The Business of Sports:
Where’s the Money?
Dr Justin Wolfers
Assistant Professor of Economics
www.stanford.edu/people/jwolfers
jwolfers@stanford.edu
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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Why the Business of Sports?
For all his brilliance, we’re going to have to replace Trewell. He
never quite seems able to reduce his ideas to football analogies.
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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Output measured in billions of $US pe
Gross Domestic Sports Product
Output by Industry
$1,000
$500
GDP: Top 25 Industries
$750
The Sports industry is the 11th
largest, reflecting around $152
billion of output, or just over
2% of GDP
$250
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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Decomposing the Sports Industry
Entertainment
30%
Products &
Services
65%
Advertising
revenues
5%
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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Decomposing the Sports Industry
Sports medicine
13%
Participation
fees
22%
Admissions
4%
Pari-mutuel
2%
Concessions
2%
Sports
equipment and
footwear
50%
Advertising
5%
Publications
2%
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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Decomposing the Sports Industry
Participation
84%
Sports Fans
16%
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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The Business of Pro Sports
Big Four Sports: Valuing the Leagues
(Approximate Values; $Million)
$18,000
$13,500
$9,000
$4,500
$0
Football
(NFL)
Baseball
(MLB)
Basketball Hockey (NHL)
(NBA)
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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Attendance
Big Four Sports: Annual Attendance
(Total bums-on-seats; 2001)
80,000,000
60,000,000
40,000,000
20,000,000
0
Football
(NFL)
Baseball
(MLB)
Basketball
(NBA)
Hockey
(NHL)
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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TV Deals
‹ NFL:
Deals with Fox, CBS, ABC, ESPN
worth $17.6 billion; with DirecTV worth $2
billion
‹ MLB: $2.5 billion contract with Fox; with
ESPN worth $800 million
‹ NBA: $4.6 billion with AOL Time Warner
and Disney
‹ NHL: $600 million with ABC/ESPN
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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Economic Structure of Pro Sports
MLB
NFL
NBA
NHL
Gate Receipts
39%
29%
41%
60%
Media Rights
38%
55%
37%
15%
Venue revenues
19%
10%
13%
19%
Miscellaneous
4%
6%
9%
6%
60%
73%
58%
56%
Revenues
Expenses
Player salaries
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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Participation
inSports:
Big 42001
Sports
Participation in
Millions of Participants
30
20
10
0
Football
(inc. Touch)
Baseball/Softball
Basketball
Hockey
(Ice/Roller)
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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Gym
Hiking
Walking
Cycling
Golf
Swimming
Skating
Shooting
Fishing
Aerobics
Bowling
Boating
Billiards/Pool
Skiing
Basketball
Baseball/soft
Jogging
Football
Darts
Soccer
Volleyball
Tennis
Self-defense
Riding
Horseshoes
Table Tennis
Scuba
Badminton
Gymnastics
Hockey
Wrestling
Cheerleadin
Racquetball
Handball
Millions of Participants
Participation
in Sports
Participation in Sports:
2001
100
80
60
40
20
0
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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The Future: Women in Sports
‹
In 1972 Congress passed Title IX of the Educational
Ammendments Act
– Schools required to provide equal access to sports for women as for men
– Currently under review by the Bush administration
– In 1972, 1-in-27 girls played sports; today 2 in 5.
‹
Consider the Title IX generation:
–
–
–
–
World Cup soccer champions (Mia Hamm)
WNBA has become a viable commercial league
Fledgling WUSA soccer league shows early success
Olympic gold medallists: Since 1984 US women have won 301 gold
medals (of a total of 1285 female golds = 25%)
– 80% of female CEO’s of Fortune 500 companies have sports
backgrounds
‹
‹
Women’s apparel and athletic gear market yields revenues in
excess of $20 billion
Did you know? Women purchased 46% of official NFL
merchandise last year
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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High School Sports
5,000,000
High School Sports Participants
3,000,000
2,000,000
1,000,000
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
2001-02
1999-00
1997-98
1995-96
1993-94
1991-92
Year
1989-90
1987-88
1985-86
1983-84
1981-82
1979-80
1977-78
1973-74
0
1971
Number of competi
4,000,000
14
Soccer: “The Big Five?
S po rts Partic ipatio n by Ag e
40,000,000
35,000,000
30,000,000
25,000,000
Ba s ke tba ll
S occe r
20,000,000
Footba ll
15,000,000
Ba s e ba ll
10,000,000
5,000,000
0
Tota l
Unde r 18
Unde r 12
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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Conclusions
‹ The
sports industry is large
‹ It is growing
‹ While professional sports are only a segment of the
sports industry, the Big Four sports realize massive
revenues and huge mindshare
‹ The future:
– Participation numbers suggest that the mindshare of the
Big Four may decline
– Soccer may be the sleeping giant
– Massive transformations as women become more
important consumers of sports
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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Some Issues in Sports Economics
‹
Peculiar structure: Sports teams do well if their opponents do
well (“competitive balance”)
– Parity issues, revenue sharing, salary caps, luxury tax
‹
Labor relations: One of the most highly unionized industries in
the US
– Labor agreements, strikes, role of agents, arbitration
‹
‹
‹
Competitive threats: Rival leagues, rival sports, rival
entertainment (and antitrust)
Market size: Small market and big market; national market and
international
Politically salient industry
– Stadium agreements and public financing
‹
Competing objectives: Profit, public interest, owner’s whims
– How to define success; building a successful organization
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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Scorecard: The Health of Pro Sports
Force Shaping the Future
NFL
NHL
NBA MLB
Market Growth
Labor Relations
TV and Media
League Leadership
Ownership Stability
Other?
Recommendation:
Buy/Sell/Hold???
The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB
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