The economics of the National Hockey League : expansion, relocation, and survival
Date
1991
Authors
Seredynski, Glen Joseph
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Abstract
In 1984 the U.S. courts held that teams, not leagues could determine franchise relocation. Since this time there have been many attempts to introduce legislation in the U. S. Congress to establish the criteria under which professional sports franchises could relocate and the conditions under which leagues could expand. The current criteria regulating team relocation and league expansion are mainly location dependent; however, existing evidence suggests that economic viability is a function of both locational and game attributes.
The object of this thesis is to model team demand for one league sport, the National Hockey League, and use it to estimate the relative importance of location specific and team specific attributes and to determine their effect on economic viability. Also, the object is to ascertain the economic viability of expansion locations for the National Hockey League.
The short and long run team demands are modelled to determine the relative importance of location and team specific attributes for attendance revenue generated at existing and potential locations, with particular emphasis on Canadian and American differences. Teams are treated as local monopolists and demand is determined by a two equation model in which price and attendance are endogenous, and location specific and game specific attributes are exogenous. Then, profits and viability in existing and potential locations are determined by adding estimated revenue from other sources (playoffs, media) to the estimated attendance revenue and subtracting estimated costs.
The model finds that both location specific and game specific attributes influence economic viability. In particular, the locational factors of population, income, age of the team, and country significantly influence economic viability, as do game specific attributes of quality and time of play, and the importance of the game. Based on these results, the profitability of potential locations reveals that only three viable expansion cities exist for the National Hockey League: Ottawa, Tampa Bay, and Houston.