The Business of Sports

Off the Field, in the Office, on the News

Mark Conrad

• Editorial: Routledge
• Año: 2017
• ISBN:
  9781317430520
• Edición: 3
• Categoría: Langues et linguistique
• Categoría: Études sur la communication

The Business of Sports provides a comprehensive foundation of the economic, organizational, legal and political components of the sports industry. Geared for journalism, communication and business students, but also an excellent resource for those working in sports, this text introduces readers to the ever-increasing complexity of an industry that is in constant flux. Now in its third edition, the volume continues to offer a wealth of statistics and case studies, up to date with the newest developments in sports business and focused on cutting-edge issues and topics, including the many changes in international sports and the role of analytics in decision-making and tax rules that have a major effect on athletes and teams.

1
The Structure of Professional Team Sports

Professional sports governance in the United States is based on a closed, but united, system of independently owned franchises that operates as cooperative venture which displays the characteristics of an economic cartel. Created in the early and middle years of the last century, these sports leagues control the operations of their respective sports and create an organizational decision-making structure, providing governance on issues as varied as player and owner discipline, revenue control, dissemination of marketing and media revenues and expansion and relocation of league franchises. A general knowledge of the structure and power of professional sports organizations is imperative for anyone interested in working in or writing about the professional sports industry in the United States and Canada.

All professional sports leagues and their member teams are privately owned entities. Their internal rules and regulations are generally immune from governmental scrutiny. Because the leagues and, particularly, their teams (with a few exceptions) do not sell shares on a public stock exchange, no public release of financial records and no standardized auditing procedures are required under U.S. securities laws. Hence, team owners have considerable latitude in running their business, subject only to the guidelines and constraints of the league’s rules and regulation. There is no requirement that a team owner must put the best product on the field, and examples exist of unsuccessful yet profitable teams. One example is the National Basketball Association’s (NBA’s) New York Knicks, who have not won a championship since 1973 and have had generally poor records from 2000 to 2016. However, although the team has generally languished in performance, it has ranked highly on the balance sheet. According to Forbes Magazine, in 2016 the Knicks were worth $3 billion, which ranked the team as the most valuable NBA franchise. The 2016 Cleveland Cavaliers, the NBA champion that seasonally ranked twelfth, is worth $1.1 billion (Forbes.com, 2016).

League membership rules and requirements constitute the most important check on a team owner’s powers. As pointed out in the introduction, professional sports leagues possess many unique attributes. Their characteristics not only differ from other types of businesses, but even from amateur sports organizations, whose attributes and complexities are discussed in Chapters 3 and 4.

The Professional Leagues

Traditional professional sports leagues, such as Major League Baseball (MLB), the National Football League (NFL), the National Basketball Association (NBA) and the National Hockey League (NHL), have both cooperative and competitive operational characteristics. While individual teams compete for athletic success, their respective leagues lack a pure free-market competitive structure because each restricts free and open competition in a number of ways. The leagues have the inherent power to limit the number of competitors by awarding exclusive franchises in different markets. With a few exceptions, it is one team to a market. As noted in the introduction, each league operates as a cartel, much like the Organization of the Petroleum Exporting Countries (OPEC), as membership is limited and the product controlled. OPEC countries have controlled the production levels of oil in attempts to control the market. Sports leagues control the numbers of teams, their locations and the numbers of players on a team. League policies foster cooperation among all teams by their sharing of certain revenues, league-wide merchandising and a unified negotiation strategy with players’ unions. For a team to be a part of the league means cooperation—and subservience—to league policies.

League control of independently owned franchises has existed in its present form for almost a century. In 1920, Major League Baseball became the first “modern” league, with the creation of the office of the commissioner to run the league’s affairs. As the chief executive officer (CEO) of baseball, the commissioner was empowered to set league policy, control discipline and, in more recent years, spearhead labor negotiations with the players.

On the whole, the major professional sports leagues in the United States have been successful in developing their respective sports, creating an exclusivity that resulted in ever-increasing franchise values, and have increasingly developed an international presence.

The league system, however, is not perfect. Many of the controversies that have bedeviled sports leagues involve the balance of power between the central office and the team owners. Although players (through their respective players’ associations) and leagues have concluded collective bargaining agreements for decades, tensions have also existed between players and management. The courts have, at times, been forced to resolve such issues because the singular control mechanisms by the leagues have raised antitrust law concerns (except in the case of Major League Baseball, which has been exempt from application of antitrust law, a subject covered in more detail in Chapter 6). Economic disparity has also caused concerns. In the past, tensions between larger and smaller market teams have occurred due to the unequal revenues generated between teams in cities such as New York and Los Angeles and their counterparts in Kansas City and Oakland. However, in recent years, league-wide revenue sharing (with or without salary caps) has eased those tensions (Vrooman, 2009). Another issue was the lack of competitiveness as certain teams dominated their respective league, causing some teams, like the New York Yankees or the NBA’s Boston Celtics, to win consecutive championships, while other teams frequently occupy the bottom rung of the ladder. As a result of an improved revenue-sharing system, the Kansas City Royals won their first World Series in thirty years in 2015. However, some economists remain unconvinced that baseball, in particular, has achieved substantial competitive balance (Zepfel, 2015). In the 1990s, because of the threat and ultimate expense of antitrust litigation, some newer leagues utilized an alternative model of governance known as a “single entity” league. Simply put, in a pure single-entity league, no independent owners exist. Rather, the league owns the teams in a single for-profit corporation, and those who run the teams are shareholders of that corporation. As will be discussed later, the result has been decidedly mixed.

The Major Stakeholders in a Traditional League Structure

The Commissioner

As noted earlier, all major sports leagues in the United States and Canada are headed by a commissioner. In a traditional league structure, a commissioner is assigned to take ultimate responsibility for league matters. This results in considerable power being bestowed on one individual. The creation of the position was the result of a gambling scandal that shook the foundations of baseball.

As many baseball fans know, eight players from the 1919 Chicago White Sox were accused, but never convicted, of accepting money to “throw” the World Series. As a morality tale, the story of players such as “Shoeless Joe Jackson” betraying the fans has been retold countless times. However, the “Black Sox” scandal was not the only reason for a drastic change of governance. At the time, baseball was run by a three-member “National Commission,” consisting of the presidents of the National League and American League and a third party, usually a team owner. In reality, the American League president, Byron Bancroft “Ban” Johnson, exercised the most power. The tripartite system was widely disliked, and many found this scandal an excuse to end the system and replace it with a more centralized authority (MLB.com, n.d.).

In November 1920, Kenesaw Mountain Landis, a federal judge who ruled in favor of what is now known as Major League Baseball in an antitrust case a few years earlier, was unanimously selected as commissioner by the owners. On January 12, 1921, Landis told a meeting of club owners that he had agreed to accept the position upon the clear understanding that the owners had sought “an authority… outside of your own business, and that a part of that authority would be a control over whatever and whoever had to do with baseball” (Finley v. Kuhn, 1978). Empowered to investigate “any act, transaction or practice suspected to be detrimental to the best interests of baseball,” Landis (and future commissioners) had authority to summon individuals, order the production of documents and “determine, after investigation, what preventive, remedial or punitive action is appropriate in the premises, and to take such action either against Major League Clubs or individuals, as the case may be” (MLB Constitution, Article II, Sec. 2(c)). Despite some minor differences in language among the leagues, this “best interests of the sport” clause has been a bedrock section of the NFL, NBA and NHL league constitutions as well. In the NFL, the commissioner has the disciplinary authority over “conduct detrimental to the welfare of the League or professional football” (NFL Constitution, Article 8, sec. 8.13(A)). The NBA gives the commissioner the authority to suspend or fine any player, owner, team employee or referee guilty of conduct “that is prejudicial or detrimental to the Association” (NBA Constitution, Article 35), whereas in the NHL’s document conduct “dishonorable, prejudicial to, or against the welfare of the League” deserves sanction (NHL Constitution and Bylaws, sec. 17). The structure gives the commissioner the right to be a judge and jury in investigating alleged transgressions among owners, officials and administrators. Presently, in the case of player discipline, in each of these leagues, such decisions can be appealed, often to an independent arbitrator (except in the NFL), but many of these appeals processes cannot be utilized when the fine or suspension is less than a designated amount or time (NBA Collective Bargaining Agreement, sec. XXXI, 2011).

Before the rise of players’ unions and collective bargaining agreements, a commissioner’s power was considered almost limitless. One court decision described the aforementioned Landis’s mandate as that of a “plenipoten-tate” (Milwaukee American Ass’n v. Landis, 1931), and during Landis’s term (1920–44) he indeed ruled with an iron hand. He meted out discipline, sometimes ruthlessly, to maintain what he considered the integrity of the sport. That meant fining, suspending and even banning players and owners for transgressions, which included gambling and other criminal activity. He even suspended Babe Ruth for the first six weeks of the 1922 season when Ruth violated the prohibition of “barnstorming” (Ambrose, 2008).

More recently, however, the unilateral power of commissioners to punish players has been limited, primarily because of mandatory grievance arbitration procedures found in collective bargaining agreements of some, but not all, of the major leagues. What makes these provisions noteworthy is not only the right of a player to take certain disciplinary matters to an independent arbitrator, but the standard—known as “just cause”—that the arbitrator uses to determine whether the punishment is justified. “Just cause” is a fairly high standard, which requires that substantial evidence exists for the commissioner’s determination and that the resulting penalty is reasonable under the circumstances. In effect, “just cause” results in giving the arbitrator the power to provide an independent check on the commissioner’s power (Enterprise Wire Co. v. Enterprise Independent Union, 1966).

Even with these limitations, the disciplinary power of a commissioner is not to be taken for granted. For infractions and violations of policy during competition, the commissioner (or someone in the commissioner’s office) can impose fines and suspensions. Although limited by labor agreements, the commissioner still can mete out punishment. For Major League Baseball teams, the fines are limited to a maximum of $2 million, whereas owners, officers and employees have a cap at $500,000. Fine limitations on players are determined by the active agreement with the MLB Players Association (MLB Constitution, Article II, sec. 3(a)). Regarding player discipline, Major League Baseball and the NBA have a grievance arbitration system in effect whereby a neutral party adjudicates the dispute if the player appeals the ruling. In the NFL, the commissioner can suspend players without pay for a period he deems appropriate and also can fine them up to $500,000 (NFL Constitution, Article VIII, sec. 8.13). However, nearly all appeals are decided by hearing officers that are solely appointed by Goodell himself (the commissioner), thus giving him broader power compared to his contemporaries (NFL–NFLPA CBA, Article 46, sec. 3(a)).

Because the owners elect commissioners, the commissioners frequently (although not always) serve as representatives of ownership interests. Often commissioners will work with an owners’ management committee or board of governors. This committee may consist of representatives of all the teams or a smaller group. Although the commissioner has the disciplinary authority and often the final say on governance matters, the owners’ committee will often control decisions involving franchise relocation or the granting of new franchises. In those matters, the commissioner will take a back seat. Depending on the league, the management committee may control labor negotiations (as is the case in Major League Baseball) or the commissioner may spearhead them (as in the NBA).

Yet many think that the commissioner is a lackey of the owners. That view is simplistic and inaccurate. The commissioner’s role is more than just a cheerleader or shill for the owners because that person is the face of the league and must convince the public that he or she acts in the league’sbest interests—which sometimes may be counter to owners’ parochial interests. The example of the NBA’s Adam Silver fining the then-owner of the Los Angeles Clippers and forcing a sale of the team will be discussed later in this chapter. But that is not the only case. Each of the major league commissioners can and has fined and suspended owners. In 1990, the Yankees’ George Steinbrenner was suspended for two years by MLB commissioner Fay Vincent for paying a known gambler $40,000 for information about the Yankees’ player Dave Winfield (Weiler & Roberts, 2004, p. 33). A few years later, the owner of the Cincinnati Reds was suspended for her comments on minorities and a professed admiration for Hitler (Macnow, 1993).

Typically, the commissioner runs a central “operations” office, which may include such duties as scheduling; hiring official...