Chapter 10 Professional Sports

1. Chapter 10 Professional Sports

2. Introduction • Professional sports are events and exhibitions where athletes compete individually or on teams and perform for pay • Major international business grossing billions of dollars each year through media rights, gate receipts, luxury seating, sponsorship, and properties • Drafting of more international players by North American sport leagues has catapulted professional sports into new markets

3. Introduction • Five North American major men’s leagues: MLB, NFL, NHL, NBA, and MLS • 149 teams at the major league level • WNBA is only women’s “major” pro league • More than 800 North American minor league teams in baseball, basketball, hockey, arena football, women’s football, tennis, soccer, indoor and outdoor lacrosse

4. Introduction • Numerous professional leagues also operate throughout South America, Europe, the Middle East, Asia, Australia, and Africa. • Athletes in professional leagues are salaried employees whose bargaining power and ability to negotiate salaries vary. • Professional sports events are also staged around the world in individual sports.

5. History • 1869: First professional team, the Cincinnati Red Stockings • 1876: North America’s first professional sport league, the National League, emerged • Included bylaws for limits on franchise movement, club territorial rights, and mechanism for expulsion of a club • Corporate governance model: • Owners act as the board of directors, and the commissioner acts as the chief executive officer

6. League Structure • Leagues are structured as an umbrella organization for franchises to cooperate in business while competing on playing field • League also handles rule making and rule enforcement • Trend for emerging leagues to be established as single entities to avoid antitrust liability and to create centralized fiscal control (e.g., MLS, WNBA)

7. Franchise Ownership • Initially sport team ownership was a hobby for the wealthy. • Teams operated as “Mom and Pop” businesses. • Focus of owners today is on running team like a business rather than a hobby. • Most ownership groups today are diversified because of the costs of purchasing and operating a team. • Exception is the NFL: • Family or individual ownership is still the norm because of enhanced degree of revenue sharing.

8. Franchise Ownership Issues • Owners trying to recoup initial investment in club and make more money on their franchises • A growing trend is for owners to challenge league control over shared revenue streams • Some owners clamoring for local control over marketing revenues using logos, trademarks, and sponsorships • Examples: Dallas Cowboys and NY Yankees • Or working to maximize revenues • Examples: Boston Red Sox and Fenway Sports Group

9. Ownership Rules • Permission to own sports franchise granted by ownership committee of league • League imposes restrictions on ownership, including limit on number of franchise rights granted (number of teams) and restrictions on franchise location • Leagues may also impose eligibility restrictions for franchise ownership • NFL bans corporate and public ownership • Franchise and territorial rights are granted with ownership • Use of team colors, name, and logo are granted with ownership

10. The Commissioner • 1920: First commissioner of a pro sport league • MLB’s Judge Kennesaw Mountain Landis • League constitution and bylaws set forth commissioner’s powers • Granted authority to investigate and impose penalties when individuals involved with the sport are suspected of acting againstthebest interests of the game • Players’ associations have used collective bargaining to limit commissioner’s powers

11. Labor Relations • 1885: John Montgomery Ward (a lawyer and HOF infielder/pitcher) established first players’ association to • Fight reserve system, salary caps, and practice of selling players without the players’ receiving a share of profits • Negotiate with owners When his plan did not work, about 200 players organized a revolt that led to organization of the Players League

12. Labor Relations (cont.) • 1952: MLBPA formed • Dominated by management • Negotiations limited to pensions and insurance • 1966: Marvin Miller organized players as true labor union by convincing all players that each of them was essential to game revenues • Convinced players to fund players’ association by giving their group licensing rights to the union from which the union would operate and give remaining funds back to players in pro-rata shares

13. Labor Relations (cont.) • 1957: NHL players tried to unionize. • NHL owners humiliated, threatened, traded, and/or released players for involvement in players organizing efforts. • Labor relations did not play major role in professional sports until the late 1960s, when growing fan interest and increased TV and sponsorship revenues transformed leagues. • Once players unionize, collective bargaining must occur before league management can change hours, wages, or terms and conditions of employment.

14. Labor Relations (cont.) • With a players union in place, a league can negotiate acceptance for restrictive practices with players’ association. • Practices that on their own might violate antitrust laws • When the collective bargaining process reaches an impasse(a breakdown in negotiations), the players can go on strike or owners can “lock out” players. • Strikes and lockouts are far more disruptive in professional sports than in other industries because of the lack of replacement players (employees).

15. Individual Professional Sports:PGA as Case Study • 1916: Birth of PGA • Objectives are to grow golf interest, elevate standards of golf professionals, establish a relief fund, and hold meetings and tournaments • 1960s: Many factors created growing tension between the PGA tournament professionals and the local country club professionals, and conflicts arose • PGA tournament players broke away from the larger membership to form a Tournament Players Division (PGA Tour)

16. Individual Professional Sports:PGA as Case Study (cont.) • Tours in the individual sports have their own rules and regulations. • Players must qualify annually for PGA Tour. • Winning a PGA tournament exempts a player from qualifying for 2 years, with each additional win adding 1 year (up to 5). • Winning a major exempts a player for 5 years. • Winning the Tour Championship exempts a player for 3 years. • Players who do not make the PGA Tour usually compete on the Nationwide Tour.

17. Key Concepts: Franchise Values and Revenue Generation • Owners diversify investments to protect against risk that a franchise will lose a great deal of money. • Currently, franchise values for major league clubs are in the hundreds of millions of dollars. • Franchise free agency‬—stadium games: • Team owners threaten to move teams if their demands for new stadiums, renovations to existing stadiums, or better lease agreements are not met.

18. Key Concepts: Franchise Values and Revenue Generation • Example of revenue generation: Boston Red Sox, who are maximizing revenue potential in everyinch of Fenway Park • LA Dodgers following the model • Large vs. small-market dichotomy created by the disparity in local broadcast revenues in MLB • Forcing some teams to focus on efficiency (Oakland A’s) and use a system that uses less common statistics, wise drafting, and drafting of players who are “signable” • Labor stability = Cost stability (NFL is example)

19. Key Concepts: Legal IssuesContract Law • All players sign a standard player contract particular to each league. • Commissioner of league can refuse to approve player’s contract if he or she believes it violates league rule or policy. • Disputes may occur over which team retains rights to a particular player, and such disputes may lead to legal battles between teams and players of different countries.

20. Key Concepts: Legal IssuesAntitrust Law • All professional sport leagues adopt restrictive practices (drafts, reserve systems, salary caps, free agent restrictions, and free agent compensation) to provide financial stability and competitive balance between their teams. • Restrictive practices may depress salaries or keep competitor leagues from signing marquee players. • Such practices are often challenged under antitrust law as anticompetitive. • Argument is that such practices restrain trade or monopolize the market for professional team sports.

21. Key Concepts: Race and Gender in Professional Sports • Representation of minorities in sport management should match representation on the field. • 2003: All leagues showed lower averages for women in management and coaching positions.

22. Key Concepts: Race and Gender in Professional Sports (cont.) • 2003: NBA, NHL, and MLB had improvements in the race categories. • NBA: First African American majority owner was Bob Johnson (Charlotte Bobcats). • MLB: First minority owner was Mexican American Arte Moreno (Anaheim Angels). • 2005: Little or no progress from 2003 reports. • WNBA: Representation of women has declined in every category except professional administrator and player.

23. Key Concepts: Race and Gender in Professional Sports • Tables 10-3 and 10-4

24. Career Opportunities: League Office • Commissioner • Other personnel • Hundreds of employees in a range of areas • Necessary skills: Vary with position, yet a few universal skills include working knowledge of given sport, teams, and industry; good customer relation skills; willingness to work long hours

25. Career Opportunities (cont.) • Figure 10-1

26. Career Opportunities: Team Front Office • General manager • In charge of all player personnel decisions • Traditionally former player or coach, but as position has become more complex individuals with graduate degrees have become desirable • Other personnel • Number of positions and specialization of jobs has increased greatly • Entry level tends to be in sales, marketing, community relations, and media/public relations with low starting salaries

27. Career Opportunities (cont.) • Figure 10-2

28. Career Opportunities: Tour Personnel • As with league sports, positions range from commissioner to marketer to special events coordinator • Tours such as PGA and ATP employ many sport managers • Much of event management work for site operations of tour events; however, is often left to outside sport agency

29. Career Opportunities (cont.) • Figure 10-3

30. Career Opportunities: Agents • Almost all team and individual athletes in professional sports have agents representing them and coordinating business and financial affairs. • A growing number of coaches rely on sports agents. • A range of opportunities is available in sport agencies in marketing, management, finance, accounting, operations, and so on. (See Chapter 11.)

31. Current Issues: Salary Caps • Intended to create parity among teams by capping how much a team can spend on its players’ salaries. • Owners must negotiate with the players to have a salary cap, and the union will inevitably negotiate for some exceptions to the salary cap. • Exceptions have created loopholes for creative general managers and agents representing players (exceptions for signing bonuses, veterans, etc.).

32. Current Issues: Salary Caps • Caps force teams to cut established players or renegotiate their contracts to make room under the cap to sign another player. • Caps can also require teams to have spending minimums, so low-revenue teams are prevented from cutting their payrolls to stay competitive.

33. Current Issues: Globalization • Professional sports are becoming globalized through the drafting and signing of players from other nations and the movement of marketing efforts into those countries. • NFL played exhibition game in China and regular season game in England in 2007. • NBA seeks to move full force into China.

34. Current Issues: Women’s Professional Sport Leagues • Only the WNBA and NPF still exist; the ABL declared bankruptcy and the WUSA suspended operations in the fall of 2003. • WUSA is currently seeking new investors with goal of returning in 2005. • Staged exhibition games in 2004 to keep interest in women’s professional soccer strong.