A COMPENSATING DIFFERENTIAL APPROACH TO VALUING THE SOCIAL BENEFIT OF MINOR LEAGUE BASEBALL

I. INTRODUCTION Spectator sports are an important part of our national culture in no small part due to the positive "community pride" effect from having a team (Johnson and Sack 1996; Swindell and Rosentraub 1998). Indeed Noll and Zimbalist (1997, 56) go so far as to assert, "The cultural importance of major league team sports in American society most assuredly exceeds its economic significance as a business." In an economic framework this cultural importance derives from a professional team's positive consumption externalities that manifest themselves through civic pride, the "big league" status of a city, or the simple happiness when a fan's favorite team wins. These intangible benefits have value. Although a mention of professional sports immediately brings to mind major league teams in baseball, football, hockey, and basketball, there is a professional sport played in over 200 North American cities every year that boasts higher total attendance than the National Basketball Association (NBA), National Football League (NFL), or National Hockey League (NHL) (see Figure 1). Minor league baseball has existed since 1901 and is played in more communities than all of the major league team sports combined. Hundreds of minor league baseball teams have played in North American cities for over a hundred years. Further, similar to major league sports, cities compete for the opportunity to spend tens of millions of public dollars on new minor league stadiums. Given these facts, it might be reasonable to suspect that minor league baseball has a nonpecuniary value to its host community, yet little is known about this value. There are two opposing views. The first views minor league baseball as a small, insignificant game played in front of small crowds in small venues in relatively small cities. It lacks national television exposure, overflow crowds, and super stars with super salaries. Without the cachet of major league sports, it has little ability to generate intangible benefits for a local community. The second view focuses on the relative worth of a team as opposed to its absolute size (Johnson 1995; Kraus 2003; Rosentraub and Swindell 1991). A local sports team is viewed as a unique geographic and cultural attribute that outsiders associate with a city. If the team's positive consumption externalities are manifested through the generation of local pride in place and pride in team then these intangible benefits are valuable. [FIGURE 1 OMITTED] Both views incorporate the size of the city in the argument either directly or in the calculation of relative worth. The idea of relative effects is not new to sports research. Coates and Depken (2011) state, "for Waco, Lubbock, or other middle- or small-sized cities, a regular season college football game may be a mega-event" (p. 601). Because minor league baseball is extremely heterogeneous in population (in the most extreme case, teams in the same classification play in cities that range in population from 48,247 to 18,782,715), an important contribution is the analysis of this effect in different sized cities. Measurement of these intangible benefits is important because minor league baseball teams seek subsidies from state and local governments for construction of new stadiums. While these subsidies are generally far smaller than those sought by major league franchises, they can be substantial, especially for the smaller communities that host lower level minor league teams. For example, since 2002 the average cost of a new ballpark at the highest level of the minor leagues (AAA) is $53 million, and at the lowest level of minor league baseball (rookie league) a new stadium costs $8.5 million. Of the 11 AAA and rookie stadiums built in this time period, all except one were 100% publicly financed. If the cost of the stadium was distributed equally to the residents of these metro areas, the per capita cost would be $53. …