A WINNING PROPOSITION: THE ECONOMIC IMPACT OF SUCCESSFUL NATIONAL FOOTBALL LEAGUE FRANCHISES

"It was the best of times and it was the worst of times." This classic phrase could be used to describe the period of 1990 through 1993 for fans of the Buffalo Bills. The Bills performed well enough to win the American Football Conference Championship four consecutive years, but each year the team's season ended with a Super Bowl defeat. The purpose of this study is to determine if fans of successful, but not world champion, sport teams (like the Buffalo Bills) experience economic benefits in conjunction with their team's successes. Coates and Humphreys (2002) examined whether a sports team winning a championship had a positive effect on the real per capita personal income of the local metropolitan area. Despite examining various measures of success across several different sports, (1) Coates and Humphreys found that the local National Football League (NFL) team winning the Super Bowl was the only variable that had a significant positive effect on income. Although Matheson (2006) shows evidence contradicting the findings, Coates and Humphreys' results are interesting when considered in the context of other similar studies that fail to find a positive effect from the presence of the teams in the city (Coates and Humphreys 1999, 2003), the building of stadia for the teams (Coates and Humphreys 1999), or the presence of major events like the Super Bowl or World Cup (Baade and Matheson 2000, 2004; Matheson and Baade 2006) on local income. In this paper, we use a psychological framework to provide a rationale for the increased economic well-being associated with a Super Bowl victory. Additionally, we rely on the psychological literature and argue that the economic benefits of a winning team should extend beyond just the championship team to the cities of teams that experience seasonal success. To examine whether a winning effect can be extended to all teams in the league and is not limited to just the Super Bowl champion, we include the winning percentage of the local NFL team. Although lacking a formal model, the psychological literature suggests multiple individual-level processes that may account for the economic impact of winning percentage. To test whether the effect is based on increased consumption or increased productivity, we estimate our models on the real wage income per capita as well as personal income. Additionally, because the econometric model is a dynamic panel series model, a model that can exhibit substantial bias in the coefficients (Judson and Owen 1999), we use the method of Arellano and Bond (1991) to correct for bias. This method also provides insight in regard to the directionality of the winning percentage and personal income relationship, specifically that winning percentage drives changes in personal income as opposed to changes in personal income impacting winning percentage. In the Arellano-Bond estimations, winning percentage is treated as endogenous, meaning within the system, while the remaining variables are treated as being exogenous. As an additional further check, we reestimate the model including team salary. If the direction of causation flows from income to winning, it would be indicated by increases in the coefficient on payroll for the team. The results show that even after including team salaries in the model, winning percentage still positively impacts income. I. PSYCHOLOGICAL IMPACT OF SPORT TEAM'S SUCCESS Research has consistently demonstrated that people go to great lengths to publicly identify with winning sport teams (Cialdini et al. 1976; Cialdini and Richardson 1980; End 2001; Joinson 2000; Wann and Branscombe 1990). This tendency to bask in the reflected glory (Cialdini et al. 1976) is related to event-specific success (a team's victory) and global success (winning percentage, qualifying for play-offs, etc.). Specifically, End et al. (2002) found that when sport fans were asked to identify their favorite teams, the teams with which they identified had an average winning percentage significantly greater than 50%. …