Substitutability in Los Angeles Professional Sport Market

Adrian Rojas
December 31, 2018

1 Introduction
Substitutability within the professional sports market is a complex and hotly debated issue
due to the inherent competition having multiple sports organizations brings. Especially if
professional sports is among the only sources of entertainment in that area, an example is
the Green Bay Packers in Wisconsin. When it comes to Los Angeles, California the scene
becomes more complex, numerous entertainment industries are very prominent in the area.
From theaters, themed amusement parks, almost daily concerts, and even multiple sports
leagues. The citizens of Los Angeles never face a shortage of activities that are merely a
few miles away. However, when it comes to sports, Los Angeles faces a multitude of support
from die-hard fans who come to see some of the most iconic names in sports. As such,
the sports industry is one of the most respected industries in the Los Angeles entertainment
market and has a considerable amount of bargaining power with city and county governments
which includes pleading for expensive stadium refurbishments or an entirely different stadium
entirely.
The Los Angeles Metropolitan Area contains more than ten million individuals residing
within its area of influence which results in many industries racing to the City of Angels to
take advantage of the vast wealth contained within the city and all the surplus labor available.
One such industry is professional sports, Los Angeles spawns 10 professional men’s major
league teams, from the National Hockey League, Major League Baseball, Major League
Soccer, National Basketball Association, and the National Football League as of 2018. The
teams include the Los Angeles Dodgers, Los Angeles Angels of Anaheim, Los Angeles Lakers,
Los Angeles Clippers, Los Angeles Kings, Los Angeles Chargers, Los Angeles Rams, Anaheim
Ducks, Los Angeles Galaxy and Los Angeles FC (in 2018). Major League Soccer is excluded
to avoid incomplete data due to the secretive nature of MLS data, primarily ticket prices
and the Fan Cost Index, which will be discussed later. Also excluded from this analysis
is the National Football League teams as they are both new entries into the Los Angeles
professional sports market and generally have not been accepted by the community at large,
thus resulting in largely empty stadiums especially for the Los Angeles Chargers which saw
a yearly attendance of 177,844, almost 4 times lower than the highest attended team and
twice as low as the next lowest attended team.
Substitutability within the city should be extremely high, since there are two teams from
every league. Should one team perform badly, the assumption of substitute goods holds,
fan loyally and attendance will transfer to the other team. However, this is not the full

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story, ticket prices and family income in the area around a stadium or arena will dictate how
consumers spend their money. Added to our analysis is the addition of the Fan Cost Index,
composed by Team Market Reporting, a variable which ordinary fans do not consider when
deciding to attend a professional sports event. In order to grasp how the audience is moving
the main variable to be analyzed is Average Attendance and Total Attendance.

2 Data
The data for this analysis was gathered manually from various sites across the internet.
The main source were the league websites themselves, MLB.com, NHL.com, NBA.com and
ESPN.com but also included some third party data collection sources as well. The variables
included in this analysis includes the Population (P) for the respective cities of Los Angeles
and Anaheim, however since the census is only taken every 10 years, the values used are
the 2010 estimates. The most noteworthy variable being utilized is the Fan Cost Index
(FCI) which takes into account the average price of tickets for a family of four, four small
soft drinks, two small beers, four regular hot dogs, two programs, two adult-sized caps and
parking (Scibetti, 2017). This metric is meant to account for the full cost of attending
a sports events, something which is often given little attention by sports fans. Perhaps
the most important variable contained in this research is Ticket Price (TP), this value is
an aggregate of all the ticket values throughout the regular season for all seats within the
stadium. Competitive balance is not calculated during this analysis, however, independent
research conducted for the sports leagues concludes that the majority of the leagues follow a
normal distribution, however, it is commonly accepted that competitive leagues and games
are more appealing to fans, as such the Win Rate (WR) for each league was gathered. By
extension, the number of Home Games (HG) during a regular season was recorded. The
median income (I) of the residents for Anaheim and Los Angeles city were also collected to
account for the disposable income available to each of the residents of their respective cities,
by extension the Sales Tax (ST) of each respective city was also gathered. Time series data on
the Average Attendance (AA) and Total Attendance (TA) was also gathered with Stadium
Capacity to measure how full stadiums were getting, which could drive changes in ticket
prices. The last variable in this analysis is Team Revenue, while not explicit, team revenue
includes the amount of revenue gained from ticket and food sales, like fair grounds, such as
the Hannover Messe in Germany, attendance is the most important source of revenue for
these teams. However, in this analysis we down play the value of T.V. contracts, merchandise
sales and sponsorships from external companies.

3 Simple Observations from the Data

Through simple observation of the data, we can see that there is very little variation in
between the years. Although, there are small shifts which carry some significance, first off
the Los Angeles Angels in 2013 where the Angels lost an average of 522 guest per game
which is associated with a 6.84% drop in games won, the total drop in attendance amounts
to 42,265 fans, which is more than the attendance of one average game. The Los Angeles

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Lakers face a similar trend but to a lesser extent, facing a 19.4% decrease in games won from
the 2013 season to the 2014 season but only suffering a decrease of 169 fans per game or
a 6,903 drop in total attendance. The Los Angeles Lakers’ Win Rate dropped in a similar
fashion from the 2014 season to the 2015 season with a drop of 7.3%, to end at only 25.6%
of the total games won for the 2015 season.
Ticket Prices, when adjusted to 2015 prices, observe a very slight increase over the course
of our sample years. The minimum Ticket Price is $15.48 for the Angels and a maximum of
$105.36 for the Lakers, both during the 2011 season. The biggest increase in Ticket Price
during the 5 years belongs to the Clippers who start at $54.23 in 2011 and increase to $79.82
in 2015 for a percent change of 47.18%. The Lakers, during this period, seem to get slightly
cheaper ticket prices during this period $105.37 in 2011 to $103.27 for a negative percent
change of 1.99%.
The Fan Cost Index fluctuated in a multitude of ways during these years for all of the
sports teams. With increases for the Lakers, Kings, Angels, and Clippers while decreasing for
the Dodgers and Ducks. The largest decrease occurs for the Dodgers dropping from $321.02
in 2011 to $218.94 in 2015 which results in a decrease of 31.79%. The largest increase occurs
for the Kings with an increase of 57.84%.

4 Analysis
4.1 Regression on Total Attendance
Upon preforming a regression on attendance confirms most of the assumptions which surface
when studying what brings in audiences. The regression is preformed using the variables
Ticket Price, Fan Cost Index, Population, Win Rate, and Revenue. Doing so returns a R-
squared of 0.9430 and an adjusted R-squared of 0.9311 meaning we are not suffering from
omitted variable bias as well as explaining most of the variation in this regression. This
regression analysis is visualized with equation 1.

P = β0 + β1 (T P ) + β2 (F CI) + β3 (P ) + β4 (W R) + β5 (R) + 
Several of the variables are not significant at a P value of less than .05, those include
the Fan Cost Index (0.148), Population (0.051), and Win Rate (0.277). Since they are not
statistically significant these variables will not be used to explain the variation. That being
said, the significant variables include Ticket Price (0.011) and Revenue (0.000). Ticket Price
is naturally significant as most people are price sensitive, hence for every dollar increase
in ticket price the league suffers a decrease of 18,925 fans over the course of the season.
Team Revenue is linked to the amount of money spent on the team composition, as revenue
increases the team can buy better players, which if they are famous, will increase ticket price.

4.2 Regression on Revenue

Performing a regression on revenue yields results that would be expected. Using the vari-
ables Ticket Price, Population, Fan Cost Index, Win Rate, Income, Sales Tax, and Total
Attendance in this regression we find almost an even split for variables that are significant

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 Variable 2011-2015
Constant 837436.7
(605216.1)
Ticket Price -18925.95*
(6894.795)
Fan Cost Index -2545.402
(1701.839)
Population 0.0975818‘
(.0474031)
Win Rate 789839
(709736.1)
Revenue 0.0099091**
(.0008907)
R2 0.943
R2 Adjusted 0.9311
Observations 30
** Significant at 99% level
* Significant at 95% level
‘ Significant at 90% level

Table 1: Regression results using Total Attendance as the dependent variable.

or not. With a R-squared of 0.9022 and an adjusted R-squared of 0.8711 we observe some
probable omitted variable bias. The omitted variable in this scenario would be T.V. con-
tract revenue which is how most teams, especially in the NFL, make their money, however
that data is not widely available across all leagues. Moreover, the significant variables in
this regression include ticket price (0.025) which increases revenue by 1,564,937 per dollar
increase, Win rate (0.030) which negatively impacts revenue by 1.45 ∗ e8 per game won and
Total Attendance (0.000) which increases revenue by $81.72 per each additional fan. This
regression analysis is visualized with equation 2.

P = β0 + β1 (T P ) + β2 (F CI) + β3 (P ) + β4 (W R) + β5 (R) + β6 (ST ) + β7 (T A) + 

The reasoning behind these significant variables is as follows, ticket price is directly linked
to revenue as all the fans need to obviously pay to be allowed in the stadium where they
will purchase refreshments, food and merchandise, hence ticket sales and price will be the
main determinant of revenue. Win Rate is a tricky one, the variable is significant but to the
opposite effect that is expected, it is negative, each game leads to less revenue which does not
make sense intuitively. However, as Fort explains in his textbook, fans begin to lose interest
as a team wins frequently, this study spans several seasons but if a team is dominating
over other teams the fans will notice the lack of adequate competition and become less
involved (23). Total Attendance is correlated with ticket price and as attendance increases,
the revenue from ticket sales and in the park amenities adds up to form a major section in
the Total Revenue received for the franchise.

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 Variable 2011-2015
Constant 8.13e+08
(1.00e+09)
Ticket Price 1564937*
(648202.6)
Population -9.863395
(13.01537)
Fan Cost Index 145921.5
(160640.4)
Win Rate -1.45e+08*
(6.27e+07)
Income -10199.76
(9237.089)
Sales Tax -2.11e+09
(6.19e+09)
Total Attendance 81.72217**
(7.783054)
R2 0.9022
R2 Adjusted 0.8711
Observations 30
** Significant at 99% level
* Significant at 95% level
‘ Significant at 90% level

Table 2: Regression results using Revenue as the dependent variable.

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5 Interpretation of the Results
5.1 Explaining the Small Impact of Win Rate in Los Angeles
The Los Angeles area is full of people who are extremely proud to reside in it and will support
just about anything the city offers, not surprisingly sports teams receive a fair share of this
support. Thus, explaining this low significance on attendance is simple enough. As observed
earlier with the Los Angeles Lakers’ Win Rate compared to their attendance, which did
not see any sizeable decreases, the Lakers seem to have a loyal fan base. This phenomenon
can be explained using the 1997 report by Sutton, McDonald, Milne and Cimperman on
“Creating and Fostering Fan Identification in Professional Sports”. In this report Sutton
identifies numerous groups in which fans can be categorized in (1) “Low identification”, (2)
“Medium identification”, and (3) “High identification”, the important category presented
is “Level 3: High Identification”. This identification relies heavily on psychological and
emotional connection from the fans to the sports organization, the team becomes an essential
part of the local community, from which a strong bond is formed (17). With this bond in
place, Level 3 fans develop decreased price sensitivity and decreased performance-outcome
sensitivity (Sutter, 17). The fans care less about the performance of the team and instead
attend for the pleasure of the game and to be around like-minded individuals which gives the
fan a sense of belonging (Branscombe Wann, 116). Applying this trend to the NFL leagues,
which have recently surfaced in Los Angeles (Rams and Chargers), confirms communal ties
need to be established in order to draw in crowds. The Los Angeles Chargers unveiled
their 2017-2018 season to nearly empty stadiums, which indicated low local involvement and
support. The addition of the new leagues and new teams should have taken attendance away
from the teams currently residing in Los Angeles but that has not been the case and the
bases of these teams have remained loyal.
Specific to Los Angeles, and New York City, is the high familiarity and high player
identification with the sports teams who reside within the city. The Los Angeles Lakers
and the Los Angeles Dodgers who have had the largest impact on sports within the city
have had the reputation of their sports organizations as the largest reason for their success.
The Los Angeles Lakers have won 16 championship titles for the city of Los Angeles, most
recently in the 2009 and 2010 NBA seasons. Such performance is bound to increase the
amount of Level 3 fans present within the city. Adding to the Lakers amazing track record
is the sheer number of famous players the organization has turned out. The Los Angeles
Dodgers are similar in their relation to the city of Los Angeles, during the 2017 and 2018
seasons the Dodgers have risen to be the national league champions and have competed in
the World Series. Unfortunately, the dodgers were unsuccessful in both seasons against the
Houston Astros and the Boston Red Sox. Nevertheless, the World Series coming to the city
of Los Angeles raises enthusiasm for the team, thus raising the ticket prices and increases
attendance, both on average and overall.
Crowds from all over the country would flock to the stadium where the Lakers were
playing in the hopes of catching a glimpse of Kobe Bryant, Magic Johnson (arguably the
most famous basketball player to ever play), Kareem Abdul-Jabbar, Wilt Chamberlain,
Shaquille O’Neal and recently Lebron James. A similar trend is seen with the Los Angeles
Dodgers, being the first team in major league baseball to bring in 3 million plus fans into

6
the stadium in 1978, the team has won 9 World Series titles for Los Angeles and spawns
many of the most famous baseball players to ever play. Players such as Mike Piazza, Jackie
Robinson (as part of the Brooklyn Dodgers), Tommy Lasorda, Clayton Kershaw, Yasiel Puig,
Fernando Valenzuela and Sandy Koufax brought/currently bring in the crowds. Facing the
Houston Astros for the 2017 World Series will have lasting effects on the attendance for the
Dodgers, from fans who are eager to see a potential championship team. However, should
the Dodgers, experience a drop in Win Rate, such as happened with the Lakers, there will be
little or no change in the total attendance as crowds will not migrate over to Angel Stadium
in Anaheim to see the direct competition.

5.2 Explaining the low impact of the Fan Cost Index

The Fan Cost Index, as discussed earlier, is essentially the full cost of a family of four
attending a professional sports event. As such it does not have any bearing in the decision
for a family to attend a sports game, the reason potentially lies in the “out of sight out of
mind” mentality equipped by guest in regards to in-stadium nourishments and extra cost,
such as parking. The high cost of food or parking will not influence the decision to attend
a game, meaning a fan in between Dodger Stadium and Angel Stadium on a spectrum will
not choose Angel Stadium purely based on the high cost of Dodger Dog hotdogs ($10). The
high cost of food and drink options within a stadium will not diminish the utility received
from attending the game. However, this does not mean fans will omit this fact altogether,
fans which are cognisant of this fact may simply refuse to purchase in stadium refreshments
and merchandise, due to the relative high cost only a fraction of fans willing to purchase
merchandise and refreshments is still profitable for the sports team.

5.3 Effects of Ticket Prices

Baade and Tiehen’s (1990) study on Major League Baseball Attendance during the 1969 –
1987 seasons found that ticket price was never statistically significant and often had small
effects on baseball attendance (20). This goes against what we find in our research which
sees price as significant on all fronts. While Baade and Tiehen’s (1990) focuses on baseball
attendance and does take into effect the amount of substitutes within the immediate area of
the stadium, ticket price for Los Angeles’ case, especially that of the NBA with the Lakers
and Clippers who play at the same arena, where these two teams can only compete with
one other through fan loyalty and ticket price since there are no additional external cost
(additional transportation cost, same traffic, same food cost, same parking cost) associated
with attending games from either of these teams. Assuming the main fans identify on a
Level 1 and Level 2 scale, price competition would be prevalent in the sports market in Los
Angeles as they would be price sensitive. However, this would be reflected in attendance
trends throughout all the sports leagues which we do not observe, the sports teams in the
Los Angeles are not substitutable for one another.

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6 Conclusion
The residents are lucky to have such a high abundance of professional sports teams at their
disposal, with 10 professional major league teams, there is something all the citizens can
enjoy with a team they can support. Once a person chooses their preferred teams, they
are not likely to choose any other team should the original team preform badly. This is
largely due to the fan engagement and the communal ties the sports organization has. The
more level 3 fans an organization fosters the more price insensitive and performance-output
insensitive they become. All teams studied in the Los Angeles area experience this effect
with strong support foundations keeping the base loyal to only the team they support.

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7 References
Burdekin, R. C., & Idson, T. L. (1991). Customer preferences, attendance and the racial
structure of professional basketball teams. Applied Economics, 23(1), 179-186.
Branscombe, N. R., & Wann, D. L. (1991). The Positive Social and Self Concept Con-
sequences of Sports Team Identification. Journal of Sport and Social Issues, 15(2), 115-127.
Doi:10.1177/019372359101500202
Baade, R. A., & Tiehen, L. J. (1990). An Analysis of Major League Baseball Attendance,
1969 – 1987. Journal of Sport and Social Issues, 14(1), 14-32. Doi:10.1177/019372359001400102
Sutton, W. A., McDonald, M. A., Milne, G. R., & Cimperman, J. (1997). Creating
and Fostering Fan Identification in Professional Sports. Sport Marketing Quarterly , 11(1),
15-22.
Fort, R. (2004). Inelastic sports pricing. Managerial and Decision Economics, 25(2),
87-94. Doi:10.1002/mde.1108
Fort, R. (n.d.). Demand and Sports Revenue. In Sports Economics (1st ed., pp. 23-26).

8 Data Sources
California Department of Tax and Fee Administration. (n.d.). Historical Tax Rates in
California Cities & Counties. Retrieved December 4, 2017, from https://www.cdtfa.ca
.gov/taxes-and-fees/archive-rates.htm
Inflation Data. (n.d.). Historical Consumer Price Index (CPI). Retrieved from https://
www.inflationdata.com/inflation/Consumer Price Index/HistoricalCPI.aspx?reloaded%
3Dtrue?reloaded=true