US Professional Sports An Industry OverviewPresentation Transcript
US Professional Sports An Industry Overview
Perspectives on the Four Major Professional Sports
Major League Baseball (MLB)
Founded in 1876 with the birth of the National League. American League founded in 1901.
MLB is the Granddaddy of the four major commercial sports in the U.S.
The two major leagues (National and American) now have 30 teams, including 1 in Canada.
Each team plays 162 games each year, drawing over 60 million fans annually.
Regular season runs from early April through early October.
MLB plagued by many problems, including spiraling salaries, competitive balance, drug abuse, labor disputes, and revenue sharing.
National Football League (NFL)
Created in 1920, now consists of 32 American teams in two conferences.
Regular season runs from September through December with weekly contests for the teams. They each schedule 8 home dates and 8 on the road.
The NFL paid attendance exceeds 17 million annually and generates the most revenue per game of the major sports.
NFL teams share more revenue than any league, and it has the most restrictive ownership regulations.
Public corporations (except Green Bay Packers) are not allowed and owners restricted from having outside interests in other teams.
National Basketball Association (NBA)
Dating from the 1940’s, NBA now consists of 30 U.S. teams and one in Canada (the Toronto Raptors).
The NBA’s regular season runs from October through April and consists of 82 games per team.
The typical NBA draw is over 20 million fans per year.
A serious losses in popularity in the 70’s and 80’s set the stage for a dramatic comeback in the 90’s.
National Hockey League (NHL)
Founded in 1917, the NHL now consists of 24 U.S. and 6 Canadian teams.
Regular season runs from October through April, and the teams play 82 games.
Historically popular in northern areas, hockey has recently spread southward.
Teams now in Tampa Bay, Miami, Raleigh, Anaheim, Los Angeles, San Jose, Nashville, and Phoenix.
NHL attendance records are typically near 20 million fans per year, but the loss of the 04/05 season looms as a serious problem for the sport.
Additional Professional Sports
Auto Racing – NASCAR
Golf – PGA
Boxing – WBA
Wrestling – WWF
Women’s Basketball – WNBA
Women’s Soccer – WUSA
Men’s Soccer – MLS
Ownership & Affiliations Selected Franchises
Texas Rangers – Tom Hicks, Investor
New York Yankees – George Steinbrenner III, CEO American Shipbuilding Co.
Oakland A’s – Walter Haas, Chairman Levi Strauss & Co.
Atlanta Braves – Ted Turner, Owner cable network WTBS and Atlanta Hawks in the NBA
St. Louis Cardinals – Bill DeWitt (Managing General Partner), investment banking
San Francisco Giants – Peter Magowan, former CEO of Safeway
St. Louis Rams – Georgia Frontiere, singer, etc.
New York Jets – Robert Wood Johnson IV, heir to J&J fortune
Dallas Cowboys – Jerry Jones, oil holdings
Baltimore Ravens – Art Modell, TV Production, advertising
Detroit Lions – William Clay Ford, Ford Motor
San Francisco 49ers – Denise DeBartolo York, Real Estate
Miami Dolphins – Wayne Huizinga, Blockbuster Video, Waste Management
Boston Celtics – Celtics, Inc. owned 48% by Boston Celtics Ltd. Partnership
Orlando Magic – Richard DeVos, co-founder of Amway Corp.
Portland Trail Blazers – Paul Allen, co-founder of Microsoft, Corporation
New York Knicks – Madison Sq. Garden L.P. which is mostly owned by Cablevision Systems Corp.
Los Angeles Lakers – Jerry Buss, and Magic Johnson is a minority partner
Chicago Bulls – Jerry Reinsdorf and a 29 member consortium
Ice Hockey Ownership
St. Louis Blues – Bill Laurie, teaching, real estate sports franchises, married into WalMart money
Florida Panthers – Wayne Huizinga, Blockbuster Video and Waste Management, Inc.
Pittsburgh Penguins – Mario Lemieux and partners
Anaheim Mighty Ducks – Broadcom co-founder bought them from Disney in ’05 for $75 million
NY Rangers – Cablevision Systems
New Jersey Devils – Puck Holdings LLC, a division of YankeeNets which is owned by George Steinbrenner
Sports Industry Growth Trends
The 90’s Boom
$16 billion spent on new arenas and stadiums from ’95 through ’03.
Nearly 180 new pro sports teams were born along with 13 new leagues. Now, about 800 pro sports teams exist in the U.S.
Corporate investment in sports more than tripled in the 90’s, growing to $8 billion by the decade’s end. Included were:
Corporate Sponsorships : Now near $6 billion per year
Naming Rights : Reliant Energy recently paid $300 million to name the new NFL stadium for Houston Texans.
Premium Seating : Over 100 pro teams realized nearly $1 billion from luxury suite revenues
Longer Term Trends
From 1970 through 2000, regular season attendance in the NBA, NFL, NHL, and MLB has grown from 49 million to 128 million.
By sport, the per annum percentage growth rates in attendance over recent decades are :
2.3 2.9 NHL 0.5 3.8 NBA 2.0 4.3 NFL -0.4 2.1 MLB 10 yrs. 20 yrs.
MLB Typical Revenue Estimates
Gate – $40 million
Media – $35 million
Stadium – $17 million
Other – $3 million
Total Estimated Revenues per Team $95 million
Estimated average franchise value = $220 million
Total MLB Revenues = $2.9 billion
Total MLB Value = $6.6 billion
NFL Typical Revenue Estimates
Gate – $32 million
Media – $61 million
Stadium – $11 million
Other – $6 million
Total Estimated Revenues per Team $110 million
Estimated average franchise value = $400 million
Total NFL Revenues = $3.5 billion
Total NFL Value = $12.8 billion
NBA Typical Revenue Estimates
Gate – $25 million
Media – $34 million
Stadium – $8.5 million
Other – $4.5 million
Total Estimated Revenues per Team $72 million
Estimated average franchise value = $207 million
Total NBA Revenues = $2.1 billion
Total NBA Value = $6 billion
NHL Typical Revenue Estimates
Gate – $37 million
Media – $8.5 million
Stadium – $11 million
Other – $3.5 million
Total Estimated Revenues per Team $60 million
Estimated average franchise value = $126 million
Total NHL Revenues = $1.8 billion
Total NHL Value = $3.8 billion
The organized sport industry is estimated by Sports Business Journal to be as large as $213 billion annually.
This number includes Advertising, Endorsements, Sporting Equipment, Facility Construction, Licensed Goods, Broadcast Rights, Professional Services, Spectator Spending, Sponsorships, Medical Spending, Travel, Multimedia, Gambling, and Operating Expenses.
Distinguishing Features of Pro Sports Franchises
Monopolies : Are Pro Sports Really Monopolists?
The Reserve Clause :
Originated by W. Hulbert, a Chicago White Stockings Backer, in 1876
Effectively Gave Teams Ownership of a Player’s Services Without Bidding Options
Free Agency :
Reserve Clause Influence Unraveled in the 1970s, When Players in All Pro Leagues Won Restricted Rights to Sell Their Services to Other Teams
Almost All Private Businesses
Disclosure Not Required
Multiple Business Entities are Common
Multiple Reward Opportunities
Psychic Rewards and Ego Factors
Legal, Tax, and Accounting Issues
Baseball’s Anti-Trust Exemption :
This unique feature dates from a U.S. Supreme Court decision in 1922
Formal exemption still exists in baseball and less formally in other sports
Cross-Subsidization &Tax Strategies
The Veeck Loophole :
Bill Veeck was first to depreciate players
Depreciation provides an important tax shield
Special Challenges to the Sports Industry
Overcrowding of the Marketplace
Viewed as a pastime, pro sports have many new activities competing for attention
Video games, movies, television
New sporting and fitness activities abound
Additionally, many new pro sports franchises have made the field of sport more crowded
Leveling of Attendance
Although pro sport and sports activities show strong growth trends, the four major pro sports leagues do not.
In the past decade, baseball and basketball have flattened and hockey and football show only modest attendance increases, even with franchise expansions in all leagues
Declining Health of the Leagues
In addition to flat attendance, we also see:
Falling TV ratings
Increasing concern with players’ behavior
Escalating salaries and costs create an economic disconnect with many fans
Spiraling Player Salaries
Free Agency, the Legacy of the 70’s in Pro Sports
All Pro Leagues Have Some Form of Free Agency
Salaries Have Risen Rapidly as a Result
Many Teams Claim Losses
Most teams claim losses, but consider…..
Owners and family members may receive large salaries and/or bonuses
Revenues may be shifted to other entities (cross-subsidization)
Losses may be used to shield owners’ other income
Depreciation of players creates a substantial tax shelter
Intended To Counterbalance Free Agency
Started with Basketball in Early ’80s.
NBA and NFL Have Similar Cap Provisions Via % Revenues
NHL Has a Salary Cap on Rookies
Salary Caps are a Very Contentious Issue in Baseball. Luxury Tax is in Place.
Key Strikes or Lockouts in Pro Sports:
MLB Strike 1972 (8 since 1912, but 7 were since the 70s)
NFL Strike 1987 (5 since mid 50s)
NHL Lockout 94/95 and 04/05 (3 occurred recently, namely 2 in the 90s, and 1 last season)
NBA Lockout 1998/99 (2 lockouts since mid 90s)
National Broadcasting Revenues Shared by All Pro Sports Equally
Local Broadcasting Rights NOT Shared in Pro Sports
Large Disparity of MLB Revenues in Large Market/Small Market Teams
Major Problem in MLB
Gate Receipts Shared Somewhat in MLB; To a Larger Extent in NFL; Not Shared in NBA and NHL.
Various Ways Exist to Determine if Leagues are Balanced
Statistical Study of 1999/2000 Seasons Showed Winning Percentages to be Most Dispersed in NHL, and Least Dispersed in NFL
Can Also Look at Dispersion of Championship Teams
Performance enhancing drugs create unique problems for sports
How are performances judged against those in drug-free eras?
How do we define what a drug is and when it should be banned?
How should bans be policed?
What penalties should be leveled against violators?