Sports Exam 1
ATHLETE COMPENSATION
Employees in any industry who are employed in a free and open market are compensated based on their Marginal Revenue Product (MRP), i.e., economist-speak for how much the individual employee contributes to the employer's revenues. If there is a restricted market for employees in that industry, the employee will be paid less than his/her MRP and the employer will retain some of that MRP for itself.
MLB
First CBA in any US pro sport was in 1968 between MLB and MLBPA (much later than in industries other than sports) as players sought to gain pension plans and grievance arbitration rights. MLBPA is generally considered to be the strongest of the pro sports league players' associations.
General:
Football and men's basketball are the only intercollegiate sports with meaningful television value and football is far more of a revenue driver than basketball for conference regular season and conference championship play.
For financial purposes, a sports team operates in two types of markets:
(i) a local market for tickets, concessions, parking and local sponsorships and (ii) a national and perhaps international market for broadcasting, national/global sponsorships and licensing.
Fixed Membership: Only methods of team entry into the top level league are:
(i) league expansion, which involves the expansion team paying a substantial expansion fee and obtaining a super-majority approval vote from established league teams; (ii) formation of a new, competitive league, typically resulting in major financial losses for member teams; or (iii) merger of an upstart league into an established league, which is rare and only happens when the established league has viable franchise locations that are vacant.
Factors determining whether a promotion (which is never refused by a team) is profitable depends on whether the financial benefits, which include:
(i) more national/international revenue from playing in the higher league, (ii) more exposure, (iii) demand-enhancing benefits of the year in which promotion is earned and later year(s) where the team may be fighting to avoid relegation, exceed the costs of membership in the higher league, including higher salaries and possibly a low finish where late season games will not be well-attended.
Methods for leagues expanding beyond domestic borders include taking the following actions abroad:
(i) staging games, (ii) selling media rights, (iii) pushing digital media, (iv) marketing partnerships, and (v) selling merchandise.
For the new College Football Playoff paradigm, there are 7 bowl games:
- 3 Playoff Games: Two semi-finals and NCG. Top 4 teams as chosen by CFP Selection Committee will be seeded and play semi-final games. - 4 additional bowl games
Each of the 6 AQ conferences under the BCS received approx $27.8M as base share in last BCS year. In CFP, base share for each of 5 power conferences is $51M. Each conference will also receive $6M if it sends a team to a semi-final game and an additional $4M for sending a team to another CFP bowl game.
- Big Ten and Pac-12 each also receive $40M from ESPN's Rose Bowl rights fees. - SEC and Big 12 each also receive $40M from ESPN's Sugar Bowl rights fee. - ACC receives $27.5M from ESPN's Orange Bowl rights fee as does the SEC and Big Ten for each Orange Bowl in which they play. If Notre Dame plays in the Orange Bowl, ACC receives $41.25M.
CFP (Independents...except ND)
- Each independent (BYU and Army) will receive $318K for being a potential CFP participant as well as $300K if they meet the NCAA's Academic Progress Rate (APR) for participating in a post-season bowl game. - If an independent qualifies for a semi-final CFP game it will receive $6M. Independents can not play in an access or contract bowl.
IN ADDITION TO COMCAST/NBCU REVENUES FROM SELLING NATIONAL TELEVISION AND DIGITAL ADS, OTHER OLYMPICS REVENUES FOR COMCAST/NBCU INCLUDE:
- USING LEVERAGE OF OLYMPIC GAMES FOR INCREASED SUB FEE REVENUE FROM DISTRIBUTORS FOR CABLE NETWORKS NBCSN, MSNBC AND USA (PLUS SUMMER OLYMPICS CABLE NETWORKS). - LOCAL STATION REVENUE FROM 10 OWNED STATIONS. - AFFILIATE COMPENSATION. - LEAD-INS, PROMOS FOR OTHER NBC AND CABLE NETWORK PROGRAMMING RESULTING IN HIGHER RATINGS. JIMMY FALLON TAKING OVER LATE NIGHT FROM JAY LENO AND HIS FIRST SHOW WAS DURING 2014 SOCHI OLYMPICS.
TEAM OWNERSHIP VALUES INCLUDE THE FOLLOWING:
1. ANNUAL OPERATING PROFITS 2. SHELTER FROM FEDERAL INCOME TAXES DUE TO DEPRECIATION OF ASSETS. 3. OTHER WEALTH-GENERATING ELEMENTS OF OWNER'S OTHER ASSETS 4. BENEFITS FROM THE EXPENSE SIDE 5. LEAGUE REVENUE SHARING AND EXPANSION OR RELOCATION FEES.
Majors:
1. Australian Open (Tennis Australia): ESPN has 10 yr contract through 2021 and sublicenses matches to Tennis Channel. 2. French Open (French Tennis Federation). NBC has rights to weekend matches (including semifinals and finals) through 2024 and Tennis Channel has exclusive cable rights to other matches through 2022. 3. Wimbledon (All England Lawn Tennis and Croquet Club). ESPN outbid NBC for exclusive rights (ESPN formerly had only cable rights) in 12 year deal for $40M/yr, more than twice the combined NBC and ESPN rights fees of prior deal. 4. US Open (US Tennis Association): ESPN won exclusive rights over CBS with 11 year deal for over $70M/yr, more than twice the combined rights fee of prior CBS and ESPN contracts.
Revenue Generators from Sports Facilities:
1. Concessions: Either team or facility owner hires the concessionaire, who gets exclusive rights in concession spaces in the facility. 2. Parking: Typically the smallest revenue generator but becoming more important as parking fees rise. 3. Arena Signage and Advertising: Very important because it is lucrative and typically exempt from league-wide revenue sharing. 4. Club seats (Miami Dolphins were the first to sell club seats as a funding vehicle for private stadium ownership).
Benefits of League Membership:
1. Determining a single set of "on-field" playing and equipment rules, and hiring referees, umpires and other officials to enforce these rules. 2. Determining "off-field" rules for league expansion, team relocations and territories, player trades, owner and player behavior, etc. 3. Settling disputes between teams and/or owners outside of the court system. 4. Coordinating playing schedules for teams, including staging playoffs. 5. Determining rules for player drafts and staging those drafts. 6. Pooling certain resources and assets to maximize revenues (e.g., television/media, sponsorship, licensing, etc.) 7. Bargaining as a single unit with players' and umpires'/referees' labor unions. 8. Promoting competitive balance and fiscal restraint among teams by setting salary caps and floors, luxury taxes, revenue sharing and reverse-order drafts. 9. Assisting teams with stadium financing and credit.
Many team owners seek to maximize revenues through ownership of their playing facilities. These new revenue streams include:
1. Increase in ticket prices. 2. Sale of naming rights to the stadium/arena. 3. Leasing of luxury suites and other premium seating areas. 4. Seat licensing fees (PSL). 5. New Marketing Partnerships. 6. New concessions agreements and parking arrangements. 7. Hosting other events on non-game days or leasing the facility to others to host events. 8. Potentially sheltering income from revenue sharing with other league teams. 9. Incorporating the playing facility into a larger mixed-use real estate project.
ADDITIONAL LEAGUE STRUCTURES:
1. Promotion and Relegation 2. "Super-league
Ticket Sales:
1. Season tickets sales, which are the most critical type of ticket sales to teams since they provide the vast majority of revenue and are guaranteed, upfront revenue regardless of team performance and other factors. 2. Individual ticket sales, the success of which is a function of various factors including home team won-lost record and playoff possibilities, quality of visiting team, promotions, day of the week, weather, etc. 3. Group ticket sales, which are typically discounted and not in great seating locations.
Issues in league revenue sharing:
1. Which revenue streams are considered centralized (paid directly to the league) and which are considered local (paid directly to the clubs)? 2. Which local revenue streams should be shared? 3. If a local revenue stream should be shared, what percentages will be shared and what are the allocation rules to distribute those shared revenues? Should lower revenue teams receive more of the allocation, should there be equal allocation, should the teams with the most wins receive more revenues (EPL model), etc.
This posting process may be "suboptimal" because:
1. Windfall profits are created for the NPB team 2. Auction process inflates winning bids by MLB teams 3. NPB players are unable to realize their full market value in contract negotiations 4. NPB players are unable to choose their MLB teams 5. Possible adverse affects on MLB competitive balance with large market MLB teams only likely bidders for marquee NPB players. Luxury tax only applies to player salary and not transfer fee. Negative impact on NPB and level of Japanese baseball.
According to an article in the Stanford Review of Economic Policy Research, there are 5 types of decisions to be made about league structure:
1. format - the method for scheduling matches to determine the league champion. 2. hierarchy - the relationships between leagues of lesser and greater quality. 3. multiplicity - the number of leagues at the same level of the hierarchy. 4. membership - the conditions under which a team enters and exits a league. 5. governance - the methods for deciding and enforcing league rules and policies.
CFP (2014-25):
12 year contract. ESPN paying AAV of $470M for semi-finals, NCG and "access" bowls plus $80M for Rose, $80M for Sugar and $55M for Orange: In the years that the Rose, Orange and Sugar are hosting semi-final games, ESPN does not pay the rights fees ($80M, $80M and $55M) for those games. Total AAV rights fee paid by ESPN for CFP of approximately $613M.
Division 2:
300 member institutions, which provide athletic scholarships like Division 1 but with far lower athletic department budgets. Most Division 2 student-athletes are on partial scholarship, a hybrid of athletic, academic and need-based scholarship. Division 2 also includes the NCAA's only international member, Simon Fraser University in Canada, as well as 3 schools in Puerto Rico.
Division 1:
350 member institutions, which are generally the largest institutions with the biggest athletics budgets and most scholarships. Division 1 football is divided into (i) Football Bowl Subdivision (FBS), which is comprised of the 125 universities that play in bowl games, including the College Football Playoff, and (ii) Football Championship Subdivision (FCS), which is comprised of institutions that play the NCAA-run football championship. Some Division 1 institutions don't play football at all.
Division 3:
450 member-institutions and is the largest NCAA division both in terms of number of members and number of participating student-athletes. No athletic scholarships are allowed and there are shorter playing seasons with less travel and limited practice time.
WNBA began play in 1997 with 14 teams and there are currently 12 teams. Over 90% of WNBA players have college degrees.
Funded by NBA and played in the summer so no overlap with NBA season. WNBA started with central ownership but in 2003 moved to a structure than included independent team ownership similar to the Traditional Model. Due to NBA financial backing, WNBA started play with national television deals with NBC, ESPN and Lifetime. Current national telecast contract is with ESPN for $12M/yr (or $1M per team) and runs through 2022.
4. BENEFITS FROM THE EXPENSE SIDE
Health benefits, transportation and entertainment expenses that owner would otherwise have to pay on his own are paid by team.
Cap is a percentage of league revenues...which are counted and which are not. Some local revenues are counted such as ticket sales, team sponsorships, etc., local media.
How do you account for some owners making more local revenue than others and causing salary cap and floor to rise for low revenue teams? Answer is revenue sharing.
1. Prior to 1965,
If a team owner also built his own facility, he covered his own costs. For publicly-owned facilities, government funding was the only source of funding and the most common form of funding was general obligation bonds (secured by the taxing power) issued by states or municipalities that owned the stadium. Types of taxes that secured the bonds include property, income, capital gains and sales/use taxes.
Initial WNBA salary cap for all players was $50K. 2017 average was $51K with maximum salary of less than $110,000 (possible max bonuses of $30K). Aggregate of salaries for each WNBA team is under $1M, which is less than 1/5 of the average NBA player's salary. A number of star players go to play in Europe or Russia where they can earn several multiples their WNBA salaries.
Average attendance in first year was close to 9,000. 1998 was the highest year in average attendance, at almost 11,000 per game, but then attendance began dropping. In 2017, average attendance was about 7600, which was the highest in 6 years.
Unique aspect of CBAs in sports is that they enable individual employees (players) to negotiate salaries on their own as opposed to other industries where the union establishes and negotiates salaries for all members. CBAs in sports will in many cases set the boundaries for player salaries through floors and caps rather than setting actual individual salaries.
Average length of a player's career in pro sports leagues is less than 5 years, so obtaining free agency as early as possible in the CBA is key for athletes so they can get beyond their rookie contracts. Most of the lockouts and player strikes in the late 1980's through early 2000's were attempts by the leagues to get cost containment mechanisms of salary caps and luxury taxes, and settlement of these labor disputes gave the unions increased and earlier access to free agency.
Semi-final CFB games will rotate so that each of the 6 participating bowl games will host a semi-final game every 3 years. NCG venue will be subject to bidding in same way as Super Bowl. If any conference champion from a "Contract" bowl is in a semi-final game, the #2 team from that conference replaces them in the "Contract" bowl.
Conference champs from 5 power conferences are guaranteed slots in one of the six CFP bowls.The highest ranked team from among AAC, MWC, C-USA, Sun Belt and MAC ("Group of 5") is guaranteed a slot in one of the six CFP bowls. ESPN paying annual average of $470M for semi-finals, NCG and "access" bowls plus $80M for Rose, $80M for Sugar and $55M for Orange: In the years that the Rose, Orange and/or Sugar are hosting semi-final games, ESPN does not pay the rights fees ($80M, $80M and $55M) for those games. Total average rights fee paid by ESPN to CFP over the course of the 12 year contract is approximately $613M.
Atlantic Coast Conference:
Contract with ESPN for $260M/yr through 2035-36, plus $27.5M for Orange Bowl, for a total of $287.5M = $20M/yr per school (Notre Dame is independent in football and receives a much smaller share of ACC revenue). Each member-institution contributed its third tier rights to an ACC-branded cable network in partnership with ESPN, which will launch in August of 2019.
Big Ten Conference:
Contracts with FOX ($240M/yr) and ESPN ($190M/yr) and CBS ($10M/yr) through 2022-23, plus $40M for Rose Bowl plus $14M for Orange Bowl*** for a total of $494M = $35M/yr per school. Each member-institution also contributed its third tier rights to the Big Ten Network in partnership with FOX through 2031/32 with estimated annual revenues of $10M-12M per school.
Big 12 Conference:
Contracts with FOX and ESPN for a total of $200M/yr through 2024/25, plus $28M/yr for Big 12 Championship Game (FOX in odd-numbered years and ESPN in even-numbered years) and $40M for Sugar Bowl. Subtotal of $268M/yr = $26M/yr per school. Each member-institution also exploits its own third tier rights with revenues ranging from less than $1M/yr to $15M/yr.
Construction costs of sports facilities have skyrocketed. Prior to 1968, the most expensive stadium ever built was the Astrodome at $35M. In 2009, the new Yankee Stadium was built at a cost of $2.3B, with $1.2B of that a public subsidy.
Cowboy (AT&T) Stadium was originally budgeted for $750M but ended up costing $1.2B when built in 2009, with Arlington funding $325M and NFL providing an additional $150M in financing. Cowboy's new mixed-use practice facility in Frisco will cost $1.5B, with the city and a local school district paying $90M.
NCAA pays the teams that make the Tournament in "units" for each round in which they play. Units are payable over 6 years and were worth about $1.7M each in 2018. Teams assign the receipt of that money to their conferences to distribute per the conference bylaws.
ESPN has a contract for 24 other NCAA championships plus international rights to Tournament for an AAV of $42M/yr.
BCS (2010-13):
ESPN paid AAV of $125M for Orange, Sugar, Fiesta and NCG and another $37.5M for Rose for total of $162.5M.
Substantial tax benefits from team ownership, allowing owners to depreciate player contracts. When a team is purchased, the team owner can assign the entire purchase price to player contracts and then depreciate the player contracts over time in order to claim tax losses.
It's called a "Roster Depreciation Allowance" (or "RDA") and enables an owner to depreciate 100% of the purchase price of the team over a 15 year period.
1. NFL:
Limited to pre-season for televised game coverage and during the entire season, shoulder programming (pre and post game shows) coaches' shows, etc. Teams may also make radio deals for entire season game coverage.
Carnegie Foundation for the Advancement of Education made this finding: "Commercialism in college athletics must be diminished and college sport must rise to a point where it is esteemed primarily...for the opportunities it affords to [student-athletes]. This report identified academic abuses and payments to student-athletes in addition to the commercialization issues. American college athletics is a "highly organized commercial enterprise. The athletes who take part in it have come up through years of training; they are commanded by professional coaches...The great matches are highly profitable enterprises."
In 1948, NCAA enacted the "Sanity Code" to "alleviate the proliferation of exploitive practices in recruitment of student-athletes" and created a commission to interpret rules and investigate violations. Only sanction of commission was expulsion, which was so severe that commission ended up doing nothing and failed. NCAA then repealed Sanity Code and created a committee on infractions, which had much broader sanctioning authority.
Historically, construction of stadiums/arenas in the US has shifted from being a largely private project (with team ownership) to being a largely public project (with municipality ownership), to today, when most stadiums and arenas are owned by the teams and built with a mix of public and private financing.
The major US leagues also have credit arrangements with banks at very favorable interest rates for teams to draw upon to finance facility construction. Teams are paying an increasing amount of the facility construction costs and incurring substantial debt. However, since the team owners own the arenas, they don't have to negotiate as much over revenue streams as they would if the facility were city-owned facilities. The most important facility revenues are those which are not subject to revenue sharing with other teams, including luxury boxes, naming rights and corporate signage.
Of the 4 major pro leagues in US, NFL has most aggressive revenue sharing system and NHL the least.
NFL teams equally shared $7.8B in 2017 ($244M per team) from "national revenue" such as television, league-wide sponsorships, licensing and merchandising. For local revenue, 66% of gate receipts are retained by the home team and 34% is pooled for sharing among visiting teams. Parking, concessions and luxury suite revenue is kept solely by the NFL home team, except for revenue sharing based on the allocated value of the tickets within the luxury suites.
Promotion/Relegation is a substitute for expansion and relocation. A League can promote more teams than it demotes to achieve an expansion, or demote more teams than it promotes if the league desires contraction.
Promotion and relegation can also help fan interest of teams, at least in the short run. Fans of a promoted team have a chance to see their team compete at the higher level whereas fans of a relegated team have a chance to see their team in a playoff or a least important late-season games in the lower level league. Fan interest and revenues are also increased for teams playing the last few games of a season with the possibility of either being promoted or relegated.
Total National NBA Media Revenue = $1.65B, not including revenue from NBA.com, NBA TV advertising sales or expenses, NBA League Pass or international sales.
Similar to MLB, each NBA team also has a separate contract with a regional sports network ("RSN") due to the large inventory of games in NBA regular season. Rights fees in RSN contracts vary from as little as $15M/yr to as much as $200M/yr for LA Lakers. A number of teams also have ownership interests in an RSN in a joint venture with the RSN divisions of FOX, Comcast or AT&T (DirecTV).
TENNIS
Tennis is similar to golf in that there are regular tour events controlled by the ATP Tour (men's) and WTA Tour (women's), but the 4 majors are controlled by 4 other tennis organizations. Unlike PGA and LPGA Tours, which are US-based tours are in competition with other professional tours for players and viewers in Europe and Asia, the WTA Tour and ATP Tour are worldwide tours. WTA Tour has an agreement with The Tennis Channel and a company called Perform that produces television coverage and licenses it to 3rd parties (including ESPN in the US) and guarantees the WTA rights worldwide rights fees of more than $30M. ESPN has also licensed ATP Tour events in the US. In the US, tennis is exclusively on cable television (other than French Open) due to time difference with foreign events and other ratings and scheduling challenges. Rights fees are substantially less for ATP Tour than PGA Tour.
Playing Facilities
Many teams seek to maximize revenues through ownership of their playing facilities (stadiums and arenas) funded as much as possible from public sources.
"Third Tier" rights are media rights that individual schools sell themselves rather than through their conference. The Longhorn Network is an example of a third tier rights deal.
Members of all "Power 5" conferences other than the Big 12 have pooled their third tier rights to form conference-branded networks including Big Ten Network, SEC Network, Pac-12, and starting in 2019, ACC Network.
UFC (WME-IMG)
UFC makes more revenue on PPV than on FOX (prior deal) or ESPN, in 2016 averaging over 600,000 buys for 13 cards. ESPN and ESPN+ paying $300M from 2019 - 2023 (WWE $460M/yr with FOX).
ENGLISH PREMIER LEAGUE (EPL)
US$2B/yr for UK rights through 2020 (70% increase over prior agreement) NBCU has US rights for $166M/yr. In China, 3 year contract for total of $700M, a 1000% increase over prior contract. EPL was projected to surpass NFL in media revenue on a per-team basis (20 EPL clubs) in 2018 due to huge increases in international sales.
NBCU (Comcast) has been licensed the exclusive media rights (telecast and digital) in the US through 2032 from the IOC. NBCU is paying a total of $4.38B for 4 Olympic Games (2014, 2018 Winter Games and 2016, 2020 Summer Games) via one contract executed in 2011 and $7.75 for 6 Olympic Games (2022, 2026, 2028 Winter Games and 2024, 2028, 2032 Summer Games) via a second contract executed in 2014.
Unusual bidding for Olympics since most venues haven't been selected yet and NBCU didn't know time difference of the future venues from US time zones. NBCU pays more in rights fees for the Olympics than the combined rights fees of rest of the world's broadcasters. In most cases outside the US, there is either (1) little or no competition among networks for Olympic media rights or (2) government-owned or affiliated networks that are guaranteed all or part of the Olympic telecasts. If IOC is not satisfied with the level of bidding in certain countries, it may withhold broadcast rights until it receives a satisfactory bid.
Investments are made in the operating company rather than purchasing a franchise. Benefits include no competitive bidding for players among owners. League negotiates player contracts rather than the teams for which they play. Without a single entitle ownership, players could sue owners for colluding to keep salaries low and for antitrust violations for restricting competition for players.
WNBA also started as single entity owned by the NBA, but its structure has also changed over the years so that there is now separate franchise ownership and operation.
4. Gender-specific leagues:
WNBA, NWSL (soccer), United Women's Lacrosse League, National Pro Fastpitch
For first BCS cycle (1998-2005), there were 4 BCS bowls: Fiesta, Orange, Rose and Sugar. Starting in 2006 season, a National Championship Game was added to these 4 bowls so there were a total of 5 BCS Bowls, which remained the case until the start of the College Football Playoff after the 2014 regular season.
Tie-ins remained, including: - Big 12 champ to Fiesta Bowl - SEC champ to Sugar Bowl - Pac-10 and Big Ten champs to Rose Bowl - ACC or Big East champ to Orange Bowl
Verizon: $500M/yr for streaming rights on all Verizon platforms (Yahoo!) for all in-market games through 2021. Amazon: $65M/yr streaming rights on Prime for 11 TNF games. NFL Network: Subscriber fees of $1.40/mo x 12 months x 71M subscribers = $1.2B (not including advertising revenues or costs)
Total Annual NFL Media Revenues* = $8.25B* *Not including revenues from NFL.com or team websites, commercial sales or costs on NFL Network or NFL Red Zone or international sales.
NCAA runs NCAA Men's Basketball Tournament (the "Tournament"). CBS and Turner Sports share television rights to the Tournament through 2024 and pay NCAA a rights fee with an annual average value (AAV) of $771M/yr. CBS and Turner also signed an 8 year extension with NCAA through 2032 for the Tournament with an AAV of $1.1B/yr.
Tournament rights fees provide NCAA with over 90% of its annual revenues, which pays salaries and expenses for NCAA office and also funds other 90 NCAA championships in 24 sports in all NCAA divisions.
Sharking
is independent owner action to increase the revenues of his club at the expense of overall league welfare. Examples include teams negotiating their own marketing agreements with sponsors competitive with league-wide sponsors.
Shirking
is when revenue sharing creates a disincentive for an owner to expend effort and money in generating revenues for his club or field a competitive team since he can free-ride other team's efforts.
Salary caps
refer to both caps on an individual player's salary (NBA) as well as caps on an entire team's payroll. These caps create incentives for high revenue team owners to spend less on talent than they otherwise would. Positive by-product of firm payroll caps is profits are higher for high revenue teams.
Salary floor
require teams to pay a certain minimum in aggregate player salaries. CBA's also have minimum salary levels for individual players in addition to salary floors.Luxury taxes are surcharges imposed upon a team for exceeding a pre-determined level of aggregate team payroll in a season.
6 participating annual bowl venues:
3 "Contract" bowls: Rose (Pac-12 champ vs Big Ten champ); Sugar (SEC champ vs Big 12 champ) and Orange (ACC champ vs SEC#2 or Big Ten #2 or Notre Dame). During the initial 12 yr CFP term, SEC and Big Ten are each guaranteed a minimum of 3 Orange Bowl appearances and Notre Dame gets a maximum of 2. 3 "Host" or "Access" bowls: Cotton, Fiesta, Peach.
1. Reverse-Order Player drafts:
A new player to the league would normally be signed by the high-revenue club.
NFL
All regular season games and playoffs are national telecasts and there are no local telecasts of NFL games, except for ESPN games, where there are also local station broadcasts in the home markets of the participating teams.Broad exposure has always been important to NFL. Broadcast networks CBS, FOX, NBC are available in 120M homes in US whereas cable network ESPN is available in 87M homes. All Super Bowls (rotate among the 3 broadcast networks every year) and playoff games are on broadcast television with the exception of 1 wild card game on ESPN/ABC.
1. ANNUAL OPERATING PROFITS
EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation (Tangible Assets) and Amortization (Intangible Assets).
MLS
ESPN: $45M/yr though 2022 for regular season, playoffs and alternating MLS Cup Final and All-Star game with FOX. FOX: $30M/yr through 2022 for regular season, playoffs and alternating MLS Cup Final and All-Star game with ESPN. Univision (Spanish language): $15M/yr through 2022.
3. From 1984-86,
The Deficit Reduction Act of 1984 and Tax Reform Act of 1986 were Congressional attempts to lower the national deficit and made it much more difficult to finance facilities using tax-exempt bonds. Financing structures became much more complex.
NCAA MEN'S BASKETBALL TOURNAMENT
Warner Media (AT&T), through its Turner Sports division (TNT, TBS, TruTV) and CBS have a 14 year contract with NCAA through 2024 for a total of $10.8B (AAV of $771M). In April of 2016, Turner and CBS extended their contract with the NCAA for an additional 8 years from 2025 through 2032 for a total of $8.8B (AAV of $1.1B). Rights fee for NCAA Men's tourney provides over 90% of NCAA annual revenues from all sources.
1. Club-based Private Property Structure (early pro baseball) where clubs are autonomous:
privately owned and operated and minimally cooperative with each other. Not in existence in any present-day leagues.
Each of the major intercollegiate athletic conferences derives revenue from the following sources to pass through to their member institutions:
(1) conference television packages with CBS, ESPN and/or FOX, (2) possible conference-branded cable network, (3) College Football Playoff, (4) College Football bowl games, and (5) NCAA men's basketball tournament.
Local revenues comprise a far larger percentage of overall revenues in MLB, NHL and NBA than in NFL due to:
(1) only 16 regular season NFL games (8 home games) for ticket sales, concessions, parking etc., (2) no NFL regular season games are sold for local telecast or streaming by individual teams, and (3) economic magnitude of NFL's national media deals.
CFP (Notre Dame)
- Received $2.3M in last year of BCS. - If ND qualifies for Orange Bowl, it receives $13.75M. In that event, ACC receives $41.25M instead of the $27.5 if SEC or Big Ten qualified. - If Notre Dame does not qualify for a semi-final game or Orange Bowl, it will receive an average of $4M annually.
Semi-final games are played on either New Year's Day (when it's the Rose Bowl or Sugar Bowl) or, when any of the other four bowls is hosting, on New Year's Eve (when New Year's Eve or New Year's Day is either Saturday or a federal holiday), or on the Saturday preceding New Year's Eve.
- NCG is played on the first Monday night that is at least 6 days from the semi-final games. - Each participating team in any CFP bowl games receives $2.1M to cover expenses.
In the years leading up to 1992, conferences all had tie-ins to certain bowls to send their champions to that bowl. Early November selections.
- Pac-10 and Big Ten champions to Rose Bowl - SEC champion to Sugar Bowl - Big 8 champion to Orange Bowl - SWC champion to Cotton Bowl
CRICKET
Twenty20 cricket is a shortened, faster version of traditional cricket that takes approximately 3 hours to play. Launched in England and Wales in 2003 an attempt to "reverse the dwindling interest in the sport". Prior to 2003, one-day championship games lasted up to 8 hours and one-day games lasted between 6-8 hours. Twenty20 cricket games also started at 5:30pm and included other forms of entertainment such as music in an attempt to attract the younger professional demographic that had rejected the traditional longer version of cricket.
PROMOTION AND RELEGATION
US has a system of leagues with fixed membership and outside of North America there is generally a promotion/relegation system.
LABOR ISSUES: UNIONS
Unions (aka players' associations) exist in NBA, NHL, NFL, MLB, MLS, WNBA and NWSL. The pro sports leagues and players' associations, similar to many other unionized industries, use a collective bargaining agreement (CBA) to set forth rules on conducting business and resolving disputes.
NBC EXTENSIVELY SUPPLEMENTS THE WORLD FEED WITH ITS OWN CAMERAS, ANNOUNCERS , STUDIOS, ETC AND SPENDS ABOUT $150M ON PRODUCTION FOR EACH OLYMPICS.
VERY COMPLICATED PRODUCTION: FOR PYEONGCHANG OLYMPICS, 102 EVENTS IN 15 SPORTS OVER 13 VENUES.
MLS has soft cap of $4M not counting DPR for top 20 players (of 30) on roster. Not a hard cap plus up to 3 designated players, plus General Allocation Money of $200K per team to buy down player contracts and Targeted Allocation Money of $1.2M.
WNBA max salary is $115K. NBA refs make $150K. Players get 20% of revenues compared to 50% for NBA. Cap is under $1M.
Advantages:
1. Avoids the self-destructive behavior of owners who overpay for players. League negotiates all player contracts and sets rates for player compensation, so competitive bidding among owners for players is eliminated. 2. Avoid problems caused by differing levels of management expertise among teams (e.g., player talent evaluation and marketing). 3. Evades application of antitrust laws in management-labor disputes. Primary disadvantage is it is a disincentive to entrepreneurial activity among investors. WNBA and D-League (now G-League) started out as single-entity and have moved to a more traditional franchise-owned model and the MLS has moved in that direction as well.
It has been suggested that Congress take the actions listed below to stem the public subsidies for private sports stadiums, many of which are paid under threat of moving the franchise elsewhere because the current stadium is "obsolete":
1. Close loophole that enables teams to use federally subsidized tax-exempt bonds for private sports stadiums (new tax law still permits this type of financing...the House bill eliminated the stadium subsidy but the Senate bill did not). 2. The new tax law has eliminated the business-entertainment deduction for sports tickets, including luxury box and club seat purchases. Average fans can't take a tax deduction on ball park spending. 3. Tax all subsidies, including land and infrastructure, as income for team owner (not part of the new tax law).
NHL and MLB permit public stock offerings but both require that there be a controlling shareholder so someone can speak for the organization and vote on league issues. Public Stock Offerings are useful for teams for the following purposes:
1. Construction and renovation of stadiums and arenas (often used by British soccer teams, which typically own their stadiums. In the US, many stadiums are owned by the team owners a good number of stadiums are publicly funded and/or owned). 2. Financing other team activities...again in EPL, to purchase players via transfer fees. 3. Ownership taking cash out of the team...liquidating part of the owner's investment, often to cover operating losses. Typically, the shares sold to the public contain no voting rights so the majority owner will not lose any control of the team. 4. Deepening team loyalty among new shareholders. NBA, MLB and NFL have "credit facilities" that make low interest loans available to teams which can be used as an alternative to a public offering. IPO may be more desirable since it doesn't add to team's debt and no interest payments are required.
These new revenue streams include:
1. Increase in ticket prices. 2. Sale of naming rights to the stadium/arena. 3. Multiple-season leasing of luxury suites and other premium seating areas. 4. Seat licensing fees (PSL). 5. New Marketing Partnerships. 6. New concessions agreements and parking arrangements. Types of concessions agreements with vendors include (a) vendor pays venue a flat fee and keeps all sales and bears all expenses, (b) profit-sharing, where vendor pays venue a commission based on sales or profits, and (c) management fee agreements, where vendor is paid a management fee for its services. Vendor will typically pay to upgrade the facility's concessions infrastructure. 7. Hosting other events on non-game days or leasing the facility to others to host events. 8. Potentially sheltering income from revenue sharing with other league teams. 9. Incorporate the playing facility into a larger mixed-use real estate project.
Accounting questions arise when the same owner also controls the stadium and perhaps television stations or regional sports networks due to related party transactions. This was the case with Wayne Huizenga, former owner of the Florida (now Miami) Marlins, as well as Comcast and Yankees. Why would an owner want to reduce his team's reported revenue?
1. MLB levies a tax (revenue sharing) on team's local revenue so if a team owner also controls the RSN, it will prefer to transfer profits to the RSN so he pays less local revenue sharing tax. 2. Owners don't want to appear to rich when trying to get public assistance in stadium financing or other public subsidies. 3. Owners want to keep profits down to keep salaries lower in collective bargaining with players' unions. 4. "Pleading poverty" makes it easier to raise ticket and concession prices.
COMPETITIVE BALANCE The following are examples of competitive imbalance:
1. One team dominates over an extended period (dynasty) which is arguably bad for the league in the long term due to certainty of outcome. 2. Top of league is dominated by same teams over extended period, also bad for league due to loss of interest among fans of uncompetitive teams. 3. Bottom of league is dominated by same teams over an extended period.
FACTORS IN DETERMINING VALUE
1. Profitability or gross revenues. 2. Nature and quality of the team's arrangement for its stadium/arena. 3. Media contracts. League-wide national contracts provide guaranteed equal revenues to each team, but the size of the local contracts for each team vary widely, particularly in MLB, NBA and NHL.
Mechanisms to promote competitive balance:
1. Reverse-order draft, which gives the worst teams the opportunity to select the best incoming talent. 2. Salary caps and floors, which compress the range of team spending on playing talent. If there is no salary floor in a CBA, the de facto salary floor is league minimum salary multiplied by the number of roster spots. 3. Luxury taxes, which penalize teams that spend over a proscribed threshold on player salaries and then re-distribute those funds to lower revenue and/or smaller market teams. 4. Relegation and promotion, which incentivizes teams to perform well to be promoted and reap the financial rewards of the higher league, and disincentivizes teams from losing games and being demoted to the lower league. 5. Revenue sharing among clubs, which provides certain small market and/or low revenue teams with an increased ability to compete for the best talent and spend more on player salaries than they would be able to in the absence of the shared revenues.
Four types of team ownership:
1. Single wealthy owner such as Paul Allen in NFL or Steve Ballmer in NBA 2. Group of individuals pooling resources. In NFL, majority owner and family must own 30% of the team and in the NBA, it's 15%. 3. Corporate Owners such as Liberty Media (Atlanta Braves) and Disney (former owners of NHL's Mighty Ducks of Anaheim and LA (Anaheim) Angels, Rogers Communications (Toronto Blue Jays) and Comcast Corporation (Philadelphia Flyers). All major pro leagues other than the NFL allow ownership by corporations. 4. Public Ownership (F.C. Barcelona and Green Bay Packers).
7. Tax benefits. Roster Depreciation Allowance and other tax benefits increase franchise valuation. 8. Real estate value if the stadium or arena is part of a larger real estate development owned by the owner. 9. Reputation of team/brand value.
10. Market size of the city where the team is located due to size of fan base, local television, local sponsorships, wealth of citizens (luxury seating). Other pro sports franchises in the same city tend to depress franchise values.
1990 Season: Colorado and Georgia Tech were ranked #1 and #2, respectively but due to bowl tie-ins and early selection requirements, Colorado played Notre Dame in Orange Bowl while Georgia Tech played Nebraska in Citrus Bowl. GT and Colorado ended the season as split national champions.
1991 Season: Miami and Washington were ranked #1 and #2, respectively but due to bowl tie-ins and early selection requirements, Miami played Nebraska in Orange Bowl and Washington played Michigan in Rose Bowl. Miami and Washington ended that season as split national champions.
1995-98: Bowl Coalition was replaced by Bowl Alliance, but problem continued of Big Ten and Pac-10 not participating and sending their conference champions to the Rose Bowl.
1998: BCS was formed and Big Ten, Pac-10 and Rose Bowl also became part of the BCS. Prior to BCS, the bowls owned all sponsorship rights and owned and sold the media rights to networks. BCS then took over ownership and sale of media and most sponsorship rights to the bowls, including title sponsor.
Majors: Masters, US Open, British Open and PGA Championship 1. Masters owned by Augusta National Golf Club and has a series of one-year agreements with CBS (Sat and Sun rounds) and ESPN (Thurs and Fri rounds) that have a lot of rules concerning what announcers can and can not say. No rights fee is paid by tv networks and ANGC acts as a broker between sponsors and tv networks so that networks essentially break even after production costs.
2. US Open (US Women's Open and US Senior Open) owned by United States Golf Association. USGA has 12 year contract with FOX for $93M/yr, twice what NBC and ESPN paid combined for prior contract. 3. British Open (British Women's Open) owned by R&A. 12 year contract with NBCU starting 2017 for $50M/yr, twice what ESPN paid for prior contract. 4. PGA Championship owned by PGA of America. Contracts with CBS and TNT through 2019.
UNITED STATES PROFESSIONAL MODEL
4 Major US Leagues (NFL, NBA, NHL, MLB) are not independent entities, but rather are associations of separately owned and operated teams.
4. Success and nature of the league in which the team plays. (A) Size of the league's television contract is an important factor as those are guaranteed revenues and are shared equally. (B) The league's revenue sharing agreement can either increase (if the team is a net recipient of revenue sharing proceeds) or decrease (if the team is a net payer of revenue sharing proceeds) the team's franchise valuation.
5. CBA with athletes. A stable labor situation with control over player salaries (particularly in the form of a hard salary cap) is a positive for franchise valuation. Europe has a legal prohibition on salary cost containment mechanisms like caps and taxes, which somewhat depresses the value of European football (soccer) clubs. 6. Debt accumulated by team owner when purchasing the team and/or paying for the construction costs of the team's facility. Revenues that would otherwise be used for team operations are spent on debt service (principal and interest) payments on the stadium or arena.
One of the primary reasons that the MLBPA was formed and CBAs were negotiated was due to the "reserve clause", which enabled teams to perpetually renew contracts of players, and the player's only option if he didn't want to sign was to request a trade (which the owner could deny) or retire. 1976 was the first CBA to include any form of free agency (for players with at least 6 years in MLB) and also included salary arbitration for players with at least 2 years in MLB but ineligible for free agency.
Marvin Miller was the Executive Director of the MLBPA and negotiated the first CBA with the league. Between 1972 and 1994, every time a CBA expired there was either a strike or lockout. In 1994, players went on strike on August 12 and World Series was canceled for the first time since 1904. Owners wanted a salary cap. The two sides finally reached agreement in 1997 that did not include a salary cap but did include (a) luxury tax and (b) framework for substantial revenue sharing. No work stoppages in MLB since 2002, despite a 2001 MLB proposal to eliminate 2 teams and thus 80 players. MLB agreed to postpone any discussion of contraction until 2007 and parties were able to reach agreement in 2002 without a strike.
An Athlete's compensation will typically come closer to her/his MRP as the athlete's years in the league increase due to his/her taking advantage of free agency. An athlete's access to a competitive marketplace to his/her services are limited by CBAs as a rookie and early in the athlete's career. Most athletes earn close to league minimums as rookies due to the monopsony power of his/her team. Monopoly power occurs when there is only one seller of a product or service in the relevant market whereas monopsony power occurs when there is only one buyer of a product or service in the relevant market
Maximum and minimum compensation (i.e., the salary range) in most major pro sports leagues are set forth in the CBA after negotiations between management and the union. All leagues with unions have minimum salaries but not all have maximums, even if there is a salary cap for team payroll. However, the actual salary of an athlete is established through negotiation between a team and the athlete's agent or other representative.
Local Media Revenues
Media revenues available to teams at local level obviously vary by team and league.
For the 2022 Winter Games, the two finalist cities were Almaty, Kazakhstan and Beijing China after all other cities dropped out of the bidding. For the 2024 Summer Games, Rome, Hamburg, Budapest and Boston all withdrew their bids, leaving just Los Angeles (itself a replacement for Boston) and Paris. The IOC ended up simultaneously awarding the 2024 Olympics to Paris and the 2028 Olympics to LA and the LA OCOG received substantial financial concessions from the IOC to host the 2028 Games.
Montreal in 1976 was the first Olympics to shake up the financial model for the Games as the city incurred a $2.8B debt, which created enormous budgetary problems. Moscow had already been selected for the 1980 Summer Games but there was no major city interested in bidding for the 1984 Summer Games, so LA agreed to host on the condition that it would not be financially obligated for any shortfall...the LA Olympics actually turned a $300M profit for LAOOC because the city already had a number of necessary stadiums and infrastructure and also generated substantial sums by selling sponsorships.
Since 1987,
Most facilities financing involves a public-private partnership. The public sector may provide land, infrastructure improvements and tax abatements in addition to public capital whereas the private sector (team owner) may provide investment capital, land, management expertise and perhaps other tenants.
Soft cap in NBA...Larry Bird exception, 3 mid-level exceptions. $102M cap and $124M tax threshold. Minimum team payroll is 90% of cap or close to $92M. NBA's salary cap is a "soft cap", i.e., it has loopholes/exceptions that enable teams to exceed the cap, such as the Larry Bird Exception, which enables teams to re-sign their veteran free agents to a CBA maximum contract without . Due to the soft cap, NBA also has luxury taxes. Tax amount depends for each dollar over the tax threshold depends on how much team exceeds tax threshold and whether or not team is a "repeat offender" (3rd consecutive year exceeding tax threshold). It's like a progressive income tax.
NBA distributes roughly half of tax to non-taxpaying teams and other half is retained for "league purposes". Talk about Lebron James and short term deal with Cavs with opt-out due to new tv deal that kicked in for 2017-18 season. New tv deal $2.6B. Old tv deal $930M. New deal $1.7B more than old deal (mention escalators), with 30 teams it's $60M per team, with 50% going to players, cap went up close to $30M. Also individual cap "max contract" of 25% of cap for 0-6 yrs in league, 30% for7-9 yrs and 35% if over 9 yrs. With Bird rights, there can be 8% annual increases as well.
CBS: $1.05B/yr for Sunday afternoon AFC games through 2022, 4 playoff games (including AFC conference championship) and Super Bowl once every 3 years. FOX: $1.1B/yr for Sunday afternoon NFC games through 2022, 4 playoff games (including NFC conference championship) and Super Bowl once every 3 years. $550M/yr for 11 Thursday Night Football telecasts plus 1 Wild Card game through 2022.
NBC: $950M/yr for Sunday Night Football through 2022, 2 playoff games and Super Bowl once every 3 years. ESPN: $1.9B/yr for Monday Night Football through 2021, 1 wild card game (ABC simulcast). DirecTV: $1.5B/yr for Sunday Ticket (out-of-market) package through 2022, including mobile and broadband.
NASCAR
NBCU and FOX are paying a combined $820M/yr for NASCAR and secondary series races through 2024, a 46% increase over the prior deal with ESPN, FOX and Turner Sports.
NHL
NBCU: $200M/yr through 2021 Rogers Communications (Canadian rights): CAN$436M/yr or approximately US$350M/yr through 2026. NHL TV: $.32/mo x 12 months x 37M = $142M
OLYMPIC GAMES (US RIGHTS ONLY)
NBCU: 2014 (w), 2016 (s), 2018 (w) 2020 (s): Total $4.38B = $1.095B per Olympics in auction. NBCU: 2022 (w), 2024 (s), 2026 (w), 2028 (s), 2030 (w), 2032 (s): Total $7.75B = $1.29B per Olympics IOC sells rights and USOC receives 12.75% of NBCU's payments, host city's organizing committee receives 50% and IOC retains 37.25% to "further the Olympic movement". Unusual bidding for Olympics since venue hasn't been selected yet so network doesn't know time difference from US time zones.
NBA
NBPA started in 1954 and was organized by Celtics star Bob Cousy. NBA had no minimum wage, no health benefits, pension plan or per diem, and average salary was $8K. It wasn't until 10 years later when the players threatened to strike the first televised All-Star Game that the league recognized the union as the exclusive bargaining representative of the players. CBA in 1976 ended the "reserve" system in NBA.
NCAA
NCAA has no financial control over FBS-level college football, including postseason bowl games and CFP. For FCS, NCAA runs the 24-team playoffs.
1. By conducting an IPO for a minority percentage of a franchise, an owner of a small market team (which has smaller local television and other revenues) can generate capital without giving up any control of the team.
NFL has a ban on public ownership (Green Bay Packers are grandfathered) and NFL teams also have no significant local television revenues, unlike MLB, NHL and NBA. The following are the various types/structures of public ownership.
Sullivan v Tagliabue and NFL (1988):
NFL has rule against corporate ownership. NE Patriots were publicly owned when in AFL and after merger with NFL but Sullivan bought all the shares and therefore the team became privately owned. Sullivan then ran into financial issues and wanted to sell 49% of the team to the public. NFL refused to permit the public sale and Sullivan was forced to sell the team. He then sued NFL, claiming the NFL's refusal to let him sell a portion of the team was a Sherman Act antitrust violation (illegal restraint on trade in the market for NFL franchises). Jury awarded him $38M but it was reversed on appeal due to errors at trial, although the appellate court left the door open for future lawsuits of this type.
Member teams jointly appoint a commissioner to further the interests of the league and mediate/resolve disputes among owners and teams.
NFL is generally considered the league most focused on maintaining competitive balance among teams through scheduling and revenue sharing, whereas MLB is the least focused.
NHL and NFL had "hard caps" in which the salary cap may not be exceeded teams under any circumstances and "hard floors" which require teams to spend a minimum aggregate amount on player salaries.
NHL salary cap for 2017-18 WAS $79.5M and floor is $58.8M. NFL salary cap for 2018 is $177M and as a floor, teams must spend at least 89% of their cap in aggregate over 4 years. Roster is 53 in-season and 90 off season. MLB has no salary cap. "Competitive Balance Tax" i.e., Luxury tax threshold for 2019 is $206M and similar to NBA, luxury taxes are redistributed in revenue sharing to small market teams and there is a formula or determining the amount of luxury taxes based on the amount the team payroll exceeds the luxury tax level and whether that team is a repeat offender. First time offender it's 20%, second consecutive season is 30% and 3rd consecutive season is 50%. NBA much higher. Clubs over threshold by $20-40M also 12% surtax and over 40% at 42.5% as well as moving back draft choices if over $40M moved back 10 places (unless in top 6, then second round pick moves back 10 places).
NFL has challenges selling itself abroad due to complexity of rules, but it has much in common with a truly global sport, F1. There are dedicated fans in main target market of Europe (largely England and Germany) and Mexico, it is an upmarket sport, there are no competitors abroad and the product is scarce (teams only play16 regular season games per year). However, F1 is already a global sport whereas American football is not. NFL set up a European league in the 1990's which failed.
NHL, NBA and MLB have many more games to utilize experimental games abroad and are already much more global sports than NFL football.
NHL
NHLPA formed in 1957 to protest a television contract with CBS that gave all the money to the owners. Union disbanded in 1958 and formed again in 1967. NHL is the only pro sports league to have an entire season canceled (2004-05) by a work stoppage (lockout) and it was only the second time (MLBPA strike in 1995) that a playoffs was canceled due to a work stoppage. The result of the lockout was a complete victory by the owners, including a hard salary cap.
5. Personal Seat licenses (also used to finance stadiums and generate season ticket sales). PSL is a contract between the team (licensor) and purchaser (licensee) where the licensee pays the team a fee in exchange for the team guaranteeing the licensee a right to purchase season tickets for a specified seat location for a designated period of time (usually the life of the facility). A PSL can be resold by the licensee on the open market. Many universities require an athletic department donation (formerly tax deductible) in exchange for the right to purchase season tickets, especially in prime locations.
6. Corporate naming rights: In 1973, Rich Products Corporation made the first corporate naming rights agreement for a stadium. Rich Products contracted with the County of Erie, NY for the new Buffalo Bills stadium to be called Rich Stadium. The Cost was only $1.5M over 25 years. Naming rights for stadiums and arenas are now the norm and sell for as much as $20M/yr. (Met Life, AT&T, Levi's, Citi Field, Barclay's Center). Some facilities will sell naming rights to an area (field, breezeway, portal) instead of or in addition to naming rights for the entire facility. Typically, companies that purchase naming rights also get other designations and benefits, such as "official sponsor" status, luxury suite use, television and radio ads, incorporation of sponsor's products at the facility, etc. When corporations purchase naming rights to a facility, they are also buying impressions made on the site, print media, national, local and regional television and radio. There are also a very limited number of these facilities so competitor duplication is difficult and consumer confusion unlikely.
Most geographically diverse group of ownership in pro sports is EPL.
Americans own Arsenal (Stan Kroenke), Liverpool (John Henry), Manchester United (Glazer family), Russians own Chelsea (Roman Abromovich), as well as English, Italian, Middle Eastern and corporate owners.
NCAA STRUCTURE
National Collegiate Athletic Association (NCAA) is the primary organization governing intercollegiate sports in the US. Membership is voluntary and there are over 1100 colleges and universities in 98 conferences in the NCAA.
Local revenues include ticket sales, luxury and club seating premiums, stadium club fees, facility naming rights, concessions and parking, local media rights deals with local broadcast and radio stations and regional cable networks, novelties, programs, merchandise and local sponsorships.
National and global revenues include league-wide media deals for national broadcast, cable/satellite, radio and digital streaming, league-owned cable networks, digital media revenue via league and team websites, league-wide sponsorships, consumer products and licensing, league events and hospitality and international revenues.
One of the problems with the MLB (and other leagues) labor relations process is owners' distrust of other owners, particularly concerning revenue sharing and Related Party Transactions (RPT).
An example of RPT was in 2001, when the Chicago Cubs were owned by the Tribune Corporation, which also owned WGN, the Chicago cable superstation which had a "contract" with the Cubs to carry their games. The Chicago White Sox, a much less popular team in Chicago than the Cubs, had Nielsen ratings for their games in the Chicago market in 2001 approximately 50% lower than the Cubs but reported $30M in local media income (which is subject to revenue sharing) as opposed to the Cubs reporting $23.6M in local media income. This doesn't even take into account that WGN was also received outside of Chicago in 55M homes, thereby generating substantial additional advertising income. According to Broadcasting and Cable magazine, the actual value of the Cubs local media rights was $59M, so the Cubs were able to shelter over $35M from revenue sharing with other MLB clubs. These types of RPTs are used by a large number of other MLB clubs as well as clubs in other major pro leagues.
ARSENAL FC ANNUAL REPORT
Arsenal FC is an EPL Club Majority owner is Stan Kroenke, who also owns the LA Rams (NFL), Colorado Avalanche (NHL), Denver Nuggets (NBA), Colorado Rapids (MLS), Colorado Mammoth (NLL). All properties other than the Rams are in his son's name due to NFL cross-ownership rules. Wife is Ann Walton Kroenke.
Below FIFA in soccer hierarchy is Union of European Football Associations (UEFA), which organizes international competition within Europe, most notably the UEFA Champions Cup.
Below UEFA in soccer hierarchy is the Football Association (FA, which) represents all of the British Isles in UEFA competitions and each jurisdiction within the FA (Ireland, England, Wales, Scotland, Northern Ireland) has its own top league and well as a hierarchy of minor leagues, all of which are governed by the FA
COLLEGE FOOTBALL PLAYOFF
CFP is controlled by Power 5 conferences (not NCAA) and has 12 year contract with ESPN through 2025 for 7 bowls...the national championship game (NCG) plus the following 6 bowls: - 3 "Contract" bowls: Rose (Pac-12 champ vs Big Ten champ); Sugar (SEC champ vs Big 12 champ) and Orange (ACC champ vs SEC#2 or Big Ten #2 or Notre Dame). During the initial 12 yr CFP term, SEC and Big Ten are each guaranteed a minimum of 3 Orange Bowl appearances and Notre Dame gets a maximum of 2. - 3 "Host" or "Access" bowls: Cotton, Fiesta, Peach.
Discuss salary cap and floor and MLB luxury taxes.
Came into existence in the 1980's.
Comcast may allocate a portion of sub fee revenue increases to its P&L for the Olympics. For example, if in 2018, Comcast is able to increase NBCSN's sub fees in new distribution contracts from 42 cents/month to 52 cents/month and there are 84M subscribers to NBCSN, Comcast will realize additional annual revenues in 2018 of 10 cents/month x 12 months x 84M = $100M. Comcast may allocate a portion of that new sub fee revenue to the P&L for the 2020 Summer Olympics.
Comcast is also a distributor with about 22M NBCSN subs, so their actual revenue increase is 10 cents x 12 months x (84M-22M) = $74.4M Additionally, if NBCSN increases its subscriber base in 2019 from 84M to 86M, NBCSN will make additional sub fee revenue (assuming none of the new subscribers are Comcast cable system subs) of 52 cents x 12 months x 2M = $12.5M, and Comcast may allocate a portion of that increase to its Olympics P&L as well.
SEC:
Contracts with CBS for $55M/yr through 2022/23 and ESPN for $300M/yr through 2033-34, plus $40M for Sugar Bowl plus $14M for Orange Bowl*** for a total of $274M = $20M/yr per school. Each member-institution also contributed its third tier rights to the SEC Network in partnership with ESPN with estimated annual revenues of $12-14M per school.
Pac-12 Conference:
Contracts with FOX and ESPN for a total of $250M/yr through 2023/24, including Pac-12 Championship Game (FOX in even-numbered years and ESPN in odd-numbered years) and $40M for Rose Bowl. Subtotal of $290M/yr = $24M/yr per school. Each member-institution contributed its third tier rights to Pac-12 Networks with estimated annual revenues of $2.5M per school.
MLS currently has 24 teams and plans to expand to 28 teams, with future franchises in Austin, Miami and Nashville. Expansion fee is $150M, twice as much as a few years ago. Expansion fees are divided among the league's existing investors. Franchise revenues are between $15M-$50M annually, with most teams closer to $15M. Average team payroll was about $12M in 2017 (many individual players in Europe earn more than entire MLS rosters). Most teams lose money, with each team playing 34 games, average stadiums seating about 25,000 and average ticket prices under $30. There are at least 6 leagues in other countries with a significantly higher quality of play than MLS.
Currently, once the MLS determines a team is stable, both in terms of financial viability and management expertise, it permits investors to buy into the club ("investor-operators") and run the club independently of the league, with the league retaining an ownership stake in the club.
Turner pays 60% of rights fee and CBS pays 40%. Turner and CBS share production expenses equally and share advertising revenue equally.
ESPN has contract with NCAA through 2023/24 rights to 24 other NCAA championships (including women's basketball, baseball, FCS football) and international rights to NCAA men's basketball tournament for AAV of $42M/yr.
BCS (1998-2005):
ESPN/ABC paid AAV of $68M for Orange, Sugar, Fiesta, NCG and another $30M for Rose for total of $98M.
NBA
ESPN/ABC: $1.466B/yr through 2025 for 100 regular season games, 44 playoff games including finals on ABC. Separate contract for WNBA through 2025 for $25M/yr. Turner Sports (TNT)(AT&T): $1.2B/yr through 2025 for 64 regular season games, All-Star game, alternating conference finals, manage NBA's digital assets including NBA TV, NBA League Pass, NBA.com, WNBA.com. NBA TV: $.23/mo x 12 months x 51M = $140M (not including advertising sales or expenses).
MLB
ESPN: $700M/yr through 2021 for up to 90 regular season games (exclusive on Sunday nights), tie-breaker games, 1 wild card game. FOX: $525M/yr through 2021 for regular season Saturdays, World Series, All-Star Game, rotation of LCS and Division Series. Extended contract through 2028 for a reported $730M/yr. Turner Sports (TBS)(AT&T): $350M/yr through 2021 for LCS and Division Series and Wild Card as well as regular season.
2. Top level of competition in their (niche) sport. Typically, these sports have large numbers of recreational participants.
Examples include MLS and NWSL (National Women's Soccer League and its predecessors, Women's Professional Soccer and Women's United Soccer Association), MLL (Major League Lacrosse), World Team Tennis, National Pro Fastpitch (women's softball), AVP Beach Volleyball, World Surf League, etc.
NBA PLAYER TRANSFERS
FIBA (the international governing body for basketball) controls player transfers. As long as a foreign player has fulfilled his contractual obligations to his current team, he receives a "letter of clearance" from the basketball governing body in his home country and is cleared to play in the NBA via the NBA draft, an option not available in MLB. The NBA team that drafts the player then has the exclusive rights to negotiate with that player for one year. The individual player can also negotiate with his own foreign team for a release from his contract, in which case the foreign team holding the player's rights can negotiate directly with the NBA team that desires to sign the player.
BCS (2006-09):
FOX paid AAV of $80M for Orange, Sugar, Fiesta and NCG and ESPN/ABC paid $37.5M for Rose for total of $117.5M.
WORLD CUP (US Rights Only)
FOX: $400M for English language rights to both 2018 and 2022 Men's WC and both 2015 and 2019 Women's WC. TELEMUNDO (NBCU): $600M for Spanish language rights to both 2018 and 2022 Men's WC and both 2015 and 2019 Women's WC. For 2010 and 2014 Men's WC, ESPN paid $100M and Univision paid $325M. FIFA awarded Fox and Telemundo the 2023 Women's WC and 2026 Men's WC in no-bid contracts to compensate them for moving the 2022 Men's WC in Qatar from Summer to November-December. Rights fee is $300M for Fox (plus $180M bonus for WC played in US) and $350M for Telemundo (plus $115M bonus for WC played in US).
3. OTHER WEALTH-GENERATING ELEMENTS OF OWNER'S OTHER ASSETS
For example, generating other business by entertaining in owner's box.
Unlike businesses in other industries, sports franchises are often based on multiples of gross revenues rather than multiples of some measure of profitability. This is due to a number of factors, including the unusual number of one-off discretionary expenditures by the franchise's owner (e.g., big signing bonus for a player).
For example, if an NFL team has gross revenues of $500M and the owner and buyer agree to use a multiple of 5x revenues, the sale price for the team would be $2.5B.
LEGAL STRUCTURES
Four different legal structures of American professional sports leagues: 1. Club-based Private Property Structure (early pro baseball) where clubs are autonomous 2. Single Entity Centrally Planned Structure 3. Mixed-mode Centrally Planned Structure 4. Mixed-mode Private Property Structure ("Traditional Model")
Most teams lost money (at least for tax purposes) until a few years ago when new media deals kicked in, yet franchise values kept increasing.
From 1970-2000, franchise values went up an annual average of 26% in NBA, 14% in MLB and 22% in NFL. Sale of Clippers in 2016 for $2B (Sterling bought team 30 years earlier for $12M) was a catalyst for exponential increases in franchise values.
CFP (Group of 5)
Group of 5 conferences will take a share of an aggregate average payment of $86.5M from the CFP over each the first 4 years of the CFP, including APR payments. Out of the $86.5M, each conference will receive a base payment of $12M and the remainder will be divided according to a formula based on rankings and which conference sends a team to one of the CFP bowls.
IOC conducts the bidding for media rights and the host city's organizing committee ("Organizing Committee for the Olympic Games" or "OCOG") receives 51% of the rights fees and IOC retains 49% to "further the Olympic movement".
However, for NBCU's US media rights fees, IOC retains 36.25% and the USOC receives 12.75% (OCOG still receives 51%). OCOG and/or host country-city must pay to stage the Games and produce the "World Feed" for all the television networks worldwide that won the IOC bids for media rights in their respective countries. Russia reportedly paid $52B to stage the 2014 Sochi Winter Games.
THERE IS A HOST BROADCASTER WHICH PRODUCES A CLEAN FEED, ALSO CALLED A WORLD FEED, TO WHICH ALL THE OTHER OLYMPICS BROADCASTERS ARE GRANTED ACCESS AND THEN MAY SUPPLEMENT WITH THEIR OWN CAMERAS, ANNOUNCERS, ETC.
IF NOT FOR THE WORLD FEED, THERE WOULD BE PRODUCTION TEAMS FROM EACH COUNTRY PRODUCING COVERAGE THAT WOULD BE REDUNDANT. AS PART OF THE RIGHTS FEE, WINNING BIDDERS IN EACH COUNTRY ARE GIVEN ACCESS TO THE WORLD FEED, WHICH INCLUDES INTERNATIONAL GRAPHICS, VIDEO INCLUDING REPLAYS AND NATURAL SOUND, BUT NO COMMENTARY, INTERVIEWS OR ADVERTISING.
IOC distributes over 90% of its total revenues to (i) OCOGs, (ii) the 200+ National Olympic Committees that send their country's teams to the Olympic Games (e.g., USOC) and (iii) International Federations that govern all of the sports in the Summer and Winter Games. IOC retains approximately 8% of its revenues to pay its administrative and operating expenses.
IOC's corporate sponsorships are called TOP (The Olympic Program) sponsors. There are 9 TOP sponsors, each of which gets category exclusivity and pays at least $25M/yr for the 4 year Olympic cycle that includes one Summer Games and one Winter Games. TOP sponsors also receive certain rights to use Olympics IP in their branding and advertising. USOC receives 20% of the IOC's TOP sponsorship fees.
2. On-field revenues, including television deals and stadium attendance, and revenue sharing of these revenues is governed by a combination of the CBA and NFL Constitution and By-Laws.
National television revenues are equally shared (teams may have their own local deals for pre-season games, coach's shows, etc.). Sharing of gate revenues is more complicated due to luxury boxes, for which "ticket revenue" is shared but non-ticket luxury box revenue is not shared. Home team retains 60% of gate receipts and 40% is provided to league for revenue sharing purposes. For playoff games, all gate receipts are the property of the League with certain reimbursements to the home team. National television revenues are by far the biggest source of revenue sharing. Revenue sharing will total over $8B (out of total NFL...including team revenue of $14B) in 2018. Approximately $7.6B is national television revenue. NBC, CBS and FOX paid an aggregate of just over $3.1B/yr. FOX paid a total of $550M/yr for TNF (Amazon paid $65M for streaming rights). ESPN paid $1.9B/yr for MNF. DirecTv paid $1.5B/yr for Sunday Ticket. Verizon paid $500M/yr for digital and mobile rights.
In unrestricted free agency, a player will ultimately sign with the team to which he/she is most valuable (has the highest MRP) and will be paid a salary between his/her MRP for that team and his/her MRP with the team to which the player is the second most valuable (has the second-highest MRP). The team for which the player has the highest MRP can outbid any other team for the player and still increase its profits.
If there is a reserve clause or a draft (as opposed to pure unrestricted free agency), the team has monopsony power since it controls the player's contract rights and therefore is the only bidder for the player's services. The most the player can earn is still the MRP for the team that holds his/her contract rights but the Reservation Wage will be the higher of (1) the league minimum salary or (2) the amount the player can earn outside the league. In this case, the player's Reservation Wage will be well below his/her MRP for any team in the league and the player's salary will end up between his/her Reservation Wage and the MRP for the team that holds his/her contract rights. The effect is to drive more of the revenue the player produces to the team owner rather than the player. Free agency is the most critical issue in collective bargaining for team sports, and secondarily, the minimum salary is important as well since it in effect becomes the Reservation Wage.
NCAA HISTORY
In 1905 there were 18 deaths in intercollegiate football so President Roosevelt called major football programs together to participate is safety meetings. That same year, the NYU Chancellor, after witnessing a Union College running back killed during a game against NYY, called for national meeting of college football programs to decide whether intercollegiate football could be regulated or should be abolished. This effort resulted in the formation of the Intercollegiate Athletic Association, which was re-named NCAA in 1910 to formulate rules that for competition in various intercollegiate sports.
Salary factors for pro team sports athletes include skill level, position, experience, injury history, drawing power and league. CBA factors such as free agency or salary arbitration will increase salaries. A competitor league(s) will also typically result in increased salaries, especially since other leagues may not have a CBA and therefore there may not be the salary restrictions that exist in the player's current league. CBA factors such as salary caps, luxury taxes and reserve systems will decrease salaries.
In 1970, NHL was the first league to use salary arbitration to settle compensation disputes and MLB then began to use it as well. Salary arbitration mechanism is provided in CBA for both NHL and MLB. NBA and NFL have no salary arbitration. MLB's salary arbitration system is called "final-offer" arbitration. Player and Owner each submit a salary number for a one year contract and a panel of 3 arbitrators must select either the player's number or owner's number within 1 day after the hearing. There can be no compromise between the two numbers, and the arbitrator's decision may not be appealed by either party. This system is designed to stimulate negotiations and discourage arbitration, and also encourages each side to submit realistic salary figures.
In 1968, NFL had no reserve clause but did have the "Rozelle Rule", which required a player with an expired contract to play an additional year for the same team at a salary reduction of 10%. After he played the extra year, the player could sign with a new team, provided his old team and new team could agree on compensation for his old team in the form of draft choice(s) and/or veteran player(s). If the teams could not agree, the NFL Commissioner at the time, Pete Rozelle, would determine the compensation and his determination was unappealable by both parties. The NFLPA sued the NFL in Mackey v. NFL, claiming the Rozelle Rule was a violation of the Sherman Antitrust Act by creating an unreasonable restraint on trade and the NFLPA won the case. This prompted a new CBA in 1977 that included increased benefits, arbitration for grievances and reforms of the waiver system.
In 1987, the NFLPA went on strike to try for more and earlier access to free agency, but the NFL hired replacement players and soon many union members crossed the picket lines and went back to work under the then-existing terms of the CBA. In 1993, a new CBA was negotiated that included a new system of free agency and a hard salary cap and salary floor.
A. Stock Market Teams: Marketable shares of sock are sold to the public and then traded on an exchange. Teams that have utilized this form in the past are Boston Celtics, Cleveland Indians and Florida Panthers.
In 1998, Indians raised $60M by selling 4M shares at $15 each on NASDAQ. Indians sold in 2000 to private buyer for $320M and as part of the deal, all shareholders were required to tender back their shares to the company for $22.61/share. In 1996, Florida Panthers had IPO on NASDAQ (symbol "PUCK") and raised $66M to pay down debt and for working capital. In 1991, Panthers were sold to private investors, who purchased all outstanding shares. Boston Celtics, LP stock was traded on NYSE but was sold to private investors in 2002, the last of the true stock market teams in the US.
David Beckham's affect on MLS ticket sales as the first player signed in 2007 under the MLS's then-new DPR (designated player rule), which allowed LA Galaxy to sign him outside the cap with the league paying $400K of the player's contract and the investor-operator of the Galaxy picking up the rest (reportedly a 5 yr contract for $250M including endorsements. When superstars play on the road, the home team has an increase in attendance and revenue even though they don't contribute to the superstar's contract. The team signing the superstar doesn't receive the full marginal revenue of the superstar.
In 2007, average MLS attendance was about 16,700 but for games that Beckham played, it was about 37,700. When factoring in the average MLS ticket price of $27 at the time, Beckham's effect on attendance for his 15 road games in 2007 more than made up for the league's $400K contribution to his salary, not including additional revenue for concessions, parking, merchandise, etc.
MEDIA
In 2017, revenue from the sale of television/media rights for sports events in North America was roughly equivalent to live gate receipts ($19B each) and for 2018, television/media revenue was projected to surpass live gate receipts for the first time. Sponsorship ($16B) and Merchandising ($14B) are the other two major sources of revenue.
Owners in NBA and NFL can unilaterally (i.e., without consulting players' union) determine revenue sharing among teams, whereas in NHL and MLB, revenue sharing among teams is subject to agreement of the players' union in the CBA. Why should players have a say in how teams share their revenues?
In MLB with no salary cap or floor, some small market teams use revenue sharing for profit taking (or loss minimizing) rather than for player salaries.
In NHL, large market clubs are ineligible for receiving revenue sharing revenues even if they are low revenue clubs. There are also attendance and revenue growth requirements in order to receive full revenue sharing to avoid free-riding and incentivize teams' efforts to grow revenues. Revenue sharing in NHL is typically largest for non-traditional hockey markets, e.g., TN, AZ, FL, NC. Teams in Canada are typically revenue sharing contributors rather than recipients, even if in small markets.
In NBA, eligibility to receive revenue sharing is based on market performance rather than market size. Philosophy is that some teams are well-managed but have a difficult time making money due to market factors.
3. Mixed-mode Centrally Planned Structure:
In form it looks like a single entity structure but in substance, each investor operates a single team while also owning a share of the league. However, investors do not share league revenues equally but rather, in addition to receiving a share of league revenues, the investor will receive a percentage of the local revenues of the franchise than he/she operates. This structure does not avoid the antitrust problems due to a lack of "unity of interest".
First publicly-funded stadium was built in 1950, when Milwaukee lured the Boston Braves to move to Milwaukee by promising a public stadium. This was the first time since 1903 that an MLB team switched cities. Shortly thereafter, the St. Louis Browns (Baltimore Orioles) and Philadelphia Athletics (KC Athletics) moved to cities where they would be the sole MLB team and have a public stadium.
In the 1950's, public stadium subsidies were close to 100%. Since the 1970's, local communities have on average paid between 70-80% of new stadium building costs in all 4 leagues, although recently there has not been nearly as much local financial support for building stadiums and arenas. Team owners leverage threats to relocate franchises to receive public subsidies for stadium/arena construction and also to receive right to more revenue streams, including rent for non-sports events at the stadium.
MLB PLAYER TRANSFERS
When a player whose rights are owned by a Japanese professional baseball team ("Nippon Professional Baseball" or "NPB") doesn't have enough years (9) in the Japanese league to be eligible for free agency but he wants to go to MLB, the following system has been created by the two leagues: There is a transfer system whereby NPB team owners receive compensation for permitting the player to go through a "Posting Process". The player asks his NPB team to "post" him and if the team agrees, the NPB commissioner notifies the MLB commissioner, and all MLB teams are then notified that the player is available. All MLB teams interested in the player then submit sealed bids in an auction for the exclusive right to negotiate with the player and the highest bidder is awarded those rights if the NPB team agrees. The amount of the bid is considered the "transfer fee". The MLB winning team then has 30 days to negotiate with the player and if they reach agreement, the NPB team keeps the transfer fee. If no agreement is reached with the player, no transfer fee is paid and the player returns to his NPB club.
XFL (XTREME FOOTBALL LEAGUE)
XFL tried to avoid problems that doomed other fledgling football leagues such as WFL (1974-75) and USFL (1983-85), including overpaying players, bad television contracts and direct competition with the NFL. (USFL v NFL antitrust claim). CFL has been around for over 100 years and has survived notwithstanding a failed attempt to expand into the US.
Other organizations under the IOC include the OCOGs, which disband after their Olympics have ended and bills have been paid. LA 2028 is the OCOG for the 2028 Summer Olympic Games that will be held in Los Angeles. Each OCOG generates some of its own revenues through local sponsorship, tickets and licensed products (giving 5% to the IOC) but receives most of its revenues from its 51% share of the IOC's media rights fees and TOP sponsorship sales.
OCOGs must pay the entire cost of staging the Games, including paying for the production of the "world feed" that the licensed network from every country will use for their telecasts. Building infrastructure and facilities that may never be used again, particularly for Winter Olympic Games, is very expensive. Often, the host city and/or country (separate from the OCOG) are the entities that spend the enormous sums to build facilities and improve infrastructure, which is the reason that very few cities desire to host the Olympic Games. Moreover, budget overruns are rampant. An Oxford study found that the average cost overrun for hosting the Olympics from 1960-2016 was 156%, by far the highest for any major construction project.
2. MLB, NHL and NBA:
Other than the limited number of games included in national television packages, teams are free to make deals to own all or part of regional sports networks. In MLB, Mets, Orioles, Nationals, Red Sox, Mariners, Astros* and many others have had ownership interests in regional sports networks. In NBA, Knicks, Nets, Celtics, Bulls and others. In NHL, Bruins, Blackhawks, Rangers and others. Most teams choose to take rights fee payments from regional sports networks that are owned by either Comcast, FOX or AT&T (DirecTV). Rights fees can range from over $300M/yr for Dodgers contract with Time Warner Cable (now Spectrum) to as little as $10M-$20M for small market teams, particularly in NHL.
SOCCER'S GOVERNING BODIES
Overall governing body for soccer internationally is FIFA, which determines eligibility of teams and players for international competitions, including the World Cup. FIFA requires that FIFA-sanctioned international teams only play other FIFA-sanctioned international teams or those teams and their players lose eligibility for international competition, which gives FIFA the ability to regulate the business activity of soccer.
GOLF (Men's)
PGA Tour owns all top level stroke play professional golf tournaments played in US except for the majors. PGA Tour has contracts with CBS, NBC and The Golf Channel (also owned by NBCU) through 2021 and recently declined to exercise its right to opt-out of the CBS and NBC contracts following the 2018 season. Average annual combined rights fee is $800M/yr.
C. Community-Based Ownership: Non-marketable securities are sold and the public owns a majority of the stock. The team is set up as a publicly-owned, non-profit corporation.
Packers became first community-based ownership team in 1923 and are still the only community-owned team in major US professional sports. There have been a number of subsequent stock sales so now Packers have about 112,000 shareholders and 4.75M shares of stock outstanding. Shareholders receive no dividends and get no priority for game tickets, Shares may not be sold and may only be transferred to members of shareholders' immediate families by gift or upon death. Packers Shareholders elect BOD which in turns elects an executive committee to operate the team. No Individual may own more than 200K shares to prevent any single person or family from taking control of the team. Also ensures that franchise will never be relocated since majority shareholder vote is required to relocate and 90% of shareholders live in Wisconsin.
In 1960 pro football, AFL pooled their television rights so each of 10 teams received $170K annually. In NFL, individual teams competed with each other for television deals so Baltimore Colts had a deal with NBC and 9 of 12 NFL teams had deals with CBS. NY Giants received $175K from their contract with CBS and Green Bay Packers received only $75K from their CBS contract. Therefore, almost all teams in the startup AFL were making more television revenue than teams in the established and much more popular NFL.
Pete Rozelle, NFL commissioner at the time, saw the disadvantages of teams competing with one another for NFL packages and convinced his club owners to pool their rights for the long-term good of the league. He then lobbied Congress to pass the Sports Broadcasting Act of 1961, allowing the pooled sale of national television rights by sports leagues which would otherwise violate antitrust laws. NFL then entered into a new pooled contract with CBS that paid $387,500 per team.
NFL
Players organized NFLPA in 1956. First CBA was in 1968 which finally gave players a salary minimum and an improved pension.
CFP (Power Conferences)
Power conferences will also divide money from the non-television revenue from contract bowls in which they play (e.g., Pac-12 and Big Ten divide Rose Bowl ticket revenue, etc), all Access Bowls (each PC shares) as well as the NCG (each PC shares).
1. Promotion and Relegation
Predominant model of pro sports leagues outside North America where teams enter or depart the league based on competitive success or failure. Number of teams remains constant (no expansion fees).
International Olympic Committee (IOC) controls the worldwide rights to the Olympic Games, including all the intellectual property (IP) associated with the Games. The 5 interlocking rings and the words Olympics and Olympiad are IP held by the IOC, which is based in Lausanne, Switzerland. USOC has control of that same IP in the US.
Primary sources of revenue for the IOC are broadcast rights, sponsorships, tickets sales and licensing. Broadcasts rights are the biggest revenue source for the IOC (47%), followed by sponsorships (45%), ticket sales (5%) and licensing (3%).
1992-94: 5 major conferences and Notre Dame addressed problem of split national champions by forming the Bowl Coalition to try to crown a national champion. Conferences retained historical bowl tie-ins but top 2 teams would be released from tie-ins and be paired in "National Championship Game".
Problem was that Big Ten and Pac-10 were not part of the Bowl Coalition and continued to send their conference champions to the Rose Bowl. Mid-majors also had no access to NCG.
Some sports economist theorize that nations in Europe with promotion/relegation will result in having stronger teams than a nation with leagues of fixed size (e.g., US and MLS).
Promotion/relegation will also increase player wages due to increase in demand for quality players to gain promotion into a better league and avoid demotion.
Unrestricted free agency enables an athlete with an expired contract and a qualifying number of years in the league to receive offers from all teams in an open marketplace and thus to receive fair market value (or MRP) for his/her services, subject to any CBA salary maximums.
Restricted free agency enables an athlete with an expired contract and a certain number of years in the league to receive offers from other teams, but his/her current team has the right to match any outside offer. If the athlete's current team does not choose to match the outside offer, the team would receive player or draft choice compensation from the new team. Restricted free agency permits the athlete to obtain a salary increase through a quasi-open marketplace, but it is not a fully open marketplace because the salary effect is reduced due to the cost on outside teams that solicit the athlete. If all players with expired contracts were eligible for free agency, the market would be flooded with a supply of players thereby reducing salaries, so it is in the interest of both the league and players to limit the number of athletes who are eligible for free agency each year.
5. LEAGUE REVENUE SHARING AND EXPANSION OR RELOCATION FEES
Revenue sharing can be either a positive or negative depending on market size and other factors.
2. SHELTER FROM FEDERAL INCOME TAXES DUE TO DEPRECIATION OF ASSETS
Roster Depreciation Allowance is the easiest tax shelter to understand where owners can allocate 100% of the purchase price of the team over 15 years. Team purchase price is $1.5BM and if you depreciate over 15 years, RDA is $100M per year. Assuming profit (including deductions for other interest, taxes, depreciation and amortization) is $75M, if the RDA is $100M it would result in a $25M tax loss for the team owner that year. Owners can easily turn profits into losses by creative but legal accounting.
Key development for NCAA in 1950's was hiring Walter Byers as Executive Director. Byers ran NCAA for almost 40 years and strengthened the NCAA by strengthening enforcement and taking over television rights to football from the schools. NCAA never exercised control over television rights to regular season college basketball or any sport other than football. In 1984, the Supreme Court held that the NCAA had violated antitrust laws over the televising of college football, essentially returning control over the broadcasting of football back to the schools and their conferences.
Ironically, in 1984 after the invalidation of the NCAA's television contracts, college football as a whole received far less in total television revenues than they would have under the NCAA's illegal plan that restricted the price (rights fee) and output (number of games sold). The reason was that after the NCAA plan was struck down, there was far more supply of games than ever before with no increase in demand from television networks. Ad rates plummeted from almost $60,000 per 30 second unit in 1983 to as little as $15,000 in 1984 due to increased supply and combination of network, cable and syndication showing many more college games and competing for the same advertising dollars.
1. Sponsorship, licensing and any other off-field revenues under an agreement among owners called "Master Agreement".
Jerry Jones of Cowboys sold his own sponsorships in 1995 to Pepsi and Nike, in conflict with League's deals with Coke and Players Inc. (licensing arm of NFLPA). NFL sued Jones for $300M plus an injunction and Jones filed an antitrust counterclaimed for $700M. Settlement allowed Cowboys to keep their own sponsorship deals and opened the door for other teams to do local sponsorships. Some large market owners believe local revenue sharing should be based on "net profits" rather than revenues because team owners that also own there stadiums incur large amounts of debt service. League still has exclusive on-field sponsorship deals with corporations (Microsoft, Bose, Gatorade, Verizon) whose logos are the only brands permitted on the NFL sidelines.
GLOBAL LEAGUES
Labor markets for most sports are becoming more globalized, particularly in MLB, NHL and NBA (not so much in NFL) and leagues are attempting to expand their product markets globally as well.
2. Single Entity Centrally Planned Structure:
League investors share all property rights in common and a limited liability company contains all of the league's teams. Avoids antitrust problems with a "unity of interest" among all investors and also avoids problems associated with maverick owners.
First game telecast in February of 2001 received a huge 10.2 rating, twice what NBC expected, but the second week's rating declined by 50%. By week 7, the NBC Saturday night broadcast had nose-dived to 1.6, which at the time was the lowest recorded prime time rating in the history of ABC, CBS and NBC. The championship game received a 2.5 rating and only 24,000 fans attended in LA Coliseum (capacity over 90,000).
League was canceled 3 weeks after the championship game of its one and only season, with WWF and NBC reportedly losing $35M each. Post-mortem was that XFL tried to straddle the fence between football WWF-style wrestling entertainment, but didn't satisfy the consumer audience for either.
Territorial Rights
Leagues control franchise locations and territorial rights. Territorial rights for a team are generally the city where the teams plays and a 50-75 mile radius of that city. Territorial rights include the right to hold home games and broadcast games of that team (except when covered by league contracts with national networks). Leagues with multiple teams in the same city generally equally share territorial rights. Territorial rights favor owners in large markets, who will generally have higher live gate, local broadcasting and sponsorship revenues.
Leagues exist to promote the common interests of their member teams, but individual team interests often compete with the collective welfare of the league. Luxury boxes, concessions, local and regional broadcasting income, merchandising, etc. if not shared among teams tend to create disparities in income and therefore performance between large and small market teams.
Leagues generally focus on big market, national and international issues whereas individual teams generally focus on their metro or regional markets.
The single entity structure has become more susceptible to legal antitrust challenge with the Designated Player Rule created in 2006, which allows each team to sign up to 3 players whose salaries extend beyond the otherwise restricted salary budgets ($480K in 2017), with the amount in excess of the restricted budget paid by the team rather than the league. DPR favors wealthier owner-operators in larger markets.
MLS has television contracts with ESPN, FOX Sports and Univision Deportes that pay a combined $90M annually. An average of 300,000 viewers watch each telecast.
SINGLE ENTITY
MLS started as a single entity ownership structures where entire league was structured as one operating company, although MLS and is now more of a hybrid where some player and salary decisions are made by teams independently of the league.
MLS
MLS was formed by USSF as a promise to FIFA in exchange for USSF being granted permission to host the 1994 World Cup. MLS began play in 1996 with ten teams as a single entity structure, in which the league rather than the individual teams negotiates all terms of the player contracts. This negotiation arrangement withstood an antitrust challenge in 2002 in Fraser v. Major League Soccer, LLC. League also negotiated all league-wide and team sponsorship deals.
Single-Entity Leagues:
Major League Soccer (MLS) was first major American league to use this model. Entire league and its teams were controlled by a single operating company rather than the league being controlled by the independent teams that comprise the league.
CBA determines length of season and number of games, draft and other talent distribution mechanisms, individual player and team salary caps and floors, luxury taxes, free agency, arbitration and other dispute resolution procedures, releases and waivers of players, workplace integrity and discipline (including suspension, termination, drug testing procedures), and in some leagues, revenue sharing among teams.
Mandatory subjects of collective bargaining between unions and management are exempt from antitrust laws through the "non-statutory labor exemption". These mandatory subjects include hours, wages, and certain other terms and conditions of employment. Without this exemption, fixing player salaries, roster sizes and other parts of CBA would violate the Sherman antitrust act.
XFL was owned jointly by World Wrestling Federation (now WWE) and NBC, which had lost its NFL package in 1997 and had also failed to start a summer pro football league together with TBS. Plan was to broadcast XFL on Saturday evenings in prime time on NBC and Sundays on new cable networks UPN and TNN. There were 8 teams in a combination of the largest markets (NY, LA, Chi and SF) and small markets without NFL teams. Games were February through April, after the NFL season.
Rules for play were made to make the game more violent and fast-paced (e.g., no fair catches on punts or kicked extra points, shorter play clock). Players were paid a weekly base salary based on position...QB's $5,000, kickers $3500 and all others $4000, with bonuses for the winning teams and playoff bonuses.
Total National Media Revenue = $692M/yr, not including revenue from NHL.com or team websites, NHL TV advertising sales or expenses, or international sales.
Similar to MLB and NBA, each NHL team also has a separate contract with a regional sports network ("RSN") due to the large inventory of games in NHL regular season. Rights fees in RSN contracts vary from as little as $10M/yr to as much as $61M/yr for Montreal Canadiens. A number of teams also have ownership interests in an RSN in a joint venture with the RSN divisions of FOX, Comcast or AT&T (DirecTV).
USOC is chartered by Congress in the Amateur Sports Act of 1978 to govern the Olympic movement in the US. The Act provides the USOC with exclusive control in the US over the words "Olympics" and "Olympiad" and other Olympics IP including the 5 interlocking rings.
The USOC authorizes the National Governing Bodies (NGBs) in the US for each sport in the Olympics (e.g., USA Swimming, USA Track & Field, USA Gymnastics, etc) to select the criteria for an athlete's selection to compete for the USA Olympic team. USOC also runs the Olympic trials in conjunction with the NGBs.
The lowest compensation that a player would accept as a salary offer (after considering location and other factors) to sign with a team is the amount the player would earn in his/her next best employment opportunity outside of that team. This is referred to as the "Reservation Wage" and if a team's offer was less than that, he/she would simply reject the offer and accept the next best employment opportunity.
The difference between the MRP (Marginal Revenue Product) and Reservation Wage sets the maximum and minimum limits on the salary that a player can expect to earn. If the player has unique skills and drawing power, his/her salary will be closer to the MRP and if the player is easily replaceable, his/her salary will be closer to the Reservation Wage.
4. Mixed-mode Private Property Structure ("Traditional Model"):
The most common structure and is utilized by the 4 major US pro leagues and therefore called the "Traditional Model". There are individual club owners who each have independent property rights in their respective teams but also contractually agree to share or pool some of these rights with each other, e.g., licensing, national telecast and streaming rights.
UEFA PLAYER TRANSFERS
The transfer of players from one European soccer team to another most closely resembles a free market system and some economists believe it is the most efficient system. European teams negotiate directly with each other for the transfer of players.
2. From 1966-83,
The value of sports franchises grew substantially and the financial performance of arenas and stadiums improved not only through the team's revenues but also through other events like concerts. Bonds secured by a municipality with a general obligation or a specific tax were the most common financing method.
Similar to franchises in other industries, professional sports franchises are typically granted an exclusive geographic territory by their league: 50 miles from the home city in the NHL and 75 miles from the home stadium/arena in NFL, NBA and MLB.
There are obvious exceptions and waivers to this rule as there are multiple NHL, NFL, MLB and NBA teams in NYC (NJ) and LA. Ability to generate local revenues depends on the size of the market, as well as the affluence and passion levels of the fan base.
In 1983, many NBA teams were in financial trouble so NBPA and league implemented the first ever salary cap in professional sports, which gave the players 53% of league revenues. 1983 salary cap also included the "Larry Bird Exception" to the cap. This allowed teams to sign free agents currently on their team for up to a 12.5% increase in their salary, regardless of whether that increase put the team over the cap. The league also instituted a "luxury tax" to deter teams from abusing the Larry Bird Exception and going over the cap.
There are other exceptions in the current NBA CBA that allow teams to exceed the salary cap, which is why the NBA salary cap is referred to as a "soft cap", whereas in the NHL and NFL, there is a "hard cap" where teams can not exceed the salary cap for any reason. Executive Director of NBPA is Michele Roberts, the first woman and first African-American woman to hold that position in any of the 4 major US pro sports leagues.
Following the conclusion of each playing season, teams post a list of players, who despite being under contract, are available for transfer to other teams. The listing team preliminarily sets the transfer fee and the final fee is negotiated between the transferor and transferee teams. A listing team can negotiate with an unlimited number clubs for the transfer of a player and there is full market participation, so each bid is known by the other bidders, and unlike the sealed bids in the MLB posting system, a typical winning bid will only be very slightly higher than the next highest bid.
There is also a specific formula for extra compensation to the listing team when a player under 23 years old is being transferred due to the development and training expenses incurred by the typically lower revenue club before losing the young star player.
National Association of Intercollegiate Athletics (NAIA) is a competing organization comprised of 250 member-institutions, the majority of which are private, faith-based colleges and universities with smaller athletic budgets than NCAA Division 3 schools.
There is also the National Junior College Athletic Association that promotes and supervises junior college sports.
WNBA
Title IX has been a major factor in the emergence of female student-athletes who graduate from college at a higher rate than any other student in American higher education. WNBA has age and education policy that requires its players to be at least 22 years old and have exhausted 4-year college eligibility or be at least 4 years out of high school. League may waive requirements for those who have played professionally for at least 2 years in another league.
2. "Super-league
Top teams from each country's top domestic league in a region compete against each other, e.g, Union of European Football Associations ("UEFA") Champions League. There is a revenue sharing among participating clubs based on performance in the Champions League, as well as among the national football associations, clubs and leagues that constitute UEFA. Other examples include CONCACAF Champions League (Confederation of North, Central American and Caribbean Association Football).
There are two broad categories of revenues for sports leagues and their teams:
(1) National and global revenues that are shared equally among all the league's teams, and (2) local revenues generated by each individual team that are retained in large part by that team.
Teams experiment with different ways to maximize ticket revenue, including:
(a) variable pricing depending upon the time of the year, day of the week, quality of the opponent (including star players) and perceived demand for game tickets, and (b) monetizing secondary market ticket sales either by establishing a secondary market themselves or with their league, or making marketing agreements with an established secondary market company such as Stubhub.
DAZN: $100M/yr from 2019-21 for daily highlights and cut-ins, but no game rights. Facebook Watch: Streamed games exclusively in 2018 for $25M MLB Network: $.26/mo. x 12 months x 64M = $200M (not including advertising sales or expenses),
Total National MLB Revenue = $1.9B not including revenues from MLB.com or team websites, MLB Network advertising sales or expenses, MLB Extra Innings or MLB.tv, or international sales. Unlike NFL, each MLB team also has a separate contract with a regional sports network ("RSN") due to the large inventory of games in MLB regular season. Rights fees in RSN contracts vary from as little as $20M/yr to as much as $300M/yr for LA Dodgers. A number of teams also have ownership interests in an RSN in a joint venture with the RSN divisions of FOX, Comcast/NBC or AT&T (DirecTV).
4 major sources of monetization for emerging and niche leagues: (i) gate receipts, (ii) parking and concessions, (iii) telecast revenues, and (iv) sponsorships. Typically not much licensing and merchandising revenue. Characteristics necessary for long-term financial success:
(i) Appealing to audiences, which often requires a cross-over or transcendent star (Tony Hawk, Kelly Slater, Mia Hamm, Michael Phelps), particularly for sports with large public participation rates. (ii) Television and/or streaming presence, which will increase local and national sponsorship revenues and is also necessary to grow interest in the league. Television exposure for niche leagues will also generally increase live attendance. (iii) Deep-pocketed ownership with willingness and ability to withstand substantial start-up costs and operating losses. (iv) Location in appropriate markets, dictated by desire to be in major markets, regional popularity of the sport and ownership preferences. Oftentimes these determinants of location conflict with one another. (v) Strong leadership with long-term vision. Must keep athlete compensation low (single entity) and avoid unions.
1. Minor leagues, which have 3 functions:
(i) Player Development, such as AAA, AA and A levels of MLB-affiliated minor league baseball and G-League in NBA. (ii) Entertainment, serving fans with low-cost family entertainment. (iii) Grassroots Marketing, since minor leagues are typically located in small markets, they provide live access to professional sports that would otherwise be unavailable to those fans.
There are four major benefits of the traditional model,
(i) better ability to attract investors (team owners), (ii) promotes innovative behavior, (iii) enables club owners to think globally but act locally, especially with sponsorship market, and (iv) more credibility for natural game results.
Promotion/Relegation: Methods of team entry into the top level league include those for fixed membership but in addition:
(i) purchase of a minor league team, hire top-quality coaches and players and earn a promotion to top league; or (ii) start a new team, enter into the bottom level league and gain promotion to higher level leagues. Both of the above promotion/relegation methods will typically involve significant financial losses prior to gaining entry into the top league.
- Semi-final CFB games will rotate so that each of the 6 participating bowl games will host a semi-final game every 3 years. - NCG venue will be subject to annual bidding in same way as Super Bowl.
- If any conference champ from a "Contract" bowl is in a semi-final game, the #2 team from that conference replaces them. - Conference champs from 5 power conferences are guaranteed slots in one of the six CFP bowls. - The highest ranked team from among AAC, MWC, C-USA, Sun Belt and MAC ("Group of 5") is guaranteed a slot in one of the six CFP bowls.
Luxury taxes
in the absence of a salary cap (MLB), create a disincentive for a high-revenue team owner in a revenue sharing league to spend too much on player salaries. Normally, in a revenue sharing league the high-revenue owner would have little negative impact due to his/her over-accumulation of talent, because a high payroll would result in less net revenue subject to revenue sharing.
7. Restaurants: Many sports facilities now contain restaurants that are open for games and press events. Restaurant owners may make a guaranteed payment to a team/facility owner plus a percentage of sales, or team/facility owner may pay an outside vendor to operate the restaurant and keep all of the restaurant's revenue for itself.
8. Luxury Suites: The second most lucrative revenue stream for teams after television. 9. Retail Stores: Teams typically own the retail spaces in their facility and retain the revenue from those spaces but will occasionally rent out the retail spaces to third parties in exchange for a guaranteed monthly fee plus a percentage of sales.
