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Sports Leagues and Teams I: Structure and Economics

Prof. Kenneth L. Shropshire The Global Business of Sports Module 1.0

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“Begin with the end in mind.”
– Stephen Covey, The 7 Habits of Highly Effective People, Habit #2

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The Global Business of (team) Sports: 7 Modules
1. 2. Sports Leagues and Teams I: Structure and Economics Sports Leagues and Teams II: Globalization, Leadership and Ownership Economic Drivers I: Media Rights Economic Drivers II: Stadiums and Arenas Athlete Compensation, Agents and Unions The Olympics and FIFA World Cup Global Success Strategies
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3. 4. 5. 6. 7.

1. successful sports league.2. Initial Focus: 1. etc.What we will cover… • • Goal: to analyze the multibillion dollar global team sports business and contemplate: a truly global. 1.) – “check-in” quizzes intermittently – Discussion forums throughout 4 • . Module 1: • History and structure of leagues • Leagues and teams: focus on revenues – League models – NFL examples – Revenue and sharing – Manchester United revenues – Valuation Delivery throughout?: – Multiple segments per lecture (1.

Stanford University (American Football Scholarship) 5 .My Background • • • • • • Professor. Los Angeles Olympic Organizing Committee. University of Pennsylvania Director. Legal Studies Department. Wharton Sports Business Initiative Special Counsel. Columbia University Economics Degree. Wharton School. 1984 Olympics Law Degree. Duane Morris LLP Executive.

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1 History of Sports Business Current Leagues League Structures 7 .Lecture 1.

The History of Sports Business Ancient Greek Athletics Cincinnati Red Stockings 8 .

Timeline: International League Examples 776BC • Athletai of Ancient Greece compete in Ancient Olympic Games until 393 AD (this was revived in 1896 as the Modern Olympics) 1883 • Home Nations (currently the RBS 6 Nations) 1888 • The Football League (currently Barclays Premier League) 1903 • Tour de France 1963 • Fußball-Bundesliga 9 .

Timeline: U. Leagues 1869 • Cincinnati Red Stockings • National Association of Professional Baseball Players 1871 1876 • National League • American League 10 1901 .S.

merger of NBL/BAA 11 .Timeline: U. Leagues 1917 • National Hockey League 1920 • National Football League • National Basketball League 1937 • 1946 .S.BAA 1949 • NBA.

Beyond Merger… .

How did they avoid this fate? .

T. Kearney 480-620 Size of industry in 2011 Annual revenue by 2015 PricewaterhouseCoopers (PwC) 145.Global Sports Business Size Source Size ($ billion) Description Sports Business Journal (SBJ) 213 + Size of industry in 2007 A.3 14 .

League (18 teams). Russian Premier League (16 teams). La Liga (20 teams). Ligue 1 (20 teams). Serie A (20 teams). Scottish Premier League (12 teams). Dutch Eredivisie (18 teams). Portuguese Liga (16 teams). Bundesliga (18 teams). K-League Classic (14 teams) Basketball: – Euroleague Basketball (16 teams) + many domestic leagues – Basketball (16 teams) + many domestic leagues 15 . J. Liga MX (18). Brasileirão Petrobras (20 teams)’ Primera Division de Argentina (20 teams).Overview of International Leagues • The following are some leagues in the international scene: Football: – English Premier League (20 teams).

R. Mexico (16 teams). 5 teams – Korean Professional Baseball (9 teams) – Plus leagues in Australia (6 teams). China (7 teams). (6 winter teams + 28 MLBaffiliated summer teams). Puerto Rico (5 teams). SA) – Indian Premier League (9 city teams) 16 . – NZ. Venezuela (8 teams) Others: – Super rugby (15 teams – 5 each from AU.Overview of International Leagues Baseball: – Nippon Professional Baseball (Japan). 12 teams • 2 minor professional leagues: Eastern. 7 teams. D. Western.

Overview of Current U.S. Status

Number of teams in ‘Big Four’ team sports: – 32 NFL, 30 NHL/MLB/NBA NASCAR, WTA, LPGA, PGA, ATP in individual sports

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Overview of Current U.S. Status
• Plus the following 62 start-up leagues and niche sports: – 22 affiliated (17) and independent (5) Baseball Minor Leagues, 237 teams – 11 Basketball Leagues, 141 teams – 9 Football Leagues, 81 teams – 6 Hockey Leagues, 121 teams – 9 Soccer Leagues, 139 teams – 3 Lacrosse Leagues, 21 teams – Team Tennis (WTT), 8 teams – Softball (NPFL),4 teams – 6 Motorsport series – 3 Volleyball leagues/tours – 3 Golf tours – Action sports tours/events, horse racing, rodeo (PBR, PRCA), fishing, billiards, bowling, boxing, MMA (UFC, Bellator)

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How to get to the next level?

Four Successful League Structures Closed Open Superleague Single-entity 20 .

Overview of Global League Structures and Revenue Sharing Information • “Closed” sports leagues as socialist cartels – Cooperation across leagues – Higher degree of socialist behavior (mainly redistribution of wealth) appears to create stronger leagues 21 .

EPL) – Teams ascend or descend league hierarchy based on performance – Facilitates competition. “promotion and relegation” model (e.Overview of Global League Structures • “Open”.g. but unlikely to be adopted in US because of $$ 22 .

“Champions League” – Highly profitable. as in Union of European Football Associations. but decidedly capitalistic (rich teams get richer) Media Break: Podcast: What if your favorite team gets relegated to the minors? 23 .Overview of Global League Structures • “Superleague” structure.

Overview of Global League Structures • “Single-entity” structure. MLS model – Control by a single operating company protects against reckless behavior especially in the startup phase – As leagues mature. they move away from this model 24 .

their structures and overall size. Next we’ll take a look at some of the major revenue sources and methods of sharing 25 . the emergence of some leagues.Recap We’ve discussed the history of the sports business industry.

Lecture 1.2 League revenues EPL & NFL Team revenues Manchester United Case 26 .

League revenues (U.S. and others) Revenue ($bn) 10 9 8 7 6 5 4 3 2 1 0 27 .

licensing and merchandising • Media (Module 3) • Stadium or Arena Revenues (Module 4) 28 .Global Leagues Revenue Sources • Ticket sales • Sponsorship.

Road-game share. 2012 Line Items Figure Revenues National Revenue (National TV revenue.9 M $42.4 M $103.7 M 29 . Other national NFL revenue) Local revenue Total revenue Expenses Player Costs Operating expenses (excl.Case: Green Bay Packers Financials.6 M $130. Play cost above) Operating profit $171.4 M $302.0 M $155.

666 30 . + Transfer costs. etc.Case: Measuring Financial Success Financial Success: Difficult to determine because of data collection and analysis The simple way to think about it is: • Revenues = Tickets Sales + Broadcast + Sponsors/ Commercial + Stadium related rev.835 1. • Expenses = Player Salaries + Operating Exp. etc.Expenses Example: European Soccer Leagues Amount (€ millions_2011) Total Revenues Total Expenses Operating Loss 13.169 14. • Profits = Revenues . + Non-operating exp.

we will analyze some of the categories we have from the Green Bay Packers in more depth from both a team and league perspective – Sponsorships – Team expenses – Revenue sharing 31 .Case: National Football League (NFL) • In order to understand the revenues and expenses of this type of business.

Cheese Hot Cereal Chocolate & Non-chocolate Confectionery Salted Snack/Popcorn/Peanuts/Dips SINCE '83 '02 '11 '10 '98 '03 '12 '02 '00 32 .NFL League Sponsorships. Quaker Mars Snackfood Frito-Lay CATEGORY Isotonic Beverage Soft Drink Official Beer Official Pizza Soup Dairy. Yogurt. Milk. 2012 SPONSOR Gatorade Pepsi Anheuser-Busch Papa John’s Campbell’s Soup Dairy Management Inc.

NFL League Sponsorships. 2012 33 .

Team Structure • Let’s take a step back to the team level: – How do teams generate revenues? – Where do teams spend? – What makes some teams in some leagues “successful” and others not? 34 .

Expenses and Success? -Licensing -Player salaries & development -Championships -Sponsorship/Advertising -Concessions/Parking -Ticket sales National vs.Team Revenues. local -Merchandising -Revenue sharing model -Staff compensation -Team and game related -General and Admin -Marketing -Facility -Debt Service -Revenues -Fan base -Player commitment -Brand Equity: Longstanding culture 35 .

satellite. Draft.g. broadcast) Digital Media (e. Superbowl) Events (e.g.com) Media • • • • • • • Consumer products/ licensing Sponsorship International Postseason gate Hospitality (e.g.Revenue Sources? • • • • • • • • • • • • • Luxury suites & Club seats Advertising Sponsorships Naming rights Stadium club Other game/ non-game related Local TV and radio Gate Club seats Concessions Novelties and programs Parking Merchandise Corporations • • • • • Broadcast/ cable television Satellite television “League” Network Radio (e. “League”.g. Kickoff) Youth Individual Other Local National 36 ..

The World’s 5 Most Valuable Sports Teams? Team Manchester United Real Madrid Value ($ billion) 2.56 Steinbrenner family Jerry Jones Daniel Snyder Forbes 2012 Estimates Relevant news article – Forbes The World’s 50 Most Valuable Sports Teams 37 .23 1.85 1.88 Owner Glazer family Club Members New York Yankees Dallas Cowboys Washington Redskins 1.85 1.

0 M $155.4 M $103. Other national NFL revenue) Local revenue Total revenue Expenses Player Costs Operating expenses (excl. Road-game share.Case: Green Bay Packers Financials.6 M $130.4 M $302.9 M $42.7 M 38 . Play cost above) Operating profit $171. 2012 Line Items Figure Revenues National Revenue (National TV revenue.

2010-11 NHL (2010-11) NBA (2010-11) MLB (2010) NFL (2010) 0 50 100 150 200 250 300 Revenue ($ million) Source: Forbes Estimate 39 .Average Team Revenues.

91 47.36 MLB 2011 NBA 2010-2011 NHL 2011-2012 26.Ticket prices compared: U.$) NYJ-121 Lowest ranked (Team abbreviation .$) CLE-54 NFL 2011 77.S.10 BoSox-53 LAL-95 TOR-124 PIT-15 MEM-23 DAL-30 40 .66 57. Leagues League Average Ticket Price ($) Highest ranked (Team abbreviation .

expenses. . and various measures of success. Next we will focus on revenue sharing.Recap We discussed revenue sources.

What is Revenue Sharing? Best overall example is “League Think”…we all do better together as opposed to separately.if it exists at all… 42 . But how this is executed varies across leagues….

Larger allocation to teams with high revenues or most wins o EPL allocates national television revenues via a formula that better-performing team on the field receive the highest allocations. Equal allocation to all teams in league 3. which increases the absolute revenue differences between clubs . Larger allocations to teams with low local revenue generating capability o MLB 2.Central Issues in Revenue Sharing • Revenue pool composition – Central revenues (paid directly to league) – Local revenue pools (paid directly to clubs) • Alternative allocation rules used to distribute shared revenues 1.

(and formerly the NHL) determine the league revenue sharing policy unilaterally MLB and NHL owners must collectively bargain with the player union over the terms of their revenue sharing All leagues equally divide national media and licensing revenues Gate receipts: – NFL: 66% home team/34% visiting teams – NBA: 94% home team/6% league – NHL: 100% home team (however. top revenue clubs and playoff gate taxed) – MLB: Share 34% of net local revenues (not just gate…after deducting out ballpark related expenses) . NFL.How is it practiced? • • • • Owners in the NBA.

) are generally not shared on a line-item basis in the NBA. naming rights. local advertising and sponsorship/signage revenues. etc.Other Local Revenues? • Other local revenues (luxury box premiums. NFL. local media contracts. or NHL. MLB same 34% local calculation noted • .

When new revenues emerge… • • NBA Jersey sponsorships? Revenue division? Likely to be collectively bargained by the business – Would be added to basketball-related income 50% of which NBA players would receive as their salaries .

Jones entered into local contracts with Pepsi and Nike. despite the League’s deals with competing companies – The NFL sued Jones for $300 million – Jones countersued for $700 million. allowing Jones and other owners to pursue local sponsorship deals – For example. Coors and Pepsi are the “official” beer and soft drink of the NFL. the NFL • In ‘95.Case: Jerry Jones vs. claiming the NFL prevented teams from marketing themselves Jones and the NFL settled. but individual teams may have deals with Budweiser and Coke • .

Goal: Competitive Balance • • More in Module 5 Player allocation – draft – free agency • Spending limits – Salary caps – “Luxury” taxes – Financial Fair Play .

Comparison: Team focus in the EPL • • Let’s focus on the principal revenues of a top team in the English Premier League (EPL) Manchester United Sponsor Deals 49 .

Case: Manchester United 50 .

Manchester United Sponsor Deals 51 .

2012-13 Sponsor Nike Category Kit supplier Annual Value (million) $40 Aon Shirt sponsor $31 $18.4 52 .4 PCCW Turkish Airlines Integrated telecomm.Man. Utd.2014 Auto DHL Hublot Bwin Singha Logistics Timekeeper Online game and betting Beer Casillero Del Diablo Thomas Cook Smirnoff T oshiba Medical Systems STC Wine Travel Responsible drinking partner Medical Integrated telecomm.8 $3 Chevrolet * to be shirt sponsor.4 $2. (Saudi Arabia) $3 $2 $2.7 $6 $3.4 $2. Commercial Revenue. (Hong Kong) Airline $2.4 $2.9 ($69 in 2014) $15.

Sri Lanka.4 53 . (Kuwait) Integrated telecomm. Airtel Zong Globul Mamee (India. (Pakistan) Integrated telecomm.Man.4 $2. Botswana) Annual Value (million) $2.4 $2. Oceania.4 $2.4 $2. Middle East regions) $2. Ghana. Bangladesh) Integrated telecomm.4 $2. Utd. Rwanda. (Bahrain) Integrated telecomm. (Nigeria. Uganda. Swaziland. Commercial Revenue. (South Africa. (Malaysia) Integrated telecomm.4 Integrated telecomm. Zambia. (Turnkey) (Turkey) $2. Benin) Integrated telecomm.4 $2. (Bulgaria) Noodles (Asia.4 $2.4 $2.4 $2.4 Viva Turk Telekom Integrated telecomm.4 $2. 2012-13 Sponsor Epson Mister Potato Yanmar TM Globacom Viva Kuwait MTN Category Office equipment Savory snack Global Integrated telecomm. Seychelles.

15 billion: purchase price $3.09 billion: market cap • • • Purchased by group of investors led by Magic Johnson under Guggenheim Baseball Management Potential Regional Sports Network like Yankees (YES Network) Real Estate development • • Glazer family took company private in 2005 with an LBO of $1.47 billion but now done an IPO on NYSE Raised $100 million which is small compared to the likes of Facebook which raised $16 billion on its IPO Media Break: News Article – Manchester Utd IPO – Dodgers Acquisition: Magic Johnson and Stan Kasten (CEO Guggenheim) speak at Dodgers Stadium 54 .Case: Valuation? Los Angeles Dodgers and Manchester United $2.

had our initial focus on how revenues are shared drawing examples from the U. and Europe 55 .S.Recap We’ve analyzed the revenue sources of leagues and teams.

R.For more information… A few interesting documents*: – Bundesliga Report 2013 • Financial analysis of the league and its successes – PwC: Changing the game. Outlook for the global sports market to 2015 – Brand Finance: The world’s most valuable football brands 2013 – W. Hambrecht & Co Professional Sports Market and Franchise Value report * Reports available in PDF form on the course site .

For more information… Relevant news articles – Premier League finances: the full club-by-club breakdown and verdict – 'The lowest of lows': Wigan's relegation after years of escapes "heartbreaking" says boss Martinez .

For more information… Relevant video clips – Top 20 Richest Football Clubs in Europe – Forbes The World’s 50 Most Valuable Sports Teams – NFL and the Superbowl Revenues – Manchester Utd IPO – Dodgers Acquisition: Magic Johnson and Stan Kasten (CEO Guggenheim) speak at Dodgers Stadium – Inside Sports TV Deals and overall revenues for 2012 forecasts .

For more information… Textbook Reading (recommended) The Business of Sports Chapters 2. 3 and 6 .

Next Module Continue our examination of teams and leagues focusing on global popularity and presence (as opposed to revenues). leadership and ownership. 60 . Also continuing the bigger question regarding achieving success globally.