John Burger and Stephen Walters, “Market Size, Pay and Performance A General Model and Application to Major League Baseball,” Journal of Sports Economics, 4:2 (May, 2003), 108-125.
Professors Burger and Walters (Loyola College in Maryland) estimate a revenue function for MLB over the years 1995-1999 with data from the Commissioner’s Blue Ribbon Panel on Baseball Economics. They focus on the interaction between a team’s win percent and the market size (population) of its home town. They model their revenue function with a kink at 84 wins (in their sample period, the 1997 Houston Astros qualified for post-season play with the lowest number of wins at 84-78). The underlying idea is that the interest of fans increases at a faster rate if their team is a contender. These bandwagon effects suggest that an additional win is more valuable in terms of revenue to a team when they are contending for post-season play.
The regression results support the authors’ model. Next, Burger and Walters use their estimated revenue function to compute the marginal revenue of a win for all 30 MLB teams. The results show that the value of an additional win for a New York team ($3.62 million) is approximately six times the value of an additional win in Milwaukee ($0.59 million).
Finally, the authors make various interesting applications of their results to contemporary baseball economics. These include the observation that Alex Rodriguez’s salary is justified on the basis of the 12.3 wins he contributes to the Rangers each season and the marginal value of each Ranger win equal to $1.76 million.
This paper requires calculus for a complete understanding of the model. Also, like most empirical research in economics, the statistical model used is regression analysis. However, the general economic concepts are accessible with a principles-level knowledge of the discipline, and the baseball economics content is extremely interesting and timely.
Reviewed by: Lawrence Hadley
University of Dayton
Dayton, OH 45469-2251
Copyright © 2003 Larry Hadley. All rights