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Attracting a Professional Team. Chapter 3.2. Since there are more cities that want professional sports teams than there are teams available, the leagues control the location of the teams based on the business benefits to the leagues and owners. The leagues are in business to make a profit.

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Since there are more cities that want professional sports teams than there are teams available, the leagues control the location of the teams based on the business benefits to the leagues and owners.

  • The leagues are in business to make a profit.
  • Additionally, the groups of owners make up an exclusive club that holds the key to membership.
  • Similarly, cities hope to increase their own income by hosting professional sports teams.

Individual teams within a league are separately operated businesses, but they are not in competition with each other as they would be in a free open market.

  • A cartel is a combination of independent businesses formed to regulate production, pricing and marketing of a product.
  • In the case of professional sports, the cartel is a number of independent sports teams grouped together and governed by a league agreement to control the market mix and set up the distribution of the product.

The league controls the distribution of teams, including the locations of the teams and the number of teams allowed to operate within the league.

  • In most cases, cartels are prohibited by federal antitrust law.
  • However, professional sports leagues are allowed to form a cartel because of special legislation exempting the leagues from antitrust laws.

Regions with a large potential customer base are considered favorable for the location of a team.

  • In many cases, owners want public funds to subsidize the new team.
  • Subsidize – to aid or promote.
  • For tax-paid subsidies to be available, local governmental agencies must have the support of voters.
  • Many people consider these subsidies to be a form of corporate welfare.

There are fewer NFL teams than the market can support.

  • The lack of teams forces cities to compete whenever a team becomes available through expansion or moving.
  • Offering the best facilities at he best price is one of the enticements used to attract teams.
  • Until about 1960, teams generally owned their own playing facilities.
  • Since that time, some states and local governments have been eager to share in subsidizing major sports by financing stadiums.
  • Some franchises are selling the naming rights of stadiums to subsidize the cost of building these facilities.

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  • The practice of selling naming rights for cash didn’t come into being until the 1990s.
  • Now it is so common that it is largely ignored by sports fans.
  • Recently, Citibank paid $400 million dollars for the right to name the New York Mets’ new stadium.
  • Since then, the bank has been the recipient of billions of dollars in government aid.
  • Did Citibank get $400 million dollars worth of advertising?

Naming rights catastrophes:

  • U of Missouri named its new basketball arena after Wal-mart heiress and Mizzou student Paige Laurie. Her parents were generous contributors. Soon after, Paige's roommate turned her in for three years of academic fraud and her parents had her name removed from the structure.
  • Villanova built a new home for its basketball teams with the help of the du Pont family. Du Pont Pavilion was a great name for ten years until John du Pont was found guilty of murdering amateur wrestler Dave Schultz. The du Ponts let the University change the name after that little faux pas.
  • As it did so many times, Enron sets the curve for a total lack of class. They bought naming rights to the Astros' park just before the news of their epic scandal broke. Naturally the team wanted out from under that contract but Enron lacked the decency of the du Ponts or Lauries (or a tiger shark) and they forced the Astros to buy out the remainder of the contract before the tainted name could be removed from the field.

The economics of pro sports involve huge amounts of money and risk on the part of the owners.

  • Few are willing to jeopardize their fortunes without the opportunity to profit from the venture.
  • New stadiums offer luxury suites and upscale restaurants that increase the chances of profits., but, these are not a guarantee of attracting a team.
  • Pricing of tickets, concessions, luxury seating, and merchandise related to a professional team all contribute to the financial picture.
  • The biggest profit center is televisionrevenue.
  • This revenue is generated through the sale of advertising time on TV channels that offer the games.

An alternative to the sky-high public financing of professional sports facilities is community ownership.

  • This option is where the local government or the fans own the team and facilities.
  • For example: The Green Bay Packers sold publicly traded stock in their team, and they have been successful in nearly 80 years of belonging to the people.
  • The Packers have won three Super Bowls and have managed to keep their facilities up to date, most recently through a seat tax and a local sales tax.

One financial benefit of fan ownership is loyalty.

  • All Packers’ seats have been sold out to season-ticket holders for decades.
  • The mystique of the Packers and the unique public ownership of the team help to keep generations of loyal fans coming back and keep the club in the positive financial column.

Holding the fans hostage has become the standard when pro team owners want to improve revenue.

  • Holding fans hostage occurs when team owners begin by threatening the local government to construct new facilities or the team will move to another city.
  • When taxpayers balk at what they consider corporate welfare, the teams suggest other methods of financial help.
  • When Seattle voters rejected a tax hike to build the Seattle Mariners a new stadium, the state legislature found a way to approve the money for Safeco Field.