According to ESPN.com, last season the Philadelphia 76ers sold out every game the team played on the road. At home, though, the Sixers only played to about 80% of the capacity of its arena. How can a team be so popular when it travels yet so unpopular at home?
Part of the answer is in an article Martin Schmidt and I just published in the November, 2006 issue of the Journal of Sports Economics. The article is entitled: “On the Road with the National Basketball Association’s Superstar Externality.” Readers of The Wages of Wins might note that the paper is listed in the book as “forthcoming.” It was actually written well before the writing of the book, but the backlog at JSE delayed its publication until now.
The “Road” paper is a sequel to a paper also published in the JSE (February, 2004) entitled “Stars at the Gate: The Impact of Star Power on NBA Gate Revenues.” “Stars at the Gate” (also featured in The Wages of Wins) was written by Marty, Stacey, and myself and specifically examines the determinants of an NBA team’s home gate revenue.
We began the writing of “Stars at the Gate” with the suspicion that star power was very important in the NBA. We thought this because the NBA — relative to sports leagues in baseball, football, hockey, and soccer — suffers from low levels of competitive balance. Consequently we thought fans must come to the NBA arena for something else besides the typical uncertainty of outcome we once thought drove consumer demand in sports.
Although we thought star power was the factor that drew the fans at home, the data told us otherwise. Star power was statistically significant in our model, but it had very little economic impact on a team’s gate revenue. For the home team, winning games turned out to be the most important factor.
On the road, though, Marty and I tell a different story. At home winning trumps star power. Although winning teams still do better on the road than losers, star power is an equally important factor. Now it is important to remember that the NBA has a 100-0 split of gate revenue – the home team takes it all. So although a team’s stars attract fans on the road, the team that pays the star doesn’t get any of that money.
The 76ers are exhibit A in this story. Allen Iverson and the 76ers appear to be a major draw on the road. But at home, Philadelphia plays before many empty seats.
And the story continues this year. After three games Philadelphia is still only playing in front of 80% of its arena capacity. So although Iverson may be popular, the inability of his team to win consistently hurts Philadelphia’s bottom line.
For coaches and general managers in the NBA this story has clear implications. The popularity of a player is not very important if a team wishes to win more games or increase its revenue and profit. What matters is the ability of a player to produce wins. Now sometimes the popular players are indeed the big producers of wins. Sometimes, though, these players are not the most productive. And what our studies show, the unproductive yet popular players do not help a team capture wins or profits.