How Effective Are Expert Tv Hosts at Saving Failing Businesses?
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HOW EFFECTIVE ARE EXPERT TV HOSTS AT SAVING FAILING BUSINESSES? RUSSELL S. SOBEL, REAGAN N. SOBEL, DOUGLAS M. WALKER and PETER T. CALCAGNO∗ The profit and loss system is an integral part of a dynamic market economy. Losses eliminate businesses that are inefficiently managed or whose products no longer provide sufficient value. Almost a dozen popular television shows feature entertaining expert hosts claiming to “save” failing businesses with injections of physical and human capital. We undertake the first comprehensive analysis of these shows, calculating the failure rates of the businesses and analyzing the incentive structure facing the shows, networks, hosts, and participants. In general, we find that these shows are largely unsuccessful in saving failing businesses. (JEL L26, L82) [T]he choices TV programmers make about what gets differs in that the host actually purchases an made reflect more than their attempts to please audi- equity stake in the businesses featured. In the ences … TV is a business. That matters because the way TV conducts its business has a direct impact on others, the hosts spend a few days filming and the process by which programs are selected, financed, then move on to other establishments. The shows and produced. (Magder 2004, 138) also typically provide a healthy dose of entertain- ing family, employee, or owner infighting and I. INTRODUCTION drama, which are also aided by the host during their brief visit. The “reality TV” genre has become extremely In this paper, we provide the first comprehen- popular since Cops and MTV’s The Real World first aired in 1989 and 1992. To date, almost a sive analysis of these popular TV shows that por- dozen reality television (TV) shows have aired tray expert hosts claiming to save failing busi- featuring celebrities or experts attempting to nesses. Assessing the success of these shows is save struggling businesses. In shows such as no small task because of the necessity of the Kitchen Nightmares, Bar Rescue, and Tabatha’s large quantity of both qualitative and quantitative Salon Takeover, the hosts provide physical and data. To conduct our analysis, we compile data on human capital injections into the business, such every establishment that has appeared on all 11 as building renovations, training, new menus, different TV shows (over 500 total businesses), and rebranding. One of these shows, The Profit, examine thousands of actual customer reviews, conduct phone interviews with business owners, watch hundreds of hours of the actual shows, ∗The authors would like to thank Erin F. Carter for and compile first-hand accounts from owners, research assistance, and R.N.S. would like to recognize the financial support of the Center for Public Choice & Market employees, and local reporters. Process at the College of Charleston. We thank John Dove, At the outset it is important to note that Stewart Dompe, Michael Barth, Robert Lawson, Matthew many of the businesses featured on these reality Rutherford, Robert Salvino, Al Lovvorn, Thomas Duncan, Shelton Weeks, seminar participants at Florida Gulf Coast TV shows are failing because they probably University and the Southern Economic Association Meetings, should. They are depicted in the episodes as and three anonymous referees of this journal for helpful com- mismanaged, dirty, outdated, lacking value ments and suggestions. Sobel, R. S.: Baker School of Business, The Citadel, Charleston, SC 29409. Phone 843-953-5162, Fax 843-953 ABBREVIATIONS -6764, E-mail [email protected] Sobel, R. N.: Department of Economics, College of AAFR: Average Annual Failure Rate Charleston, Charleston, SC 29409. Phone 843-953-8100, AASR: Average Annual Survival Rate Fax 843-953-0745, E-mail [email protected] BLS: Bureau of Labor Statistics Walker: Department of Economics, College of Charleston, Charleston, SC 29409. Phone 843-953-4279, Fax 843- CCR: Cumulative Closure Rate 953-0745, E-mail [email protected] OLS: Ordinary Least Squares Calcagno: Department of Economics, College of Charleston, POS: Point of Sale Charleston, SC 29409. Phone 843-953-8192, Fax 843- TV: Television 953-0745, E-mail [email protected] 9 Contemporary Economic Policy (ISSN 1465-7287) Vol. 37, No. 1, January 2019, 9–24 doi:10.1111/coep.12285 Online Early publication March 30, 2018 © 2018 Western Economic Association International 10 CONTEMPORARY ECONOMIC POLICY propositions, offering poor customer service, auctioned, told some participants which lockers and/or targeting a dwindling customer base. We to bid on (and how much), and even financed believe there is good reason to be skeptical that a some cast members’ bids (Gardner 2013). The physical renovation and a few days of advice and house-hunting and renovation show Fixer Upper training—even by a talented expert—can alter was exposed for complete inaccuracy and out- the trajectory of a business’s performance. We right dishonesty by hiding the fact that the people expect the businesses featured on these shows to on the show were required to be under contract on have higher than average failure rates. a specific house, despite a large part of the show A vibrant economy will have both a large portraying them as house hunting and decid- number of new business start-ups and failures ing among several houses to potentially renovate (Sobel 2015; Sobel, Clark, and Lee 2007). Mini- (Foxnews.com 2016). The network responded mizing business failures should not be a society’s that viewers enjoy the show because of the inter- a priori goal—neither all businesses are worth action between the show’s hosts, not the accuracy saving nor can all be saved. In an economy where of the portrayals. entrepreneurs—even those with unusual ideas or Our analysis leads us to conclude that to a no prior skills—can open a business, there will large extent, because these “save the business” inevitably be many business failures. The profit shows are businesses themselves, the shows’ and loss system is an integral part of a dynamic hosts, producers, and networks are primarily market economy and it is characterized by churn- interested in making successful, profitable TV ing, referred to by Schumpeter (1934 [1911]) as shows and pleasing sponsors with placements. a process of creative destruction. Losses weed Accuracy and effectiveness are not the goals; out businesses that are managed inefficiently, or rather the shows are in the business of providing whose products do not provide sufficient value to entertainment to TV viewers to increase the view- justify production costs. ership exposed to the placements and advertise- Prior research has found the long-run out- ments of sponsors. Unfortunately, what makes comes of other reality TV shows intended to for a successful TV show may not be what is “help” people to be ineffective in a wide variety best for struggling businesses. Nor are the busi- of areas. For example, Fothergill et al. (2016) find nesses selected for the shows the ones most able that the reality weight-loss show Biggest Loser to be saved. This differential in incentives helps is not effective when subjects are examined long explain why the shows tend to have abysmal term. Similarly, the A&E show Hoarders has records at saving businesses. At best, due to the only mixed results in helping those with hoarding TV exposure, they mostly provide a temporary disorders when subjects are viewed over the long bump in revenue for an otherwise failing busi- term (Weiss 2010). Essentially, we are asking the ness. Consistent with our conclusion is the fact same question about these “save the business” that the one show where the host actually takes shows, and are the first to do so in a comprehen- an equity position in the business, The Profit, has sive and scientific manner. a much better record than the other shows as his The previous literature on reality TV shows incentives are the only ones truly aligned with the suggests that what is portrayed on TV is dis- long-run success and profitability of the business. torted for entertainment purposes; it cannot be taken at face value, and we confirm this bias in the shows we examine. For example, Oliver II. DEFINING SUCCESS AND FAILURE (1994), Doyle (2003), and Lawson and Lawson Chef Gordon Ramsay’s Kitchen Nightmares (2016) find that the reality police show Cops, was the first reality TV show to move into the one of the longest running reality TV series in domain of saving struggling businesses. Since history, distorts reality through highly selective then, a variety of other shows have aired. Table 1 editing and an unrepresentative sample of actual is a listing of the 11 American TV shows we crimes to boost viewership and advertising rev- analyze that attempt to save failing businesses. enue. For example, violent crimes and encoun- The shows are listed by original air date.1 ters with police are rare in actuality but are por- trayed as widespread and common on the show because these scenes generate viewership. Simi- 1. Additional shows continue to be launched even while larly, the show Storage Wars faced litigation over this paper is under review, including Garage Rehab featuring Richard Rawlings saving failing garages on the Discovery rigging the auctions. Apparently, producers had Channel, and a new show from Tabatha Coffey helping family planted items in storage lockers before they were businesses on Bravo entitled Relative Success. SOBEL ET AL.: CAN EXPERT TV HOSTS SAVE FAILING BUSINESSES? 11 TABLE 1 American “Save the Failing Business” Television Shows, as of June 2016 No. of Estimated Seasons