What keeps a valuable sports team competitive?

Note: this story was originally published elsewhere.

The question: do sports teams with evergreen sales have longer championship slumps than teams who depend on winning to sell the brand? Why invest when demand for your product is seemingly so inelastic?

There are a few ways to go about answering this: the first is to say that — as an academic named John Charles Bradburry noted in a paper published in 2016 — there is a positive correlation between winning and revenue in Major League Baseball, the NBA, and the NHL — but not in the NFL. (There’s also differing degrees of positive correlation between winning and revenue, with baseball being the highest.) It’s also worth noting “market size and winning both affect revenue, but they do so independently.”

Conversely, Bradburry found little to indicate teams caught in a ‘loss trap’ — the notion that a team will deliberately lose to get a financial bump.

In other words:

(1.) Winning ‘sells the brand’ regardless of whether or not you get a championship.

(2.) A team that isn’t winning doesn’t necessarily have to worry about winning to sustain its finances, especially if it’s in a strong market.

What’s more, Bradburry, notes —

Previous estimates of the impact of stadium quality on fan attendance have found a novelty or “honeymoon” effect from new stadiums that boosts revenue for between five and ten years, because fans are attracted to updated amenities and a new experience.

It’s an observation which — with the exception of the NFL once again (where the initial bump in revenue begins to turn into a negative drain fairly quickly) — Bradburry more or less confirms.

It’s also worth taking into account the average length of a title drought: the average length of a title drought in the NBA — if we’re to count 29 of 30 teams — is 32.7 years. (One team — the team that won — will always be a ‘zero’ in this.) The average length of a title drought in MLB — if, again, we’re to count 29 of 30 teams — is 24.34 years. The average overall length of a title drought in the NFL if we’re to count all 32 teams is 61.5 years.

That means that the New York Yankees are starting to regress towards the realm of historical averages. (They last won a championship in 2009.) The Chicago Bulls are nearly on the verge of hitting the historical average as well, as well as the Houston Rockets (They last won a championship in 1998 and 1995, respectively.) The Lakers remain just ahead of the curve on the historical average. (They last won a championship in 2010.) The Dallas Cowboys — the most valuable sports franchise in the world — aren’t in the top tier of perpetually successful teams (they last won the Super Bowl in 1996), but they’re nowhere near the historical average either.

And yet: even though The New York Yankees haven’t won a title in a decade, their revenues — as we can see above — have risen steadily since 2001. Save 2011, the Chicago Bulls have seen their revenues steadily rise since 2001. The Los Angeles Lakers have shakily — and then rather quickly — seen their revenue rise over the same time period. The Dallas Cowboys have also followed an upward (and much steadier) trajectory.

Why is the NFL such an outlier in some of the data we’ve observed? Bradburry again: “Income per capita is positively associated with more revenue in the NFL — a one-standard-deviation increase in income was associated with a $6.6 million increase in revenue — but not for any other league.” The NFL is also a syndicate that shares revenues amongst teams and gleans its profits from a centrally dispersed television broadcast.

What does this have to do with winning? What does this have to do with the fact that the average length of a title drought in the NFL is 61.5 years? As Bradburry notes: “In the NFL, winning does not appear to provide any marginal financial gains and thus owners have no financial incentive to improve team quality.”

So what improves team quality? What’s the incentive to win that cuts across the NBA, the NFL, the NHL, and MLB?

Does a large salary improve team quality? Does a large salary incentivize players to win? It’s worth noting that a large salary is one of the most noticeably clear benefits to be gained from working in a monopsonic system, and that — until 1978 and the emergence of Dave Parker — the idea of rich athletes was something of a novel one. (A monopsony is the reverse of a monopoly: many suppliers. One powerful buyer.) But money doesn’t always buy success: think of the success of Leicester City F.C. or the emergence of moneyball in Oakland; think of the fact that — in order to give a team in the NFL an 80% win-rate — you’d have to outspend the average league salary by 174%.

One argument from Christopher Maier of the University of Beyrouth and others that cuts against the grain is noting that the “integration of family and private problem support … show strong positive effects on athletes’ job satisfaction.” Indeed, the finding echoes some of the comments Paul George made when he spoke about why he decided to re-sign with the Oklahoma City Thunder.

There was a period during the NBA season that’s currently in the playoffs where Paul George was playing the best basketball of his life. And that’s why you should invest in the sport and go see a game: he’s an elite athlete. And that matters: when the NFL brought in ‘replacement players’ during the strike, attendance to games dropped.

So we have Paul George on fire. And even though the Thunder haven’t won a championship since 1979, revenues are going up.