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– 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

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)

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

• Use of team colors, name, and logo 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

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).

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 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: 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– 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)

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.

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.

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.

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.

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

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.)

• Figure 10-1

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.)

• Figure 10-2

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.)

• Figure 10-3

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 played exhibition game in China and regular season game in England in 2007.

• NBA seeks to move full force into China.

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.