Professional
Sport
Chapter 10
Introduction
• Professional sports are events and exhibitions where
athletes compete individually or on teams and
perform for pay.
• Major international business gross billions of dollars
each year through media rights, gate receipts, luxury
seating, sponsorship, and properties.
• Drafting more international players, the sale of
licensed merchandise, and providing online services
has catapulted professional sports leagues into new
markets.
Introduction (cont.)
• Five major North American men’s leagues: MLB,
NFL, NHL, NBA, and MLS
– 141 teams at the major league level
• New leagues formed each year; some survive
– WNBA, WPS, NLL, etc.
• North American minor league teams in baseball,
basketball, hockey, arena football, women’s
football, tennis, soccer, indoor and outdoor lacrosse
too numerous to list
Introduction (cont.)
• Numerous professional leagues also operate
throughout South America, Europe, the Middle East,
Asia, Australia, and Africa.
• Athletes in professional leagues are salaried
employees whose bargaining power and ability to
negotiate salaries vary (MLB vs MiLB).
• Professional sports events are also staged around the
world in individual sports, including tours and
exhibitions. Media companies often create events for
their athletes and clients.
History
• 1869: First professional team, the Cincinnati Red
Stockings
• 1876: North America’s first professional sport
league, the National League, emerged
– Included bylaws for limits on franchise
movement, club territorial rights, and mechanism
for expulsion of a club
• Self Governance vs corporate governance models:
– Owners act as the board of directors, and the
commissioner acts as the chief executive officer
League Structure
• Leagues are structured as an umbrella organization
for franchises to cooperate in business while
competing on playing field.
– League also handles rule making and rule
enforcement.
• Trend for emerging leagues to be established as
single entities to avoid antitrust liability and to
create centralized fiscal control (e.g., MLS,
WNBA).
– MLS challenged in court
– WNBA moved to standard league structure
Franchise Ownership
• Initially sport team ownership was a hobby for the
wealthy.
– Teams operated as “Mom and Pop” businesses.
• Focus of owners today is on running team like a
business rather than a hobby.
• Most ownership groups today are diversified
because of the costs of purchasing and operating a
team.
– Exception is the NFL:
• Family or individual ownership is still the norm
because of enhanced degree of revenue sharing.
Franchise Ownership Issues
• Owners trying to recoup initial investment in club
and make more money on their franchises
– A growing trend is for owners to challenge league
control over shared revenue streams.
• Some owners clamoring for local control over
marketing revenues using logos, trademarks, and
sponsorships
– Examples: Dallas Cowboys and NY Yankees
• Or working to maximize revenues
– Examples: Boston Red Sox and Fenway Sports
Group
Ownership Rules
• Permission to own sports franchise granted by
ownership committee of league
• League imposes restrictions on ownership, including
limit on number of franchise rights granted (number
of teams) and restrictions on franchise location
• Leagues may also impose eligibility restrictions for
franchise ownership.
– NFL bans corporate and public ownership.
• Franchise and territorial rights are granted with
ownership.
• Issue of cross-ownership
The Commissioner
• 1920: First commissioner of a pro sport league
– MLB’s Judge Kennesaw Mountain Landis
• League constitution and bylaws set forth
commissioner’s powers
– Granted authority to investigate and impose
penalties when individuals are suspected of acting
against the best interests of the game
• Players’ associations have used collective
bargaining to limit commissioner’s powers.
– Owners have also challenged commissioner in
court, but rulings usually upheld
The “Powers” of the Commissioner
•
•
•
•
Approval of player contracts
Resolution of disputes between players and clubs
Resolution of disputes between clubs
Resolution of disputes between player or club and
the league
• Disciplinary matters involving owners, clubs,
players, and other personnel
• Rule-making authority
(Yasser et al., 2003, p. 381)
Labor Relations
• 1885: John Montgomery Ward (a lawyer and HOF
infielder/pitcher) established first players’
association to:
– Fight reserve system, salary caps, and practice of
selling players without the players’ receiving a
share of profits
– Negotiate wages-benefits-rights with owners
• When his plan did not work, about 200 players
organized a revolt that led to the organization of the
Players League; folded after first year
Labor Relations (cont.)
• 1952: MLBPA formed
– Dominated by management
– Negotiations limited to pensions and insurance
• 1966: Marvin Miller organized players as true labor
union by convincing all players that each of them
was essential to game revenues.
– Convinced players to fund players’ association by
giving their group licensing rights to the union
from which the union would operate and give
remaining funds back to players in pro-rata shares
Labor Relations (cont.)
• 1957: NHL players tried to unionize.
– NHL owners humiliated, threatened, traded,
and/or released players for involvement in players
organizing efforts.
• Labor relations did not play major role in
professional sports until the late 1960s, when
growing fan interest and increased TV and
sponsorship revenues transformed leagues.
• Once players unionize, collective bargaining must
occur before league management can change hours,
wages, or terms and conditions of employment.
Labor Relations (cont.)
• With a players union in place, a league can negotiate
acceptance for restrictive practices with players’
association.
– Practices that on their own might violate antitrust
laws
• When the collective bargaining process reaches an
impasse (a breakdown in negotiations), the players
can go on strike or owners can “lock out” players.
• Strikes and lockouts are far more disruptive in
professional sports than in other industries because
of the lack of replacement players (employees).
• Leagues encourage unions because labor
exemptions can be used to implement restrictive
policies.
Individual Professional Sports:
PGA as Case Study
• 1916: Birth of PGA
– Objectives are to grow golf interest, elevate
standards of golf professionals, establish a relief
fund, and hold meetings and tournaments
• 1960s: Many factors created growing tension
between the PGA tournament professionals and the
local country club professionals, and conflicts arose.
– 1968: PGA tournament players broke away from
the larger membership to form a Tournament
Players Division (1975: renamed PGA Tour)
Individual Professional Sports:
PGA as Case Study (cont.)
• Tours in the individual sports have their own
qualification rules and regulations.
• For six decades, players had to qualify annually for
the PGA Tour through a grueling qualifying
tournament known as Q-School, unless they earned
an exemption by winning a tournament or one of the
four majors.
• Current players must qualify annually for the PGA
Tour based on their prior year’s performance on the
Tour or by moving up through the ranks on the
Web.com Tour.
Key Concepts: League Revenues
• League revenues derive from:
– National TV and radio contracts
– League wide licensing
– League wide sponsorship programs
• Local revenues kept by local teams:
– Local broadcasting-media contracts
– Gate receipts
– Preferred seating sales
– Other forms of stadium revenues
– Creates competitive balance
Key Concepts: Franchise Values
and Revenue Generation
• Owners diversify investments to protect against risk
that a franchise will lose a great deal of money.
• Currently, franchise values for major league clubs
are in the hundreds of millions of dollars, with the
most lucrative reaching into the billions.
• Franchise free agency—’stadium games’:
– Team owners threaten to move teams if their
demands for new stadiums, renovations to
existing stadiums, or better lease agreements are
not met.
Key Concepts: Franchise Values
and Revenue Generation (cont.)
• Example of revenue generation: Boston Red Sox,
who are maximizing revenue potential in every inch
of Fenway Park (plus Fenway Sports Group)
• Large vs. small-market dichotomy created by the
disparity in local broadcast revenues in MLB
– Forcing some teams (Oakland A’s) to focus on
efficiency and use a system that uses less
common statistics, wise drafting, and drafting of
players who are “signable”
• Labor stability = Cost stability (NFL is example)
– Challenge: Long-term CBA creates stability
Key Concepts: Legal Issues
Contract Law
• All players sign a standard player contract particular
to each league.
• Commissioner of league can refuse to approve
player’s contract if he or she believes it violates
league rule or policy.
• Disputes may occur over which team retains rights
to a particular player, and such disputes may lead to
legal battles between teams and players of different
countries.
Key Concepts: Legal Issues
Antitrust Law
• All professional sport leagues adopt restrictive
practices (drafts, reserve systems, salary caps, free
agent restrictions, and free agent compensation) to
provide financial stability and competitive balance
between their teams.
– Restrictive practices may depress salaries or keep
competitor leagues from signing marquee players.
• Such practices are often challenged under antitrust
law as anticompetitive.
– Argument is that such practices restrain trade or
monopolize the market for professional team
sports.
Key Concepts: Race and Gender in
Professional Sports
• Shropshire (1996) stresses pointedly that integration
of more diverse employees into management
positions will not happen without a concerted effort
by owners, commissioners, and those in positions of
power.
• Representation of minorities in sport management
should match representation on the field.
• All leagues have shown improvements in terms of
hiring women and people of color.
Key Concepts: Race and Gender in
Professional Sports (cont.)
• 2003: NBA, NHL, and MLB had improvements in
the race categories.
– NBA: First African American majority owner was
Bob Johnson (Charlotte Bobcats)
– MLB: First minority owner was Mexican
American Arte Moreno (Anaheim Angels)
• Change needs to come from those in position of
power and through new policies.
• Case Study: NFL’s Rooney Rule
Key Concepts: Race and Gender in
Professional Sports (cont.)
Key Concepts: Race and Gender in
Professional Sports (cont.)
Career Opportunities: League Office
• Commissioner: Wide variety of skills and
experience needed to be successful in this high
profile management position
• Other League Office Personnel:
– Hundreds of employees in a range of functional
areas
– Necessary skills: Vary with position, yet a few
universal skills include working knowledge of
given sport, teams, and industry; good customer
relation skills; willingness to work long hours
Career Opportunities: League Office (cont.)
Career Opportunities: League Office (cont.)
Career Opportunities: League Office (cont.)
Career Opportunities: Team Front Office
• General Manager:
– In charge of all player personnel decisions
– Traditionally former player or coach, but as
position has become more complex, individuals
with graduate degrees have become desirable
• Other Team Front Office Personnel:
– Number of positions and specialization of jobs
has increased greatly.
– Entry level tends to be in sales, marketing,
community relations, and media/public relations
with low starting salaries.
Career Opportunities: Tour Personnel
• As with league sports, positions range from
commissioner to marketer to special events
coordinator.
– Tours such as PGA and ATP employ many sport
managers.
• Much of event management work for site operations
of tour events; however, it is often left to outside
sport agency.
Career Opportunities: Agents
• Almost all team and individual athletes in
professional sports have agents representing them
and coordinating business and financial affairs.
• A growing number of coaches rely on sports agents.
• A range of opportunities is available in sport
agencies in marketing, management, finance,
accounting, operations, and so on. (See Chapter 11.)
Current Issues: Salary Caps
• Intended to create parity among teams by capping
how much a team can spend on its players’ salaries
• Used in the AFL, NBA, NFL, NHL, MLS, WNBA,
ECHL, and NLL
• Owners must negotiate with the players to have a
salary cap, and the union will inevitably negotiate
for some exceptions to the salary cap.
– Exceptions have created loopholes for creative
general managers and agents representing players
(exceptions for signing bonuses, veterans, etc.).
Current Issues: Salary Caps (cont.)
• Caps force teams to cut established players or
renegotiate their contracts to make room under the
cap to sign another player.
• Caps can also require teams to have spending
minimums, so low-revenue teams are prevented
from cutting their payrolls to stay competitive.
Current Issues: Globalization
• All major leagues are drafting and signing players from
other nations and moving into those countries with
marketing efforts.
• MLB has an office in Tokyo to oversee its efforts in Japan,
Taiwan, and China, plus the league has been playing one
game to open the season in Japan for the past few years.
• The NFL no longer operates NFL Europe, but has begun
playing a marquee regular season game in Europe.
• The NBA has expanded throughout the globe with probably
the most international movement of all the North American
leagues (e.g., NBA China and NBA India).
Current Issues: Concussion Litigation
• Retired NFL and the NHL players have filed suit against the
leagues.
• The retired players and their families allege that they have
developed chronic traumatic encephalopathy (CTE) and
other brain diseases, such as Alzheimer’s, due to head
trauma they received while playing professional football
and ice hockey.
• The NFL has proposed a settlement with the 4,500 plaintiffs
in the amount of $765 million, but the judge has denied the
initial proposal, as it might not be sufficient to cover
medical costs of plaintiffs.
Current Issues: Drug Testing and HGH
• Human growth hormone (HGH) testing in
professional sport has become a significant issue.
• The four major leagues have adopted drug testing
policies and have adopted the penalties noted in
Table 10-5.
• The question will be how the leagues manage HGH,
which has still to be addressed.
• Case Study: MLB and Alex Rodriguez
Summary
• The professional sport industry involves the sale of
the entertainment value of sport events and
exhibitions.
• Revenue is generated primarily through media rights
fees, licensed product sales, gate receipts, and
stadium revenues.
• The professional sport industry is entering an
exciting period. Innovations in technology are
making professional sport more global, particularly
as leagues look for unsaturated markets and new
revenue streams.