Free agency in the National Football League began this month and a number of stars—Ndamukong Suh, DeMarco Murray, and Darrelle Revis—have found new employers. NFL fans everywhere love looking at each move their favorite teams make and debating whether or not these moves are likely to improve their own future happiness.
Although people might disagree about the merits of each transaction, there is a general sense that each team is trying to win. After all, don't teams have a clear financial incentive to win more games? Don't more wins lead to more fans in the stands and more viewers on television? And doesn't all that make the team owners more money?
As it turns out, the economics of the NFL don't quite work this way. The NFL equally shares its nearly $5 billion of national television revenue among all its teams. It also shares a substantial portion of its ticket and merchandise revenue, but not revenue from suites, sponsorships, or naming rights. All of this means that the link between a team's record and the revenue it brings in is quite weak.
In a recent paper published in the International Journal of Sport Finance, Michael Leeds, Peter von Allmen, and I look at the statistical link between a team's wins and its total revenue in the NFL, National Basketball Association, and Major League Baseball. With respect to baseball we found that a 10 percent increase in regular season wins for an average team would lead to a 2.7 percent increase in revenue. The same result was uncovered for the NBA. In both of these leagues the national television revenue is shared, but other revenue streams, such as local media, gate revenue, and sponsorship revenue are—relative to what we see in the NFL—not shared as much.