Profit Maximization In The National Football League

Abstract

<p class="MsoBodyText" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-style: normal; font-size: 10pt;"><span style="font-family: Times New Roman;">This paper investigates if NFL teams maximize profits with respect to ticket price.<span style="mso-spacerun: yes;">&nbsp; </span>We modify Ferguson et al&rsquo;s (1991) NHL paper as it pertains to the NFL.<span style="mso-spacerun: yes;">&nbsp; </span>A profit function incorporating variable revenue and cost factors such as gate receipts and player expenses is employed.<span style="mso-spacerun: yes;">&nbsp; </span>A systems model is used as the estimation procedure to identify the determinants of ticket prices for NFL franchises.<span style="mso-spacerun: yes;">&nbsp; </span>The model implies a Kuhn-Tucker based cross equation parameter restriction that result from attendance capacity constraints.<span style="mso-spacerun: yes;">&nbsp; </span>Results from the regression are then used in conjunction with other data to numerically test the first order necessary profit maximization conditions.<span style="mso-spacerun: yes;">&nbsp; </span>The results indicate that over 80% of NFL teams set ticket prices in a manner consistent with gate receipt and profit maximization.</span></span></p>