Fan Attendance and Mlb

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Multiple Regression Analysis
Fan Attendance for Major League Baseball

Managerial Economics ECO 650
Dr. Meenakshi N. Dalal
Professor of Economics
December 8, 2007

Grade: A-

Sample Paper 2

Multiple Regression Analysis of
Fan Attendance for Major League Baseball
Individuals with the desire and resources to own a Major League Baseball team have much more to investigate than the simple choice of logo and mascot. Baseball is a business that is primarily reliant on labor and the capability of that labor to generate revenues. A team’s success is determined not by wins and losses, but like any business, its success is determined by the revenue it generates and its potential for future revenues. Fan attendance is the major indicator of a team’s capability to generate revenue because it not only determines gate income but it also is a measuring device for the number of television viewers, the amount of team product sales, and the potential valuation for television packages. Although there are many factors that affect fan attendance such as ticket prices, condition of the stadium, and alternate entertainment options, the primary indicators are market size and team payroll. By understanding the relationship between fan attendance, market size, and team payroll, an individual can predict the potential for financial success for his team. This analysis will examine the hypothesis that both the market size in which the team is located and the total team payroll have a significant positive effect in determining fan attendance. This analysis is based on cross section data of all 29 Major League Baseball (MLB) teams within the United States. The only major league team not included in this analysis is the team located in Toronto, Canada since its market information is not included in the United States’ data. The market rankings used are the 2007 Nielsen Media Research Designated Market Areas (DMA’s) which consist of 210 different metro areas and their nearby counties. The DMA in which a team is located encompasses the geographic area that not only includes the population in close proximity to the team but it also includes the population within driving distance (Pensa & Brassard, 2006). Market sizes for teams within the New York, Chicago and Los Angeles markets are an estimated apportionment since these markets each share two teams. The payroll data is from the USA Today database of 2007 MLB total team payroll and the attendance figures are totals for home games as determined by Major League Baseball. The relationship of total team payroll to fan attendance is significant with the assumption that the higher payroll results in a higher level of talented players. Those talented players generally require higher salaries and produce a higher quality of product for the fans. A multiple regression analysis will be used to determine the relationship between fan attendance to market size, and team payroll. The model of market size and payroll amount to fan attendance in general form is Y = X + f(M) + g(P) where Y = Total Fan Attendance, M = Market Size, and P = Payroll. Within any broad population segment, a portion of that population will attend baseball games so a positive X coefficient is expected. In conjunction, as that market population increases and/or the team payroll increases the attendance total will also increase resulting in the f coefficient > 0 and the g coefficient also > 0. The regression output is shown on Attachment A. The estimated equation is Y = 1,070,291 + .209M + .014P with the Y intercept at 1,070,291, the coefficient of M at .209 and the coefficient of P at .014. This equation reveals that the minimum expected attendance for a baseball team; the hard core fans that would attend games simply because they’re available is 1,070,291. In addition, both the M (market) and P (payroll) variables have a positive effect on attendance. The positive .209 coefficient for the...
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