Professional Sports Franchise Valuations and Economic Freedom at the State and Local Level in North America

This paper evaluates how the institutional environment in which professional sports franchises operate corresponds with their market valuation. We hypothesize two competing mechanisms by which economic freedom could be associated with franchise valuation. First, more flexible labor markets could lower the cost of acquiring and retaining talent, resulting in higher franchise valuations. Second, lower taxation constrains a jurisdiction’s fiscal capacity to publicly finance stadium construction, thereby lowering franchise values. Using Forbes franchise valuation data for teams in the NFL, NBA, MLB, and NHL from 2002 to 2022, we analyze the relationship between franchise value and measures of economic freedom at both the state and metropolitan levels. Economic freedom is measured using the Fraser Institute’s Economic Freedom of North America index and Stansel’s Metropolitan Economic Freedom Index. Panel regressions with franchise, league, and year fixed effects show that at the state level, labor market flexibility is positively and significantly associated with franchise value, consistent with the talent-acquisition channel, while the taxation component is negative, though insignificant. At the metropolitan level, by contrast, both the government size and taxation components are negatively and significantly associated with franchise value, while labor market flexibility is not significant. This metropolitan-level pattern is consistent with the stadium-subsidy channel, under which smaller and lower-tax local governments are less able to fund the public infrastructure that supports franchise revenues.