Transcript Principles & Practice of Sport Management

Chapter 10
Professional Sports
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
Introduction
• Five North American major men’s leagues: MLB,
NFL, NHL, NBA, and MLS
– 138 teams at the major league level
• New leagues formed often
– WNBA, WPS, NLL, etc.
• North American minor league teams in baseball,
basketball, hockey, arena football, women’s
football, tennis, soccer, indoor and outdoor
lacrosse too numerous to list
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.
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
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)
– MLS challenged in court
– WNBA moved to standard league structure
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.
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
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
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 against the best
interests of the game
• Players’ associations have used collective
bargaining to limit commissioner’s powers
– Owners have also challenged commissioner in court,
but rulings usually up held
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
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
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.
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).
• Leagues encourage unions, because can use labor
exemption to implement restrictuve policies
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)
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 or Fedex Cup 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.
Key Concepts: League Revenues
• League Revenues derive from:
– National TV and radio contracts
– League wide licensing
– League wide sponsorship programs
• Local revenues kept by local teams
– Creates competitive balance
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.
Key Concepts: Franchise Values
and Revenue Generation
• Example of revenue generation: Boston Red Sox,
who are maximizing revenue potential in every inch
of Fenway Park
• 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)
– Challenge: NFL CBA up for negotiation in 2011
Key Concepts: Legal Issues
Contract 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.
Key Concepts: Legal Issues
Antitrust 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.
Key Concepts: Race and Gender in
Professional Sports
• Representation of minorities in sport
management should match representation
on the field.
• All leagues have shown improvements in
terms of hiring women and people of color
– Racial and Gender Report Card in 2010 gave a
“A” for all league for hiring people of color
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).
• Change needs to come from those in position of
power
– Commissioners, owners, etc.
Key Concepts: Race and Gender
in Professional Sports
Key Concepts: Race and Gender
in Professional Sports
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
Career Opportunities (cont.)
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
Career Opportunities (cont.)
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
Career Opportunities (cont.)
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.)
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.).
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.
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 plays regular season game in England each
year.
• NBA seeks to move full force into China and
India.