Alejandro Mena Econ 398 Professor Krautmann 5/30 Final Paper NFL Franchise Values There are many

questions the typical sports fan ask him or herself. The typical fan may ask when is their team going to win a championship, how many games is my team going to win this season, is my team going to acquire any new players, how much money is my team going to spend? Some of these questions might have an answer to them as soon as their asked, but some of the questions might not have an answer right away. A sports fan may ask, How do I figure out the value of my NFL team? I will use regression analysis to determine what makes significant contributions to the value of a franchise. The dependent variable in my regression analysis will be the value of the franchise. I will be using information from the 2002 season. This is an interesting topic because the typical fan does not know how the valuation of the NFL team they support is calculated. The fan does not know what would increase or decrease the value of the franchise. This paper will explain how the dependent variable is determined. To determine the dependent variable, the valuation of an NFL franchise, I will have to look at some independent variables. These independent variables are set to determine the dependent variable. The independent variables I will be analyzing will be revenue, operating income, player expenses, wins, and whether or not the team made the playoffs during the 2002 season. These independent variables look at the financial situations of the team and the quality of the team. By quality of the team, I define it as how the team performed during the 2002 season.

By financial situations, I mean the profitability of the team, the ability of the team to make revenue, and the spending habits. The first independent I will discuss is revenue. Revenue is the total amount of money a franchise makes before expenses are deducted. One can assume that the more revenue a NFL team makes, the higher the Franchise will be valued. In other words, revenue has a positive relationship with a franchises value. Another independent variable that will be analyzed is player expenses. Player expenses are any expenses Player expenses are any expenses that are associated with the players of the team. Since player expenses are subtracted from a teams revenue, one can assume that player expenses are inversely related to the valuation of a NFL franchise. Another independent variable that will be analyzed is a teams operating income. Operating income is what I left over once all the expenses are subtracted from revenue. One can assume that a higher operating results in a higher valuation of an NFL franchise. If a team has low operating income or negative operating income, one can assume that it would decrease the value of an NFL franchise. In other words, I am assuming that operating income and the valuation of a NFL franchise has a positive relationship. There are other independent variables that describe the quality of the team. The two independent variables that will also be included in my regression analysis are the number of wins a team gets during the regular season and whether or not the NFL franchise makes the playoffs. Since the number of wins determines the quality of the team, one can assume that the more wins a franchise the higher the franchise will be valued. If a team is towards the bottom of the standings, that team should be valued less than a team that is in the upper end of the standings. In other words, the number of wins a team gets during the regular season and the valuation of an NFL franchise have a positive effect. I decided to use whether a team made the playoffs that

season as my dummy variable. I marked a one for the teams that did make the playoff and a zero for the teams that did not make the post season. Since making the playoffs means that a team gets more exposure on television, one might believe that a team is worth more or is of higher quality. Earlier, I explained that a team gets valued more if it is believed to be of better quality. Since a team that makes the playoffs is better than a team that did not make the playoffs, one can assume that the team that made the playoffs would be valued higher. In other words, a playoff appearance and the value of a franchise have a positive relationship. Since I discussed the independent variables that will be used to analyze the value of a NFL franchise, it is time I discuss the regression model. To keep my data consistent, I had to make sure I had all my numbers in the same value. I had to multiply the values of operating income, revenue, and player expenses by 1,000,000 because the dollar figures were in millions. If I did not change the values of these amounts the regression would be incorrect because the number of wins would not be in millions and the dummy variable was not a millions either. I came up with a hypothesis that the regression model would be the following: Valuation of a franchise = + 1 (Revenue) + 2 (wins) + 3 (Operating income) 4 (player expenses) + playoff appearance. The table below shows the results of the regression analysis: Variable Intercept Revenue Wins Player Expenses Coefficients -39117869.12 5.847866221 -6949635.052 -1.91543555 t Stat -0.427504867 4.436887615 -1.445553231 -1.043306355

Operating Income Playoffs

-1.803656294

-0.985641361

12338149.87

0.498227294

R squared= .835 F-stat= 25.37 According to the table above the R squared is .835, and the F stat is 25.37. The both show how the regression analysis I performed was significant and the accuracy. According to the results of my regression analysis, I found that my theory about wins was not consistent with my findings. Wins and the valuation of a franchise ended up having an inverse effect on each other because the coefficient was a negative number. Even though wins and valuation had an inverse effect, their relationship was not significant because the T-stat was less than 2. Surprisingly, I found out that the relationship between operating income and a franchises valuation was not consistent with my theory because operating income resulted in a negative, so the relationship was an inverse one. However, that relationship was not significant because the T-stat was less than 2. As expected with my theory, player expenses and valuation of a franchise had a inverse relation because of the negative coefficient, but it was not a significant relationship because the tstat was less than 2. Whether or not a team made the playoffs that year was consistent with my theory of the teams valuation. It had a positive coefficient to prove the positive relationship, but it was not a significant relationship because the t-stat was less than 2. The only significant relationship was the relationship of a teams ability to generate revenue and the franchises value. It was significant because the t-stat was greater than 2, and it had a positive coefficient, so it proved my theory of the positive relationship.

In conclusion, I used the data provided from the data set that was given to me, and I added wins and playoff appearances that I gather from yahoo sports. I used wins, playoff appearance for the 2002 season, revenue, operating income, and player expenses as my independent variable and valuation as the dependent variable. My theory of operating income and wins were not consistent with my results. My hypothesis on player expenses, a playoff appearance during the 2002 season, and revenue were all consistent with my findings. However, the only significant relationship was the relationship between the ability to generate revenue and the value of a franchise.