Scott R. Rosner - The business of sports

The Business of Sports

Second Edition

Edited by

Scott R. Rosner

Practice Assistant Professor, Legal Studies and Business Ethics Department

Associate Director, Wharton Sports Business Initiative

University of Pennsylvania

Kenneth L. Shropshire

David W. Hauck Professor at the Wharton School

Director, Wharton Sports Business Initiative

University of Pennsylvania

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Library of Congress Cataloging-in-Publication Data

The business of sports / editors, Scott R. Rosner, Kenneth L. Shropshire. 2nd ed.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-0-7637-8078-4 (pbk.)

ISBN-10: 0-7637-8078-2 (pbk.)

1. Sports administrationUnited States. 2. Professional sportsUnited StatesManagement. I. Rosner, Scott. II. Shropshire, Kenneth L. III. Business of sports.

GV713.B87 2010

796.0691dc22

2010024220

6048

Printed in the United States of America

14 13 12 11 10 10 9 8 7 6 5 4 3 2 1

Preface

Within the framework of what youve been taught, this business makes no sense.

Wendy Lewis, Vice President, Strategic Planning, Recruitment and Diversity, Major League Baseball, at MBA Media and Entertainment Conference, Stern School of Business, New York University, February 21, 2003

THE BUSINESS OF SPORTS: THE FOUNDATIONS OF A UNIQUE INDUSTRY

Honda and Toyota operate under a general business model of selling as many vehicles as possible with the greatest profit margin possible. In the end, Honda and Toyota are competitors that want to sell product. There is no interest, and it is in fact illegal, to cooperate in a manner that allows both companies to be more profitable. Any traditional business could be used to illustrate the contrast that is important here. Yet, as the epigraph notes, the sports business has been different from the beginning.

In almost every sports venture, the competitors must cooperate for the venture to be profitable. In the nascent stages of team sports, the hat was passed among the spectators at local playing fields. A percentage of the take was distributed among the still sweat-drenched and muddy players from the two squads, and the man (it was almost always a man) who organized the outing took a higher percentage. It was in everyones interest to have a bigger pie to split, but, even if they cooperated to make attendance as high as possible, they still competed vigorously to be the sole winner on the field. Following the competition, all went back to their jobs during the week. This competitivecooperative model is now the standard in the National Football League (NFL), Major League Baseball (MLB), the National Basketball Association (NBA), the National Hockey League (NHL), and other sports leagues and professional sports ventures around the world.

Other visionaries saw ways to exploit athletes labeled amateurs by putting together athletic spectacles and reaping the profits. The cash was kept away from those amateurs. The value and need for amateurism was embellished by Greek mythology and class-centered Victorian logic. These amateurism concepts would eventually evolve into the National Collegiate Athletic Association (NCAA) and the Olympic Games. The modern Olympiad was founded by Baron Pierre de Coubertin in 1896, and almost a decade later the NCAA was founded by a group of college presidents convened by then-U.S. President Theodore Roosevelt. The application of the amateur ideal took hold, and student-run sports were taken over by universities, and so, too, were the revenues. From the labor standpoint, a large segment of the sports industry has found a way, unlike the automobile and other industries, to avoid paying for labor.

But winning at any cost is not allowed at any level, at least when the cost is something other than money. Every modern sports business has a set of defined rules and regulations that may even, in many instances, be grounded in law. For example, even if it could be argued that steroids and dietary supplements can make athletes better players, most sports business enterprises have banned their use.

Profit at any cost is similarly problematic. At various times studies have shown that, at the margin, an additional white player on a squad will bring in more fans than an additional black player. Most sports businesses will go for the win rather than the racial slight.

As these ventures grew, new players became part of the industry: radio, television, commercial endorsers, licensees, and sponsors. Lawyers and agents came into the picture to pull these deals together. The business went beyond just what happened during the competition. The business model was expanding. The primary revenue source was no longer limited to just the fans who could put money in the hat or, later, the fans who bought tickets.

By the time sport began to be referred to as a business, it was also clearly entertainment; as such, different rules of business and law applied. Not all parties were able to move away from the concept of these businesses being little more than glorified games. The conflict about whether the business of sports should be treated differently continues today.

The stadiums and arenas where teams played or wanted to play became big parts of the business, too. Interestingly, public money has been used to build many of these facilities. Most companies can only dream of the type of aid that sports franchises receive from the public coffers.