The Myth of Market Size

(Or rather the myth of Orlando market size. I don't have time to debunk every market out there.)

I was reading one of those Dwight Howard trade articles and there was some poor commenter that argued that Orlando was not a small market. Fans from Dallas, New Jersey, and LA jumped down his throat. Mostly out of self interest, I guess. But in any case I think that there is a bit of a disconnect between Floridians and the rest of the country in terms of how Florida cities are evaluated for this type of metric.

I think that I can elucidate this matter a bit. And hopefully make the ambiguous "Market Problem" easier to understand on both sides.

- - - Florida - - -

To understand this issue you have to understand Florida. (an impossible enough task in its own right)

Florida is the 4th most populous state in the union. Soon to be the 3rd passing New York. To give a little bit of perspective on that assertion; in 2000 Florida was 4th with 15,000,000 residents and New York was 3rd with 19,000,000. As of right now Florida has 19,000,000 people living in it, and New York is at 19,400,000. That means that over the last ten years Florida has grown at a pace ten times faster than New York.

I think that this is the first disconnect. Floridians know about the size of Florida, the number of electoral votes Florida commands, the immense population. Florida has a population very much on par with California, Texas, and New York. In fact those four states account for 32% or almost one-third of the total population of the United States. Yet, Florida has no markets that are considered large markets by the nation at large.

Phoenix, Seattle, Minneapolis, and Denver are all considered larger markets than Orlando.

To put this in perspective the "I-4 Corridor" stretch of Central Florida is home to more people than the entire states of Arizona, Washington, Minnesota, or Colorado.

And there is the rub. To Floridians the fact that Florida has so many people and is so small a market doesn't really add up. But everyone just keeps telling us, "You're a small market. Shut up." and we all kind of just accept it and go about our business.

The reason for this is the way population is distributed in Florida versus the rest of the country.

Every single other part of the country basically uses the same model. One extremely large city with an extremely large centralized population surrounded by a couple mid-sized cities and small towns.

Florida (as always) does things a little differently. Florida cities sprawl out over the countryside changing names and counties without any regard for national rankings. These cities exist as more symbiotic organisms feeding off each other's activities and services to create a kind of ultra-city. Or to put it in an even nerdier way (if possible) the rest of the country has bigger cities like processor units on motherboards. With NYC/LA being quad core monsters and then the rest following suit in much the same way just on a smaller scale. Florida is more like cell processing.

To illustrate let's look at a picture of America at night

You can clearly see the large cities. As well as all of the small towns evenly spaced over the rest of the country almost like a field of stars.

Now let's look at Illinois and Texas.

Again these areas follow the same pattern. Islands of centralized population amid a sea of sparsely populated townships.

Taking a look at Florida:

We see a bit of a difference. First off I highlighted Brevard county as a good example of Floridian decentralization. Brevard county is by population about equal to Albany, Austin, or Honolulu. But there really isn't a city there that anyone outside of Florida is likely to be familiar with. Anywhere else in the country a region with that kind of population being more or less anonymous is completely unheard of. In Florida it is the norm.

Also take a look at Orlando. Orlando is a tiny little dot in the grand scheme of Central Florida.

All cities are metropolises and incorporate territories beyond their city limits. But in Florida more than anywhere else these large cities are figureheads representing larger, more diverse, and more complicated populated areas.

- - - Population -vs- Market - - -

So what is the difference between a market and a population?

A market is in effect like an audience. If you are having an outdoor concert however many people are able to hear you is the size of your audience. If you have a business, however many people you are able to reach is your market. This is based largely on population, but there are other factors, like competition and interest.

When talking about market size in relation to the NBA what people are talking about are the Nielsen's Local Television Market Rankings. These rankings count the number of households with television sets in any local broadcast area and are used widely to determine marketing value for commercials.

In Nielsen's rankings Orlando ranks 19th, between Cleveland and Sacramento, two other "small markets". But it's also worth noting how the Designated Market Areas are split up. Daytona Beach which is 60 miles away from Orlando counts as part of the Orlando market area. Tampa, which is 80 miles away, does not.

The reason for this is not the 20 extra miles and it's not that Tampa is so large that it counts as its own DMA automatically (not exactly).

The reason that these are two separate DMAs is simply that they have their own network affiliates. The DMA measures how many tv sets will receive a broadcast if you bought an ad to run locally in Orlando/NYC/wherever.

As an entertainment and largely television driven industry the NBA has relied heavily on these numbers for years. There are, however, some problems with using this as the end-all-be-all of NBA market hierarchy.

1.) It is not a basketball or NBA specific metric.

To measure the Orlando Magic's specific market size by the television broadcast range of local Orlando stations is unreasonable right off the bat. A sports team's fanbase is much harder to quantify than simple television counting, and this methodology fails any sort of test of logical market appraisal.

2.) It does not take into consideration in-state loyalties.

Residents of any state identify themselves readily as participants in that state's culture and political process. They also identify with in-state sports team more commonly than with teams from other states.

No one argues that college football or basketball players would be better served in cities other than Gainesville, Austin, Tallahassee, or Lubbock due to market size. And one could argue that college players have more to lose by a lack of exposure as the college game is more subjective and collegiate athletes need that exposure to cement draft position.

But Florida, Texas, Florida State, and Texas A&M garner huge state support and attention despite small local markets.

3.) It is out-of-date.

The NBA has to my knowledge no teams being broadcast on network television locally. Most all NBA games are carried on cable, both nationally, and locally.

The Magic are no exception to this being available locally only through media giants Brighthouse Network and DirecTv. On a combination of basic cable channels Sun Sports and Fox Sports Florida.

To reiterate this point let me rephrase. The numbers used to make the NBA market size comparisons are completely obsolete.

- - - Better Metrics - - -

Instead of just tearing down ESPN's faulty metrics let us try and develop more accurate ones of our own.

Market Size

Market size. How many citizens are out there that could possibly be lured in to care about your product. One of the best measurements of market size in sports is state population.

So let's look at states with NBA teams by population:

Market Share

Market share takes into consideration competition. A state with 2 teams has to divide it's market between them.

A look at simple market share numbers:

(this is each team's share of the state populous all things being equal, which, they usually are not)

Market Efficacy

Market efficacy is how efficiently a team is able to leverage the population to their benefit. Market effifacy has two main components.

1.) Population Density. Which allows for a team to reach more people with ads, promotions, exhibitions, broadcasts, and in general allows for greater exposure with less effort.

2.) Sustained Success. Nothing creates more interest in a team than winning, especially winning big and winning often.

Density numbers:

- - - Global Market - - -

Every player wants to create a global brand now a days.

But which team best enables him to do so?

The answer is that there is very little difference between teams to the international fan. Fans from around the world tend to support basketball players more than basketball teams or basketball cities.

To a Frenchman whether a player plays in Dallas or San Antonio is immaterial.

Because of this quantifying beneficial United States markets to global branding is difficult. Honestly, you can become a popular player from just about any NBA city.

The one metric we can look at to give us something to go on is tourism.

So, first, here are the top destinations for international tourists (annually):

1.) New York City - 8,462,000

2.) Los Angeles - 3,348,000

3.) Miami - 3,111,000

4.) Orlando - 2,715,000

5.) San Fransisco - 2,636,000

-Source

Tourism shows us three things.

1.) Favoritism. That there is something there that the international community likes or is interested in.

2.) Familiarity. That people outside of the country have some sense of where the city is and of its character/content.

3.) Exposure. When considering exposure consider this. Everyday there are 7,400 tourists from out of the country visiting Orlando. Which means that for every Magic home game you have those people added to your market for ticket sales and television. That is an additional 606,554 people from the global market exposed to the Orlando Magic product every season.

~ Factoid: The city of Orlando's 2.7 million international tourists is more than the states of Illinois and Texas combined.

- - - Modernity - - -

The information age has produced new and interesting means with which we can put some of our "Better Metrics" to the test.

One stat that market researchers are paying more and more attention to is simply facebook "Likes".

Here is how NBA teams stack up as far as internet popularity:

First off teams from the 5 biggest markets definitely show their muscle. Seven out of the top eight teams are from Cali, Florida, NY, Texas, and Illinois.

We also see the effects of market share with the Bulls benefiting from sole dominion over their territory while Florida and Texas teams suffer from market dilution. The Lakers here are the exception that proves the rule. The Lakers obviously reign supreme in the California market and the other teams struggle to compete with them.

Boston is a great example of Market Efficacy. Leveraging success and a high population density to maximize the New England fanbase.

Again, going by traditional Nielsen's rankings the outstanding performances of Miami, Orlando, San Antonio, Cleveland, and OKC make absolutely no sense. Using a more reasoned and accurate model we are able to account for this success and the whole thing is completely logical.

As these small market large market debates drag on I think the real issue is we need to change how we define market size and how we measure it. The methods that were accurate in the 70's are not working as well anymore.