The monetary value of the demonstration effect of professional sports

Abstract

Research question

Professional sports fulfil important societal functions. Previous studies have already attempted to quantify the intangible benefits of successful national athletes or hosting major sporting events. This study chooses an alternative channel of quantification. Based on the theoretical framework of sporting role models, it analyses whether the individual relevance of professional sports increases the frequency of sport participation. To quantify this effect, it subsequently analyses whether the increased sport participation increases sport-related expenditure.

Research methods

A quantitative research design based on primary data of approximately 500 German amateur tennis players was chosen. Unfortunately, the econometric identification of the effect of the relevance of professional sports on sport participation behaviours is aggravated by a selection bias. To circumvent this issue, instrumental variables were constructed based on the starting year of the surveyed amateurs' sport participation, which is considered to be exogenous.

Results and findings

The results of the instrumental variable estimations show that amateurs with a higher relevance of professional tennis spend between 21.5% and 24.4% more time playing tennis. In addition, 1% more participation per week increases the yearly sport-related expenditure by approximately 0.45%. Consequently, approximately 200 million euros of the tennis-related expenditure of German amateur tennis participants could be attributed to professional tennis in Germany.

Implications

The results of this study provide evidence for positive external effects of professional sports in Germany. These external effects could act as an additional rationale for the use of public funds to promote professional sports.

Keywords:

• demonstration effect
• professional sport
• sport participation
• instrumental variables
• expenditure

Notes

1. Over five million Germans actively participate in tennis (Preuß et al., 2012) and, according to the official data of the German Tennis Association, 1.5 million Germans are members of a tennis club [Deutscher Olympischer Sportbund (DOSB), 2012]. On average, Germans spend over €1000 per year on tennis-related goods and services, like tennis equipment, apparel or lessons (Wicker et al., 2010). Moreover, professional tennis in Germany has a very successful and unique history, which has already been discussed in the literature (Feddersen, Jacobsen, & Maennig, 2009; van Bottenburg, 2002; Weimar, Wicker, & Prinz, 2012).

2. Previous studies that have analysed the influence of outstanding national success in professional sports on membership figures and sport participation rates have found contradictory results. See, for example, Feddersen et al. (2009), Humphreys, Maresova, and Ruseski (2012) or Rebel and O'Dwyer (2008).

3. The evidence suggests that the demonstration effect of professional sports occurs with a time delay of at least one year (Weimer et al., 2012).

4. Even if a correlation between the errors of the two equations is assumed, such a single equation estimation would yield consistent results. However, a joint estimation, for example, with a GMM estimator, could yield efficacy gains (Cameron & Trivedi, 2009).

5. Of course, the two decisions are related because the frequency of participation influences the expenditure by construction of Equation (2). However, this is a systematic correlation that is controlled for by the inclusion of [ACTIVITY _t-1 ] in the model.

6. The exceptions were the variance inflation factors of [EXPER] and [EXPER2]. However, these variables are related to each other by the construction of the model. Furthermore, they act only as control variables. The coefficient of interest is not affected by the multicollinearity between them (Cameron & Trivedi, 2009).

7. The results of the sensitivity checks can be found in Appendix 1. Of the sample, 6.49% started in the successful period and reported a value of 9 or 10 for [START]; 11.36% started in the successful period and reported a value of 8, 9 or 10 for [START]. Using these values in addition to the starting point, i.e. [1986to2000] = 1, as instruments for contemporary relevance of professional tennis did not change the tendency of the results. However, the alternative configurations lost efficiency because the instrument relevance decreased.

8. The results of the sensitivity checks are shown in Appendix 2. Again, the results were robust to alternative configurations, i.e. using only the expenditures on tennis equipment and tennis apparel as dependent variables.