Sports Clubs and Promoters
SIC 7941
NAICS 711211
Firms in the industry operate professional athletic teams and clubs around the globe. Examples of sports clubs discussed in this article include franchises for soccer (known in many parts of the world as football), basketball, baseball, American football, hockey, and rugby. The sports industry also encompasses sporting event promoters and players' agents.
At the close of World War II, increasingly sophisticated means of public communication drew together a sports audience that, theretofore, had been loyal but difficult to address as a unit. Even as television introduced a huge audience to the visual impact and drama of sports, franchise owners, athletes, and promoters were quick to view resulting fan accessibility as an extremely lucrative source of revenue. Suddenly, sport became not just business, but big business. The fact that the U.S. sports business was intertwined with virtually every aspect of the economy—from media and apparel to food and advertising—added to its explosion, but it also added to the industry overhead.
In some eyes, sport itself mutated into a means to an end, a component of an entertainment package—important, but only part of a total entertainment offering capable of bringing in fans and generating revenue. As the dollars handled in the name of sport increased, players' unions, first attempted some 100 years before, became an entity to be reckoned with. The business of sport spawned sophisticated player/player, agent/owner negotiations; gave rise to a huge emphasis on venue, such asstadium construction; and introduced potential franchise owners to a whole new concept of high-stakes profit and loss, as well as wheeling and dealing. This, in turn, changed the games themselves, as the attempt to bring in more and more fans to a given event inspired a need to appeal to the general public, not just sports aficionados.
The sports industry includes a wide range of establishments that are involved in one aspect or another of the presentation of sporting events. Team owners may be individuals or companies that own sports clubs (although in the United States the National Football League (NFL) forbade outright corporate ownership). Promoters include global entities (for example, the Federation Internationale de Football Association or the International Olympic Committee), and regional or national sports organizations, commercial promoters, and organized groups of players.
Whereas in years past athletes approached or were approached by sports clubs directly, by 1990 most professional athletes were represented by agents or managers who negotiated on their behalf with clubs, sponsors, and event-promoters. The establishment or ongoing maintenance of sports franchises involved similar negotiation with advertisers/sponsors, broadcasters, host cities, and merchandisers. Each of these participating camps proceeded to forge the best possible economic deal for itself, and, inevitably, less-than-altruistic goals created conflict. Negotiations between agents for athletes and teams were often contentious, reflecting the desire of both sides to secure as much of the money as possible flowing in from ticket sales, television rights, advertising, and merchandising rights. Conflict often escalated to arbitration, and occasionally litigation. In some sports, wholesale player strikes occurred, adding the intangible monetary losses associated with fan dissatisfaction to the more obvious tally for legal advice and lost revenues. In the U.S., a baseball players' strike from 1994 to 1995 had an outright cost to team owners of more than US$1 billion, and the fallout from fan dissatisfaction remained in evidence throughout the remainder of the century.
The competitive structure of the late twentieth century sports industry varied by region and country. While the sports leagues in the United States commonly practiced some sort of revenue-sharing philosophy, professional leagues in Europe, South America, and elsewhere often conveyed a survival-of-the-fittest mentality.
In the United States, revenue sharing within organized sports leagues allowed small-market teams to compete, on equal or nearly equal footing, with wealthy teams that were located in major metropolitan areas. In accordance with this philosophy, each league established a company to sell merchandising rights, and profits from this merchandising were shared equally among league members, regardless of individual team contribution to total sales. This approach extended significantly to include the very lucrative national television rights without which many smaller teams would disappear into oblivion. Even so, the disparities in local television and stadium revenues disadvantaged certain smaller-market teams, who had less money to spend and, thus, less voice in league-wide negotiations. This was particularly evident when affluent organizations signed players to large-sum contracts. The escalating salary benchmarks placed huge pressure on the smaller and middle-market teams. The revenue-sharing philosophy lessened the discrepancy between have and have-not clubs, and in fact did much to ameliorate a situation that otherwise could have resulted in several franchises going out of business.
Elsewhere in the world, the situation was dramatically different. In many nations, the cost of fielding competitive teams with star players was entirely beyond the capacity of some clubs. Without revenue-sharing mechanisms, richer teams secured the lion's share of high-priced talent—increasing the value of their ticket sales and television rights—while poorer teams stumbled toward financial ruin.
Lacking the sheer bulk associated with the U.S. sports industry, international sports organizations were forced into increased reliance on outside entities to remain viable. Private investment initially had been seen as a disadvantage. In the early 1990s, critics claimed that too many teams, in nearly all sports, "lived off" wealthy owners or their companies. But doing so increasingly became sheer necessity. In Spain, where soccer was a national obsession in the early 1990s, only one or two clubs were capable of showing sizable profits. The situation was similar in France, where Olympique Marseille, the champion club, operated in 1991 at a loss of more than US$3 million, and lesser clubs lost division placement solely because of their debts. In Brazil, heavy private investment was necessary to ensure funding to sign acceptable players. Inevitably, by the late 1990s, the "Americanization" of global sports had begun. In 2002 the Florentina professional soccer team was struggling to find enough cash to operate another season, and the collapse of the Argentine economy threatened the existence of all but the wealthiest of soccer teams. And, even these teams pondered selling their best players for operating capital paid in dollars, not devalued Argentine pesos.
Soccer led the way in the increased commercialization of sports originating outside the United States. In Europe, broad deregulation of the television industry opened up competition for television broadcast rights, and spin-off monies resulted in player salary increases. The German Soccer Association experimented with the notion of pay-per-view events in 1996, and in South America Pepsi Cola bought heavily into the Argentine Soccer Federation. All these and similar events combined to pattern international soccer more and more like the heavily marketed, heavily endorsed U.S. sports industry. At the same time, rugby, although dependent on amateur talent, went through many of the trials and tribulations of its professional cousin. In Wales, where rugby was coming off of a century of being viewed as much as a religion as national sport, it still took aggressive marketing and outside investment to save a struggling national team from oblivion. Where rugged men still stained from work in the mines used to be the only persons allowed on the playing field, suddenly female mascots waved new logos, and small children paraded the Welsh dragon for TV cameras. British Gas joined such high profile investors as Schweppes, South Wales Electricity, Heineken, and Volkswagen, in sponsorship of the game, and the Welsh Rugby Union relaxed its emphasis on amateurism to allow top players to be compensated financially.
During the 1960s and early 1970s, professional and amateur sports, while popular for the most part, were not financial juggernauts. Television contracts for broadcast rights to a sporting event were modest and relatively few. Instead, the sports industry relied almost exclusively on ticket sales. While the dependence on tickets gradually lessened, they remain a significant source of revenue for the sports industry, fueled in the late 1990s by the sale of enclosed private boxes and corporate suites.
Steady public enthusiasm for sporting events, combined with the technology of television, increased the profile of the industry. Other companies with products and services to sell gradually recognized that sporting events offered significant advertising possibilities, and sponsorship of sports events, including advertising in sports broadcasts, became increasingly commonplace. Certain industries that were prevented by law or by convention from advertising on television, and in certain other media (e.g., tobacco and liquor producers) saw athletic event sponsorship as a method of...
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