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The Winner’s Edge

The Winner’s Edge


by


Like most Kansas Citians, David Walby was thrilled when the Royals went on a postseason tear last October.

But Walby isn’t just a fan. He’s also the owner of Sportibles, a chain of three local shops that sell sports memorabilia. A lifelong trader of baseball cards, he’s been in the retail business since 2002. Right now, Royals merchandise—primarily ball caps and T-shirts—makes up 90 percent of his sales.

That’s about double what it was before the team’s turnaround a couple years ago.

“It seems like we can’t get enough,” Walby said. “… We’re ordering stuff almost on a daily basis.”

For the entrepreneurially minded, it’s natural to wonder what kind of impact the Royals’ record has on the local economy. While a trip to the World Series did wonders for civic pride, did it necessarily improve Kansas City’s bottom line?

Visit KC doesn’t have exact figures about the Royals’ economic impact, but in cities of similar size, a postseason game typically generates about $5.2 million in economic impact.

Obviously, the Royals also stand to benefit this year. The team has raised its average ticket price by 50 percent over the past few years, according to SBNation.com’s Royals Review, and despite the increase, the team is still recording some of the best attendance numbers in professional baseball. The Royals could generate more than $75 million in ticket sales alone.

As president and CEO of the Kansas City Sports Commission, Kathy Nelson helps the metro compete to host major athletics competitions, such as the 2017 U.S. Figure Skating Championships.

Thanks to the Royals, her job is a little easier. “A winning professional team in our city is immensely impactful because the word is out there,” Nelson said. “… The door is open for us to bring in new business because there’s a winning record here.”

Putting a Price on Winning

Ask a sports economist about professional sports teams’ impact, and you might get a more cautious answer.

Nick Watanabe is an assistant professor at the University of Missouri-Columbia, where he specializes in sports management.

It’s a good idea, he said, to be a little skeptical about reports declaring that a sports team has contributed hundreds of millions to a city’s economy. Those studies are usually written by paid consultants who focus on the upsides and fail to factor in the costs of hosting a team.

Many impact studies are based on a multiplier effect—the idea that a dollar spent in the community will be spent several times, multiplying its impact. Some consultants fail to account for “leakage.” For example, some of the money spent on hotel rooms will be shipped out of town to the hotel’s corporate headquarters.

“When people start touting these big numbers,” Watanabe said, “you have to be careful.”

That’s not to say there’s no benefit to having a winning team.

In 2002, economists Brad Humphreys and Dennis Coates discovered that a Super Bowl win led to a one-time $140 rise in per capita income for people living in the champions’ metropolitan area. It was a nice, but relatively modest reward.

A couple years ago, Michael Davis and Christian End decided to research another interesting question: What kind of impact does a winning season have on a sports team’s community?

Davis is an associate professor of economics at the Missouri University of Science and Technology in Rolla, Mo. End is an associate professor of psychology at Xavier University in Cincinnati.

They wondered if there was any benefit to simply having a winning record, even if a team didn’t end up the overall champion. The professors devised a formula that weighed different factors and accounted for possible variables.

Ultimately, they found that metropolitan areas with a winning team really do experience higher real per capita incomes.

The theory is that, as sports fans feel happier, they become more productive at work and more likely to spend more. “If you’re happier,” Davis said, “you’re going to consume more.”

But the effect was only observable with NFL teams, not MLB or NBA franchises. (A fact that disappointed Davis, who’s more of a baseball fan.)

The NFL-only effect might be because football is the United States’ most popular professional sport, giving it a larger impact on people’s behavior.

Or it could be due to the timing of the NFL season, Davis said. The football season reaches a climax around the holidays. Shoppers, who are already spending more than normal, might feel extra generous.

End and Davis also found there were diminishing returns for NFL teams that won more than 11 games, Watanabe noted.

“If you’re a team that wins all the time, is winning that important? Eh, not really,” Watanabe said. “If you win too much, the win isn’t as valuable.”

Davis sounded another note of caution: It’s not clear if a winning season boosts incomes to a “higher” level. Maybe that’s where incomes would be if the team didn’t exist at all. It might be that sports teams can only affect a city’s economy by losing.

Bottom line? “If you’re going to have a sports team,” Davis said, “it’s better that they win.”

‘A General Excitement in the Air’

While it might be hard to see a winning season’s impact on the big picture, it can make all the difference for the right kinds of businesses. Several local hotels, for example, were booked solid throughout the month of October last year, Nelson said.

Chris Sutton has definitely noticed an upswing in his business since the Royals’ turnaround.

Sutton is the CEO of KC Hopps Ltd., the company behind the 75th Street Brewery, the 810 Zone, Barley’s Brewhaus and several other popular Kansas City eateries. When the Royals are winning, customer are more likely to go out and watch the game at the bar.

“There’s just a general excitement in the air,” Sutton said.

Despite Davis and End’s research, a strong Royals season actually is better for business than if the Chiefs play well, he noted. People go out to watch the Royals. For the Chiefs, they tend to stay at home, where they can invite friends over and exercise complete authority over the remote control.

“Things have changed over the years,” Sutton said. “It used to be that not everybody had an entertainment room and a giant TV screen with surround-sound in their house.”

Even the fans watching at home want to wear a T-shirt with their team’s logo, and that’s been another big opportunity for local businesses.

“We could hardly keep merchandise in the stores,” said Nancy Pagel, the market-ing director for Hy-Vee’s Kansas City stores.

In all the years that he’s been in retail, Walby said, the last two years are the only times that Sportibles has sold out of Royals gear. It’s made ordering inventory a little more challenging. While there are U.S.-based companies that can turn around shipments in a couple of weeks, some of his merchandise has to be ordered up to a year in advance, he said.

Sportibles has done very well as the Royals have played host to bigger-name teams like the Yankees and Cardinals. Families from outside the immediate metro will travel into Kansas City to catch the game. More than a few end up stopping at his store.

“Everybody in the family wants a shirt and a hat to wear to the games,” Walby said.

 

 

James Hart

Written by

James Hart is a freelance writer based in Kansas City.

Categories: Growth Strategy

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