The Stadium Game

Abstract

The intangible benefits of sports teams are a source of social value that cannot be captured completely by teams through ticket sales and other revenues. A model is developed in which teams attempt to capture social value through stadium subsidies. The number of teams in the league, determined endogenously, increases when subsidies to teams are permitted. The size of the subsidy paid by a city depends on the threat point of teams based on the social value of a team to the largest city without one. Larger cities pay smaller subsidies and may not pay anything. Cartelized leagues substantially increase subsidies by reducing the number of teams, but subsidies are not eliminated in the case of free entry.