The Future of American Sports Business
Niral Patel
Featured Blogger
Sports as a business is more profitable than ever. Long-time owners are cashing out to enjoy their billions allowing a new generation of the financial elite to run teams they once rooted for. Tom Ricketts, a former Wrigley Field bleacher bum, now directs Chicago’s north side team. Jay-Z owns a minor stake in the Brooklyn Nets and influenced their departure from New Jersey. Daniel Snyder, who grew up an avid Redskins fan, controls the fate of D.C.’s football team. Franchise values have greatly increased in recent years, but not because of ticket price values or larger capacity stadiums. The comma-filled numbers – Cleveland Browns for over $1,000,000,000! – are primarily due to new revenue streams and the leverage leagues have with their broadcast partners. Organizations have utilized a commoditized internet to generate all sorts of new income sources. Advertising on team websites and the streaming of live games on league-run mobile apps like ‘MLB At Bat’ add money to the bottom line with little investment cost. And teams have sold off almost every piece of advertising space the camera can be pointed at. But what new trends reveal the next wave of sports monetization?
Teams like the New York Yankees and Boston Red Sox have already unveiled the blueprint for future content distribution. In the short term, the NFL, Major League Baseball, and the NBA keep broadcast partners happy by allowing them to air prime-time games for a hefty price. But more and more, sports organizations are buying an equity stake in regional sports networks, controlling the content and reaping the rewards. The Yankees own 34% of the YES Network, and the Boston Red Sox parent company, Fenway Sports Group, owns 80% of the New England Sports Network. In Chicago, Comcast SportsNet is co-owned by the Cubs, White Sox, Bulls, and Blackhawks. While large market teams are in the best position to own their own distribution, it will eventually spread to smaller markets across baseball, basketball, and hockey. Local franchises will partner up to purchase or create these regional networks and air a bulk of their own games. The overhead of this distribution model is offset by the money it generates for organizations. As for the National Football League, the money offered by major broadcast companies is too much to pass up right now. But as the NFL Network establishes itself and the league piles up distribution rights cash, it gets closer and closer to yanking games off major networks and making them exclusive to what will become a group of NFL Network channels. Much like an artist who shuns Sony Music Entertainment and creates his own independent record label, sports franchises want to own all aspects of their business to fully capitalize on their product.
Over the span of 4 years, Aon, a Fortune 500 company, paid Manchester United in excess of $130 million to emblazon their company logo in large font on the wildly popular soccer team’s shirt. And NASCAR racing teams can earn over $15 million per year by painting their cars with corporate logos. To this point, the NFL, NBA, and Major League Baseball have kept large font company branding off their jerseys but, as Bob Dylan sang, “The Times They Are A-Changin.” The next big revenue stream will be enhanced corporate branding on football, baseball, and basketball jerseys. NBA Deputy Commissioner Adam Silver was recently asked about the possibility of adding corporate logos to jerseys, and he indicated it is certainly of interest to professional basketball. “My sense is that every team is in favor of doing this in some form,” and he later added it could be worth $100 million to the league. That number is conservative and will increase significantly when branding reaches the level of European soccer teams. American professional leagues have been wise to slowly increase corporate branding on team apparel. The incremental steps make it easier for fans to get over the “sell out” perception that’s often created when organizations take corporate dollars for advertising space. Fans will eventually accept company logos embossed on the fronts and backs of their favorite team’s uniforms, adding just another way for owners to increase profit margins.
In the mobile phone space, there are two primary ways for app developers to make money. Sell your app to users, which will bring you 99 cents or more per download, or give it away free but sell ad space and extra features – called in-app purchases – to make the game more enjoyable. In-app purchases get customers hooked on the gameplay but force them to pay extra to get more levels, tools, or features. In stadiums across the league, teams have started introducing mobile apps to enhance the fan experience. Play quiz games against others in attendance or get detailed statistics on the game you’re watching. This trend will continue but look for teams to introduce extra features fans can pay for right from their smartphones. Instead of waiting for the hot dog vendor to wander by only to be ignored because the guy three rows down from you is screaming too loud, place a food and drink order on your phone, pay a couple of extra bucks for delivery and then sit back to enjoy the game as your food is prepared and delivered. Ever show up for a basketball game, take your seat in the upper 300 level and look down at halftime only to see a quarter of the better, lower bowl seats empty? While sneaking down from the cheap seats isn’t uncommon, it also comes with the hassle of avoiding ushers and risking ejection. Eventually, arenas will implement a system similar to airlines where fans can pay for a ticket, show up and, if better seats are still available, use their mobile phones to pay an upgrade fee for better seats. There is a myriad of upgrade options organizations can implement to make the fan experience better and increase revenues. Want you and your girlfriend’s picture on the Jumbotron without having to cross your fingers that you’re picked up on kiss cam? Snap the picture on your phone, pay 99 cents and upload it. Want to avoid the slow end-of-game trek from your seat, through the crowded concourse, and down three escalators? Make a quick escape by using the app to pay a few bucks and get a barcode for exclusive elevator rights. The possibilities are endless, and as technology improves, they’ll exponentially increase.
New team owners are not content to root on their teams and make money on established income sources. Third-party vendors and organizations’ internal departments are continually looking for opportunities to add revenue to the big business of sports. A premium was paid to own a professional sports franchise, and the savvy investors who paid it will always look for new ways to recoup their dollars.
