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The nature of sports
business
Cracking big money insanity
11/14/04 - by Fred Begun
Due to the current NHL
lockout, and the absence of Sharks games, I have time to think about the nature
of sports and business. The issue of money and how to share that money is not
new to sports. The unrivaled greed of wanting my share (or more if I can get
it) is also not new to sports. Therefore, why should any good answers to old
problems be expected old thinking?
Let's start with a few premises.
All sports are comprised of a hand full of excellent athletes, a majority of
really good athletes and a handful of border liners and annual youngsters, who
may become or may not. Fundamentally, athletes, at least in professional
sports, are really entertainers. They are using their abilities to put on a
show, for which others are willing to pay. This desire to play, and do it for
pay, would likely not materialize, but for owners. Owners are fans of sports.
Owners are business folk, trying to make a buck. Owners must provide a product,
market the product and keep it vital, in order to make the buck.
Other
benefits of ownership, such a pride, pleasure and ego exist, but can't really
be valued in this story. Athletes will likely never make it without the
structure and finance of the owners. Owners will never make it without the
product provided by the athletes. Owners and Athletes all lose if they can't
make it happen, because ultimately, the common fan, when measured in the
millions and valued economically in the billions, if mistreated, underestimated
and over abused turns his or her collective back on the whole show.
That being said, the real question is, if I were King how would I fix it? I
don't know the real economic numbers so bear with me and hopefully the concepts
will make sense. I think there should be a formula by which all athletes,
owners and others can profit in all sports. There must be a way to develop some
economic balance between big markets and small markets, between the U.S. and
other countries in the leagues and between all level of players. I'm tossing
out thoughts related to Hockey as their mess is at the forefront, but I think
it is only a question of time before other sports are affected.
Income
Let's not begrudge anyone making a profit. If you don't make
the almighty buck, or looney, then what's the point? Let's figure out the
revenue picture first. This calls for unprecedented honesty and disclosure by
the owners, but so be it. From the ground up, owners bring in money from
tickets to fans. Any franchise has to have a place to play, so there will
usually be admission, but that admission comes with a price. Who gets revenues
from parking? How about those ridiculous corporate sponsors? Call it what you
will, but some things will not change. I am a victim of history and I see games
at Candlestick Park and the Shark Tank. But, money is money, so take and put it
in the hopper. Once we're at the game, we all eat, drink, be merry and spend,
spend, spend. Who gets revenues from concessions? Once we're rowdy and drunk we
need our team hat, shirt, jacket and the god-awful foam finger.
Whether it is deemed part of concessions or merchandising, what revenue is
earned off the team name and the player stuff? What about merchandising? What
country can you travel to without seeing some crap with the New York Yankees or
Los Angeles Dodgers on it? Probably a few, but you get my point. Secondary year
round marketing probably adds to the kitty too. Now let's get to the big show.
What about broadcast and commercial revenues? Probably the largest source of
revenues is from broadcasting, whose source of revenues is really from
commercial sales.
How much was that 30 second spot during the Super
Bowl? Obviously, the amounts vary sport to sport, but the concept is common.
Personally, I've always wondered if the franchise gets a percentage of the
celebrity athlete's fee when pushing some product, in uniform or out. There are
probably other sources of revenue, but until we have complete disclosure, this
will do for a starter.
Expenses
There is no question that
a franchise has extensive expenses. Again, we need a place to play and a place
to run the business. Sometimes, the franchise owns the venue, but largely, the
local taxpayers foot the bill. Rent is sizeable, but fixed. These rents are
offset some with corporate sponsors, but hey, lets mark up the ledger.
Operational expenses will vary on game day and non-game day. Who gets the
better average, the 81 game home schedule in baseball of the 8 home games in
football? Sorry, just be picky. Speaking of operations, we can't forget support
staff and all the franchise and/or venue personnel. Not the star bucks, but
hangers on can run up a tab too. On to people, this gets us to the players and
immediate staff.
This is the big ticket we always hear about, but what
percentage are we really talking about. We've focused on home expenses, but
let's not forget the two charter jets necessary for advance crew, equipment,
staff, coaches and players for every road game. What about food and lodging?
That's focusing on the Majors, but what obligations and expenses (or revenues)
flow between the franchise minor leagues, farm systems, instructional leagues,
scouts, and whatever else is necessary to get us the next crop of stars, though
some are merely warm bodies willing to take the beating. The fact of the matter
is that there is a lot of necessary expenses in a sports franchise that most of
us simple spectators know exist, but have no real knowledge about.
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