benefits and consumer surplus were sufficiently large, taxpayers could enjoy a positive return on their investment. This would require that the value of intangible benefits and the resulting consumer surplus exceed the investment (including the concomitant opportunity costs), and that no equity issues would be raised relative to the distribution of the intangible benefits and consumer surplus. Hamilton and Kahn (1997) underscored the need to measure the intangible benefits of teams when they noted that the MLB Baltimore Orioles and NFL Baltimore Ravens produced approximately $20 in intangible benefits each year for each Baltimore area household. That gain exceeded the tax money spent for
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both a new ballpark and football stadium. However, few studies of the impact of new facilities and teams have tried to measure what teams mean to taxpayers, how much residents of a city/region/state would pay to insure the continued presence of teams, and the intangible benefits produced.
Contingent Valuation Methods In 2004, negotiations among the Indianapolis Colts, the City of Indianapolis, and the State of Indiana led to a proposal for a new stadium to replace the RCA Dome, the team’s home since 1984. To establish the value of the team to Indianapolis, the Colts initially commissioned a study of the financial gains created by the team’s presence (PricewaterhouseCoopers 2004). In December 2004, the team also commissioned a study of the intangible benefits produced by the team, and this paper presents the results of that effort. The fundamental challenge for analysts interested in a full accounting of the costs and benefits of a public expenditure is that some aspects are difficult to quantify. This is particularly acute when measuring benefits that are non-monetary and psychological in nature. The contingent valuation method (CVM) has gained greater acceptance in the policy and economic analysis literature. Basically, CVM has people place a value on a classical public externality benefit in a hypothetical market environment. In addition to the value (preference) they place on the externality, the CVM follows with queries designed to understand how much money individuals would pay to insure the presence of the benefits they believe the public good yields. Researchers have used the technique for over 30 years, focusing initially on a wide ranging set of environmental issues from soil erosion to endangered species to various forms of pollution and brown field restoration (Mitchell and Carson 1989; Yoo and Chae 2001). In more recent years, scholars have published numerous articles expanding the topical focus and refining the technique to improve the accuracy and robustness of the
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willingness to pay estimates generated by CVM (Blumenschein et al. forthcoming; Brubaker 2004; Cameron and Quiggin 1994; Lindsey, Paterson, and Lugar 1995; Simons and Winson-Geideman 2005; Thompson et al. 2002). In the early 1990s, the National Oceanic and Atmospheric Administration (NOAA) established a blue-ribbon panel that yielded the most comprehensive examination of CVM as an analytic tool (Arrow et al. 1993). This report established the usefulness and value of CVM in policy analysis work, leading to the general acceptance of the method in government work. Since then, more scholars have improved upon the method. The primary challenge to CVM’s ability to generate valid and reliable estimates of a population’s willingness to pay is how such information is solicited from respondents. There are four such threats pertinent to the research on sports facilities: question structure, starting point bias, follow-up design, and payment vehicle bias. The next section highlights the data collection methods for this project and how this study’s design overcomes these biases.
Design Methods The Survey Instrument The focus of this article is on the derivation of willingness to pay (WTP) for the intangible benefits associated with the presence of the Colts in Indiana. However, the survey instrument also included additional questions that had respondents rank the relative importance of the Colts along with other entertainment and cultural amenities throughout the state. So the first set of questions in the instrument focused on this array of amenities, which had the added value of establishing a repoire with the respondents, as suggested by the NOAA report and others (Arrow et al. 1993; Hanemann 1994; Portney 1994) to insulate the respondent from any preconceived notions that there are “right”
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answers. The survey also included a battery of socio-economic and demographics characteristics of the respondent. But the focus moved to the Colts half way through the interview to derive the WTP information, as well as respondent opinions about appropriate revenue options for the public to use in keeping the Colts in Indiana. Many of the challenges to CVM aim at the question formats in the instruments. For instance, in the early uses of CVM investigators presented respondents with open-ended questions about their willingness to pay. Subsequent studies of the validity and reliability of CVM approaches have concluded that close-ended questions are superior and that the scenario should be presented in a referendum format to increase respondent familiarity with the decision situation (Arrow et al. 1993; Cameron and Quiggin 1994; Hanemann 1994; Portney 1994). The Colts study uses both of these approaches in the question format of the survey instrument. Another threat in the CVM is starting point bias; the most common criticism of CVM. This reflects the inclination of the respondent to agree with the amount suggested by the interviewer in the question, even if the respondent’s true WTP differs notably (Cameron and Huppert 1991). Respondents will tend to base their responses on the assumption of “desirability” of the initial amount. Scholarly opinion on this point is not unanimous, but there are agreed upon methods for addressing this bias. The two main mechanisms for mitigating this problem include: 1) the use of payment cards that provide a continuum of possible amounts; and 2) Freeman’s “bracket and halving” method that attempts to get to the true value as soon as possible and avoid the “boredom effect” (1979). Since the Colts study employed a telephone interview approach, the payment cards were not an option. However, the question structure did include Freeman’s bracket and halving suggestion.
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Cameron and Huppert (1991) find that estimated WTP is sensitive to the initial offered value in a single-bounded (SB) referendum model. They demonstrate that “simply the accident of a particular assignment of referendum thresholds…could easily lead to a wide range of different value estimates” (p. 916). But they also found that inclusion of the second doubled or halved question (follow-up) considerably improves accuracy of the predictions. Cameron and Huppert assert that any potential biases are outweighed by increases in the precision of the estimates.
Research by Cameron
and Quiggin (1994) as well as Kanninen (1995) also found that the double-bounded referendum with follow-up mitigates upward bias of the likelihood estimation routinely used for WTP calculations. The final threat commonly cited about the CVM is payment vehicle bias. This bias suggests sensitivity of the reported WTP to the payment vehicle, though researchers have given much less attention to this threat than the previous three. Cummings, Brookshire and Schulze suggest using the most “natural” vehicle for a particular situation and insist that there is “the potential dependence of obtained valuations on the adopted payment vehicle” (1986, 210). For the Colts study, the question format avoids specifics about the payment vehicle by referring only to “your portion of public money” and thereby minimizing the potential biases associated with a property, sales, or other tax instrument. The questions concerning preferred revenue generation instruments are in a later set of questions in the survey instrument. The items related to the importance of civic assets preceded questions related to the value respondents placed on the team and their willingness to pay. And in order to address the other three threats, the questionnaire asked respondents the two most critical clusters of questions in the following formats: We are interested in understanding the value people place on the Indianapolis Colts as an amenity to residents of Indiana so please don’t think about jobs or other economic benefits from the team. We want you to focus on any satisfaction you feel from being a citizen in the home state of the Colts and the value of the civic pride and excitement
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created for you by the Colts. Do you think the value of the Colts being in Indiana is worth $7 per month to you? If Yes – Do you think the value would be worth $15 per month to you? If No – Do you think the value would be worth $4 per month to you? Recently there has been talk about a new facility in Indianapolis for the Colts, the NCAA and the Convention Center. Pretend for a moment that you could vote in a statewide election on this new facility. In this situation assume that public funds will be used to pay for part of the cost. Your portion of the public money represents what you would be willing to spend for the civic pride and satisfaction associated with having an NFL team in your State for the next 30 years. Would your household be willing to pay $80 per year to keep the Colts in Indiana? If Yes – What if the amount was $160 per year? Would your household be willing to pay that amount? If No – What if amount was $40 per year? Would your household be willing to pay that amount? If No – What amount would you pay to keep the Colts in Indiana? Resource constraints did not permit a finer breakdown on amounts and the use of monthly amounts related to value, but this format does employ the double-bounded referendum approach. The starting point for the WTP questions came from the estimated amount needed to generate a positive consumer surplus under the plan then being debated by public officials for the new stadium deal. Finally, the second question used the yearly amounts for the taxes in order to place the most substantial constraint or negative factor on the amount that would be paid in taxes to retain the team, thereby adding an additional suppressing effect on any unintended upward bias as suggested by the literature. Sample and Data Collection Interviewers administered the telephone survey to 850 randomly selected households throughout northeast, central, southwest, and southeast Indiana. No respondents were called in Northwest Indiana as the Greater Chicago area has long supported the Chicago Bears and Notre
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Dame football. However, the calls to the other parts of Indiana insured that respondents with possible fan affiliations with the Detroit Lions (northeast Indiana), Cincinnati Bengals (southeast Indiana), and the St. Louis Rams (southwest Indiana) were part of the study. To complete 850 surveys, interviewers called a total of 4,190 telephones. Of the numbers dialed, 2,741 involved households with active telephone service (excluding modems and fax machines). A total 1,891 households refused to participate in the survey or did not answer after three contacts of a valid number, yielding an overall participation rate of 31 percent. The project also included separate samples and interviews of season ticket holders and leaders in a sample of the largest corporations in the central Indiana region, though this article excludes those results.
The Intangible Benefits of Civic Assets The first section of the survey included a set of questions to measure how important the Colts are as a civic asset relative to other cultural amenities available throughout the state. The introduction to the survey did not indicate that the focus was the Colts. This avoided any biasing effect in the rankings and helped establish the repoire with respondents to complete the survey. The first question in the opening section asked respondents to list the civic assets or responses they heard from others when the respondent told someone they were from Indiana. Figure 1 enumerates the assets respondents reported hearing when told others they were from Indiana. The Indianapolis Colts were the second most frequently mentioned asset that residents heard about from others. Respondents reported multiple assets. Of 1,851 responses recorded, almost one-quarter were mentions of the Colts (23.8 percent). Of the 850 overall respondents, more than half (52.1 percent) reported others talking about the Colts. The only asset mentioned more often was motor sports (including the Indianapolis 500 and the Brickyard 400).
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Figure 1 about here
The next question in the opening section of the survey asked respondents to rate the role of different civic assets as determinants of Indiana’s national reputation. As seen in figure 2, residents see the Colts and the Indiana Pacers (NBA) as important assets, though not as critical as the state’s universities and some other select assets. (The Circle City Classic is an annual festival and football game involving two historically black colleges).
Figure 2 about here
The final question in the opening section of the survey sought information about the pride generated by different assets. Specifically, the survey asked each respondent to rank another series of civic and cultural assets: “For each item, can you tell me if it is very important, somewhat important, somewhat unimportant, or very unimportant in establishing your feelings of pride in living in Indiana.” Interviewers recorded the responses on a four-point scale with 4 meaning “very important” and 1 “very unimportant.” Figure 3 presents the overall results and illustrates the importance of the Indianapolis’s Children’s Museum and “zoos and museums” throughout the state as the two leading generators of civic pride among the seven assets listed in this question. This latter category reflected the mix of facilities in every region of the state and Indianapolis and represents civic assets in the communities in which respondents lived. Furthermore, the Children’s Museum ranked as a pride generator with greater intensity than the other assets, with almost four out of five respondents (78.8
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percent) indicating that the Children’s Museum is “very important” as a source of pride for them. After the museums, the Indianapolis Colts were the highest rated source of pride.
Figure 3 about here
The three questions in the opening section of the survey serve to accomplish two tasks. First, methodologically they help to establish a repoire with the respondents that increased the likelihood of a completed survey once the more sensitive questions about willingness to pay and taxes arose. Second, the results indicate that there is something to the psychological values residents ascribe to civic and cultural amenities and that these values vary over the different kinds of amenities. Furthermore, the values vary by socio-economic and demographic characteristics to some extent. For instance, there is a slight variation in scores for the Colts on these three comparative questions indicating more importance the closer the respondent lives to Indianapolis. Younger respondents tend to derive greater value from the Colts than older respondents. And wealthier respondents also derive greater psychological value from the Colts’ presence generally than less wealthy respondents. But the clearest and most consistent covariate is whether the respondent attended a Colts’ game: attendees derive greater psychological value from the Colts than those not attending an event in the year prior to the survey. As evidenced in the following sections, these variations may have implications for financing a public investment.
The Value of Intangible Benefits The second section of the survey asked questioned designed to capture the components of respondents’ willingness to pay for the psychological benefits they derive from the presence of the
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Colts in Indiana. Specifically, the survey asked respondents to think about the satisfaction they derive from having the Colts and the value of the civic pride and excitement created for them by the team. Then, the survey asked each respondent: “Do you think the value of Colts being in Indiana is worth $7 per month ($84 per year)?” If respondents answered yes, the survey asked them if the team was worth $15 per month (or $180 per year). If a respondent replied that the value created by the team was not worth $7 per month to them, the survey instead asked if the value of the team was worth $4 per month to them. Figure 4 illustrates the results.
Figure 4 about here
A majority of the respondents (54.4 percent) indicate the value of the intangible benefits of the Indianapolis Colts to be at least $48 per year to them. One should also note that one in five respondents (20.2 percent) believe the intangible benefits of the team are worth more than $180 per year, and 42.0 percent report the team’s value to them as worth at least $7 per month ($84 per year). To determine the presence of any substantive variations in these values exist, tables 1 and 2 contrast the values by characteristics and geographic locations of respondents starting with those who report the value of the benefits generated by the Colts to be $48 or more each year versus those who place less value on the intangible benefits associated with the presence of the team. The results in table 1 show the percent of all respondents that indicate a $4/month or higher value of the intangible benefits ($48 per year or more) by the yes/no percentages for each particular location or demographic characteristic. For example, 76.1 percent of those that agree that the team generates at least $48 annually in intangible benefits are in Central Indiana, and 64.6 percent that disagreed with the statement or answer no are also in Central Indiana (given the size of the state’s
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population in Central Indiana and the relative weights in the sampling frame). More importantly, the data also illustrate that 56.2 percent of the respondents from Central Indiana value the intangible benefits of the Colts at not less than $48 per year. The Northeast Indiana region is split as to whether the value is at least $48 per year. In the Southeast and Southwest parts of the state, a majority of respondents do not believe the value of the intangible benefits to be worth $48 per year.
Table 1 about here
Almost two-thirds (63.1 percent) of the residents from the seven-county Metropolitan Indianapolis area report the intangible benefits of the Colts to be at least $48 per year. In the balance of the Central Indiana region (minus the Metropolitan Indianapolis respondents), slightly less than a majority (49.8 percent) believe the value of the intangible benefits created by the Colts equals at least $48 per year. Only 45.3 percent of the respondents in the remainder of the state feel the value to be at least $48 per year. Value does not vary by the gender and race variables, but value does decline among older respondents, reflecting the findings from the previous comparative civic assets questions. This is paralleled by the length of residency question. Higher income is associated with higher value placed on these benefits too. Not surprisingly, the results in table 1 also show that respondents that attended a professional football game (or someone in their household did) are more likely to indicate the value of the intangible benefits to be at least $48 per year. Perhaps more surprising is that nearly half (45.1 percent) of those respondents that did not attend a game still report the value of the intangible benefits at this level. This indicates that the intangible benefits spillover considerably even to those not attending such events in person.
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As part of the double-bracketed question format, the survey also asked each of the 356 respondents (42.0 percent) that indicated the Colts to be worth $7 a month to them if the intangible benefits were worth $15 or more per month (or $180 per year). A total of 171 respondents (20.2 percent of the total sample) report the intangible benefits of pride and reputation generated by the Colts to be in this high-end value bracket. Table 2 details the areas where these respondents live and effects of their demographic characteristics on the likelihood of their positive response.
Table 2 about here
Location again plays a significant role in the likelihood that a respondent believes the value of these intangible benefits to be worth at least $15 per month. Support for this level of value was highest in the Central Indiana region, particularly in the Metropolitan Indianapolis region in which over one in four respondents (27.7 percent) value the benefits at this level. This is more than twice the level of support for this value as found in the areas outside of the Central Indiana region. As before, older respondents are less likely to value the intangible benefits associated with the presence of the Colts at $15 per month than their younger counterparts. Length of residency and race do not exhibits relationships with this value level, but female respondents are significantly less likely value these benefits at this level. Respondents with higher levels of household income are generally more likely to support this level of value than respondents with less income. Those living in a household with someone that attended a football game are more than 2.5 times as likely to value these benefits at $15 per month or more. The survey covered an area of 1,383,343 Indiana households (U. S. Bureau of the Census). The results allow a reliable estimation of the summed value of the pride and intangible benefits for
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the population of state households in the sample areas: $83.9 million per year (see table 3). This figure represents a measure of the value of the intangible benefits of pride and the excitement of having the Colts in Indiana. This is not the same as how much people would be willing to pay for these benefits.
Table 3 about here
The Willingness to Pay for Intangible Benefits Knowing the value citizens and customers place on an asset in terms of its worth is important. Relative to the study of what consumers will do, however, community leaders, just like business owners, need to know what a citizen is willing to pay through taxes or other charges for that asset/benefit. Projected to the population of the regions surveyed, the estimated annual value of the intangible benefits associated with the Indianapolis Colts is $83.9 million. The next question in the survey solicited information on what respondents say they are willing to spend to secure these benefits. Specifically, the survey asked: “Would your household be willing to pay $80 per year to keep the Colts in Indiana?” The survey asked those answering yes if they would be willing to pay $160 per year. If they said no to the initial bid level, the survey asked if they would be willing to spend $40 per year. If they said no again, the survey asked the respondent what amount (if any) they would pay to keep the Colts in Indiana. Figure 5 illustrates the responses to this question.
Figure 5 about here
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While a majority (58.4 percent) would pay something to secure these intangible benefits, two of every five (41.6 percent) would not. A very slight majority of respondents (50.9 percent) say they would be willing to pay at least $40 per year for these benefits. These results in figures 4 and 5 indicate that there are some respondents that see real value in these benefits but are unwilling (or possibly unable) to pay to maintain them. An examination of the effects of various location and demographic characteristics on the willingness to pay at least $40 per year finds similar patterns to those of the value respondents place on the intangible benefits associated with the Colts, though of differing magnitudes (see table 4). For example, respondents closer to the Indianapolis area express a greater willingness to pay this amount (though even in Southwest Indiana, over one-third of respondents say they are willing to pay this amount to keep these benefits in place). Three of every five respondents (60.1 percent) in the Metropolitan Indianapolis area express this level of willingness to pay. In terms of SES/demographic characteristics, race and sex again have no relationship with willingness to pay at this level. Age and length of residency exhibit the familiar negative relationship, while income exhibits a positive relationship as with value derived from the Colts. Finally, respondents in a household in which at least one member attended a football game are significantly more likely to be willing to pay this amount: 77.9 percent support among attending households versus 41.5 percent support among nonattending households. Some of the effect of attendance may be indicative of a coproduction effect leading to higher satisfaction (as evidenced by the higher values attendees place on the psychological benefits) and a resultant increase in the willingness to pay for the continuation of those benefits.
Table 4 about here
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The previous section estimated the total annual value of the intangible benefits of being home to the Colts is $83.9 million. Using the same approach here and applying the proportion of responses to the lowest value in each of the categories against the proportion of households represented in the sample frame, table 5 illustrates the calculation of the total amount Indiana residents would likely be willing to pay to maintain the intangible benefits generated by the Colts: $66.3 million. This is $17.6 million less than the value respondents ascribe to these benefits, meaning that a consumer surplus of more than $17 million exists. The intangible benefits of the Indianapolis Colts are a “good buy” or value in that the cost residents are willing to pay is $17.6 million less than the value placed on the intangible benefits.
Table 5 about here The $66.3 million estimate is based on conservative approaches to the estimation in order to address the potential biases raised in the literature. In order to further test the robustness of the estimate, the analysis also includes an second estimation of the willingness to pay using a maximum likelihood estimation (MLE) procedure applied to a set of explanatory variables consisting of SES and demographic characteristics, attitudinal variables about the Colts, and eleven proxies intended to capture different tastes and opinions on what generates intangible benefits of civic pride of respondents.1 The most powerful of the models (with the highest likelihood) yields an estimated WTP of $63.93 per year. Statewide, that is $55.3 million and comports well with the initial WTP. Both estimates are well above expectations and lend additional credence to the idea that there is substantial value in the psychological and civic pride benefits associated with professional sports.
Conclusions
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For sports fans and social scientists across several disciplines, the finding that a professional sports team produces a substantial level of intangible benefits is hardly unexpected. However, before considering the import of the findings, some suggestions for advancing the study of intangible benefits through contingent valuation surveys are in order. First, before any results are accepted as definitive, more researchers should conduct similar surveys during the off-season when a team’s success will be far less present in respondents’ minds. Analysts need to understand if the valuation of intangible benefits of teams changes when a season ends and games are no longer played.
Second,
analysts also need to know if winning and losing teams produce different levels of benefits and if losing teams are devalued as a result of a losing reputation or record. Third, as noted previously, there are also different ways to ask contingent valuation questions starting with different values and using different increments. One can design a survey phrasing the trade-off between services and taxes in different formats. This study used questions that clearly stated that public money would need to be increased to insure the presence of the intangible benefits, but respondents answered without any indication of whether their other taxes were likely to increase. Fourth, if respondents were faced with increasing taxes for existing levels of services or the possibility of lower services, more respondents could have chosen to fund other services and vote against any tax increases for sports. Scholars need to produce measures of the value of public goods under very different fiscal scenarios, but that was not at option for this initial endeavor. Others might also find different approaches that would add additional validity to the findings and projections in this study. These observations or caveats do not minimize the significance of the findings in this single assessment of the value placed on the intangible benefits of a team and the money people would spend to preserve these public goods. Of particular importance is the sheer magnitude in value of the benefits and the taxes that respondents would commit. When Hamilton and Kahn (1997) indicated
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that if the Baltimore Orioles and Ravens each produced intangible benefits equal to approximately $20 a household, the public investments in a new ballpark and football stadium would be generating a positive return, some might have thought it unlikely that benefits were at this level. Subsequent research into consumers’ surplus indicated that there was indeed a real possibility that sports generated far more than the $20/hoursehold needed to make an investment worthwhile. The results here illustrate that the intangible benefits, in terms of a team in one city, are far greater on average than the $20/household needed in Baltimore. The value ascribed to the Colts and annual WTP residents stated far exceed the projected annual payments of the public’s contribution to the new Colts’ stadium. Another striking finding here is that substantial numbers of people located more than 100 miles from the home field of the Indianapolis Colts report the existence of intangible benefits and display a willingness to pay for those benefits. While a majority of the residents in the corners of the state are not supportive of the notion of paying taxes to insure the team’s presence, a majority in one corner (northeast, Fort Wayne region) are willing to pay to keep the Colts in Indianapolis and more than a third in the southwest and southeast would also be willing to pay higher taxes toward this end. One might expect that the further a respondent lived from the team’s home field, the lower the value that would be expressed for the intangible benefits and the tax money to be spent to insure the presence of the benefits. This is indeed the case in Indiana. However, many respondents living more than 100 miles from the Colts’ home field still value the team and are willing to pay taxes to keep them; an instructive observation with implications for public financing. The analysis by demographic characteristics illustrates that the Colts produce important levels of intangible benefits for women, for members of different racial groups, and for individuals from households with very different income levels. While the price of attending games has clearly made it
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more difficult for individuals from lower income households to attend games, the intangible benefits produced by the team extend across the income spectrum. The identification of intangible benefits by women does not necessary mean that they like or enjoy football as much as men, but it does illustrate that they perceive that intangible benefits do exist, are valuable, and warrant in some cases the investment of tax money to insure their existence. The findings from this study then do offer support for the expenditure of public funds to insure the presence of the intangible benefits from the Indianapolis Colts. In addition, if replications of the study with different forms of the questions and at different times of the year produced similar results, then it may well be inappropriate to refer to public investments in a football stadium for the Colts as a subsidy. Indeed, the next step in the research into the economic value of sports teams and the facilities they use may be a comparative analysis of the rates of return on a full range of possible public investments. In that manner, investment decisions could be based on rates of return to a state or city and different population groups. At a minimum, however, another positive outcome must be added to the literature on the economic benefits of professional sports teams. Previous research has found a level of consumer surplus from sports that exists, and other research found that at the regional level there were also some instances in which positive returns exists. Some social scientists have identified important benefits from the placement of sports facilities in downtown areas. And this study now places the issue of the value of intangible benefits as another factor that must be taken into account when coming to a public judgment on a possible investment of tax money in sports relative to the public’s interest.
Notes
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1
To approximate WTP we use maximum likelihood estimation (MLE), a procedure which finds the value of the parameter vector (MLE estimate) that maximizes the likelihood function, i.e. “makes the observed data most likely.” (Myung, 2003, p.93) Let us denote by yi the recorded value of WTP and by yi* unobserved true WTP which we attempt to approximate. Variable yi* is explained by the model: yi*=xi’β+εi, i=1,2, …, N where xi is K×1 transposed vector of observed characteristics, β is a K×1 vector of parameters and εi ~N(0, σ2). The relationship between yi* and yi follows from the chart above: yi = yi*, if 0 < yi* < 40 yi = 40, if 40 ≤ yi* < 80 yi = 80, if 80 ≤ yi* < 160 yi = 160, if yi* ≥ 160 and the log-likelihood function is L(β, σ2) =
∑yi
