INDUSTRIAL ORGANIZATION OF SPORTS Profits and Leagues Profits and Values Revenue Sharing TV and Luxury Boxes Tax Tricks and Fish Stories 2013 FRANCHISE VALUES team value M team value M Real Madrid 3 300 Philadelphia Eagles 1 314 Manchester United 3 165 Boston Red Sox 1 312 Barcelona 2 600 Bayern Munich 1 309 Dallas Cowboys 2 300 Chicago Bears 1 252 New York Yankees 2 300 Baltimore Ravens 1 227 New England Patriots 1 800 San Francisco 49ers 1 224 Washington Redskins 1 700 Indianapolis Colts 1 200 Los Angeles Dodgers 1 615 Green Bay Packers 1 183 New York Giants 1 550 Denver Broncos 1 161 Houston Texans 1 450 Pittsburgh Steelers 1 118 New York Jets 1 380 New York Knicks 1 100 Arsenal 1 326 Seattle Seahawks 1 081 BASIC QUESTIONS Why is NFL most profitable sport Almost every team profitable except Lions Profits and market values greatest What happened to baseball In 1991 the top five were baseball teams And how about basketball and hockey In 1991 the Lakers were 6th 20 lowest values are hockey St Louis Blues PROFITS A TOUCHY SUBJECT We don t want teams to worry about Do sports business goals differ from other businesses Bad things can happen if teams forget bottom line Case in point Ottawa Senators best record in NHL 2002 2003 declared bankruptcy 2003 TIMES HAVE CHANGED 1991 team New York Yankees Los Angeles Dodgers New York Mets Boston Red Sox Toronto Blue Jays Los Angeles Lakers Miami Dolphins New York Giants Dallas Cowboys Philadelphia Eagles Baltimore Orioles Chicago White Sox value M 200 180 170 160 160 155 150 150 146 146 140 140 team Chicago Bears San Francisco 49ers Chicago Cubs St Louis Cardinals Detroit Pistons Seattle Seahawks Houston Oilers Los Angeles Raiders Los Angeles Rams Buffalo Bills Cleveland Browns Kansas City Chiefs value M 139 134 132 132 132 130 128 128 126 125 125 123 ARE LEAGUES SYNONYMOUS WITH TEAM SPORTS Why do leagues exist Wasn t always so 7 year gap in baseball 1869 1876 another 20 to stabilize 44 year gap in football 1876 1920 another 15 to stabilize Alternative Barnstorming Uncertain payoff Dependent on winning LEAGUES AND THE ECONOMICS OF CLUBS What is right size of league New members a new source of revenue Entry fees 50M fee put Ottawa in debt from outset Access to new markets May also be a drain Must divvy up revenue sharing among more members Consequences for competitive balance GATE REVENUE ORIGINAL SOURCE Revenue from ticket sales NFL shares the most Home team keeps 60 40 divided league wide Motivated by early weakness of NFL Pete Roselle boy commissioner 1960 89 Reason why profits close and competition balanced Baseball started sharing in 2003 34 of gate Roughly triple what used to share NBA NHL share nothing Making playoffs vital source of revenue Ottawa s early exit 2003 hurt NFL EQUALITY Revenue shared equally True for all sports but the NFL pot is larger KC small market for MLB but not NFL Green Bay should have disappeared long ago Ottawa Senators faced double whammy Small TV contract for NHL Small local media market GETTING IT RIGHT CAN BE HARD NL only league in early 1890s Owners saw problems from too many teams Uncompetitive and unprofitable franchises a drain Zero sum rule add a city delete another 1890s cities growing rapidly More cities able to support teams NL vulnerable to entry In 1901 AL entered open cities Rival leagues usually reduce profits NFL vs AFL vs WFL vs XFL vs UFL TELEVISION TODAY S KEY TO SUCCESS Became dominant revenue source in 1960s Reason why football surpassed baseball Needed antitrust exemption American Needle case 2010 Sunday doubleheader makes a national game Has 8 year 46 2 billion contract 184 M annually per team Without TV NFL s revenues comparable to NHL Baseball Lagged Behind Reluctant to put on TV at all or even radio Favored local coverage over national WHY ARE COWBOYS SO VALUABLE Most valuable franchise But smaller media market than Houston Houston couldn t keep the Oilers Shares bulk of media revenues But gate revenue not huge Old Texas Stadium was not huge 66 000 New stadium holds 80 000 Still shares 40 of home revenue LUXURY BOXES Texas Stadium refurbished in 1989 370 luxury suites 1 5 times next highest Venue revenues 6 times league average How many in the new stadium Big revenue Rent for 10s or 100s of thousands per game Don t have to share box revenue Count only admission in revenue sharing Does not count against salary caps Players want to see box revenue counted BOXES BEHIND TEAM MOVES One reason for moves in NFL New stadiums all have more boxes than older Many from larger to smaller city Houston to Nashville NFL no longer has team in LA More boxes in St Louis Large team benefits Bad for league NFL 2011 Collective Bargaining Agreement posted NAMING RIGHTS Cowboy naming rights to AT T 18M year Reliant pays Houston 300M over 30 years Reliant Park includes Astrodome arena stadium and convention center Leeds favorite owner Planted Wrigley Field ivy Innovative marketer Eddie Gaedel Exploding scoreboards Moral figure Is it worth it what do Wachovia Enron United and Delta Airlines have in common warning to Rio Tinto BILL VEECK and Energy Solutions integrated AL testified for Curt Flood Saw unique loophole in tax laws Xango on the Real Salt Lake jersey VEECK S LOOPHOLE In 1993 a group of investors bought San Antonio Spurs for 75M claimed players worth 50 maximum 37 5M Depreciate players value over 3 5 years Straight line depreciation deduct 10 7 annually For example turns 0 7M real profit into 10M tax loss USING TAX LOSSES Sports teams can be established as a Subchapter S corporations Then owners declare team income loss as personal income can write off 10M against other income for an owner in 39 6 tax bracket this reduces taxes by 4M A MIAMI FISH STORY WAYNE S WORLD by Andrew Zimbalist Wayne Huizenga owned Marlins and Blockbuster Video and Dolphins bought Marlins in 1993 valued at 81M in 1994 Beat the Indians in the 97 World Series 7 games Don t believe this 29M loss according to Zimbalist Huizenga claimed that the Marlins lost money Actually a 14M profit Justified 1998 fire sale of players payroll down to 11M in 1998 2007 MLB SALARY DISTRIBUTIONS MILLIONS OF HIDDEN AGENDA Florida Marlins TV and stadium numbers can t be right 30 vertical integration muddies accounting Huizenga owned Sportschannel Florida and Pro Player Stadium 25 Theoretically value depends on expected future profits PDV 20 t 1 r 15 t 10 Sold for 150M in 1998 5 increased to 520M by 2012 Forbes THE END riz on aD ia Le m a A on gu Ba