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The Impact of Investor-Fan Ownership on the Value of Publicly Traded Sports Franchises: The Case of the Boston Celtics

1999; Allied Academies; Volume: 3; Issue: 1 Linguagem: Inglês

1096-3685

Laurence E. Blose, John M. Gandar, Reinhold P. Lamb,

Sports, Gender, and Society

INTRODUCTION The finance literature is rich with evidence of a distinct market response around important events and announcements throughout the life of a firm. Traditional effects stimulating a stock reaction include dividend and earnings announcements and stock splits (Charest, 1978; Aharony and Swary, 1980; Asquith and Mullins, 1983). Other, less common events, such as airliner crashes (Barrett et al., 1987), hurricanes (Lamb, 1995, 1998), earthquakes (Shelor, Anderson, and Cross, 1992; Kennedy and Lamb, 1997), the Chernobyl reactor accident (Fields and Janjigian, 1989; Kalra, Henderson, and Raines, 1993), the Three Mile Island incident (Hill and Schneeweis, 1983; Bowen, Castanias, and Daley, 1983; Spudeck and Moyer, 1989), and bank failures (Aharony and Swary, 1983; Swary, 1986) have been shown to produce an industry-specific response. Recently a new industry of publicly traded firms has emerged. Professional teams from various sports--baseball, NASCAR, football, hockey, basketball--have begun to use the equity markets as a source of funds and, thereby, have made ownership available to investor-fans. While conventional industries generate only corporate announcements that provide insight into their financial condition, sports teams also produce game-related news that could translate to corporate performance and, hence, effect financial condition. For example, in their IPO registration statement filed in July 1997, Florida Panthers Holdings, Inc., a professional hockey team, disclose that the firm's revenue is primarily derived from (i) the sale of hockey tickets to home games, (ii) contracts with broadcast organizations and (iii) advertising and promotions. The firm further declares in the Risk Factors section that: The financial results of the Company are expected to depend in part on the Panthers continuing to achieve success in the NHL. By achieving and maintaining success, the Panthers expect to generate greater fan enthusiasm, resulting in higher ticket sales throughout the regular season and capturing greater shares of local television and radio audience. Furthermore, any participation in the playoffs will provide the Panthers with additional revenue from sales of tickets for home playoff games and from broadcasts of playoff games under local media contracts. Conversely, revenue could be adversely affected by poor performance by the Panthers. There can be no assurance that the Panthers will perform well or qualify for the playoffs. (Donaldson, Lufkin and Jenrette, 1997) In this study we examine the stock market performance of the Boston Celtics, a professional basketball team. Like the Florida Panthers, the Boston Celtics generate income mainly from the sale of tickets to home games and the licensing and exploitation of television, cable network and radio rights (Standard & Poor's, 1997). Game-related information, such as wins and losses, making the post-season playoffs for the league championship, and performance in those playoff games is expected to effect attendance and broadcast contracts and, thereby, impacts on the ability of the firm to generate cash flows from fan and sponsor support. Consequently, the financial condition and resulting firm value are expected to be related to the success of the team in the arena. Since a winning team can potentially earn more revenue than a losing team because of increased fan attendance at games, more games through making the playoffs, increased concession and team merchandise sales, and increased demand for team-related paid endorsements, we expect to find that events endangering revenue from these sources would have a detrimental effect on stock returns. The market would likely interpret game losses and the elimination from the playoffs as negative because the corporation forfeits revenues generated by additional games. On the other hand, game wins and success in the playoffs would have a positive effect on the underlying stock because the stream of cash flows from game tickets, concessions and related sources is not interrupted. …