Reforming American Professional Sports: A Proposal

By Mehdi Manseur

A guest submission to League of Fans

When many people think about professional sports, they think “it’s just a game”. They do not think too much about the organization of our largest leagues and likely would not consider anything to be wrong with the economies of pro sports in America. To most, everyone should be happy to be making whatever money they are already making.

Yet in actuality they are not just games but rather a massive multi-billion dollar industry that has benefited from “It’s just a game” to stifle the economic rights of both its labor and any potential competitors, directly harming consumers and public finances. In a closed sports system, current team owners alone control who is allowed to enter a league and are permitted to place extreme and onerous entry requirements upon any potential entrants.

There is no modern justifiable reason that leagues like the NFL or NBA should enjoy a monopoly and be permitted to prevent new businesses from joining the competition. Whereas the granting of antitrust exemptions were fruitful in the initial development and stabilization of pro sports in America, the industry has grown beyond their need and these protected corporations currently abuse their exempted status.

Considering the rapid evolution of pro sports over the last 40 years, Congress should remove all anti-trust exemptions given to pro sports and pass legislation to ensure that new entrants to each sport are permitted based on objective standards and identifiable criteria. The closed-system leagues must not be allowed to construct subjective and shifting barriers to entry into a marketplace and fandom should never trump the public benefits of economic competition.

Creating an open sports system for America would result in national and regional economic growth heretofore unforeseen and untapped, increased competition and resulting benefits to consumers, increased economic empowerment to minority communities, diversity of ownership of professional teams, the alleviation of the inequities of the NCAA and greatly benefit public finances.

If an investment group or an individual desires to start a sports team and can meet a pre-determine standard with reasonable threshold requirements for capital funding, business structure, etc., then they should not be required to seek the permission of already established entities to compete. The leagues can adjust their structures accordingly to their desire to meet an influx of new entrants.

Open Sports Systems Internationally

Around the world, we are provided countless examples of open sports systems that thrive within nations with weaker or less stable economies. The most prominent example is the league hierarchy system, more commonly known as promotion and relegation and widely used in Europe. Within this system, teams competing in the top league must earn their right to remain in the top league through their on-field performance. This is because the three teams that finish at the bottom of the standings at year’s end are subject to relegation to the next lower league.

Correspondingly, the three teams that finish at the top of the next lower league are promoted to the top league. This process is repeated throughout a multi-league structure with the total number of leagues depending upon how many eligible teams there are within the overall system. In England for example, there are currently five leagues considered professional national leagues atop a vast network of lower regional leagues.

(click to enlarge with full chart)

[The English Football Team Pyramid – By Bill Turianski 2007]

This process ensures that every team is incentivized to always compete and never ‘tank the season,’ as suffering relegation would cause them to miss out on large payouts, derived from media rights and profit sharing, that will be given to the teams in the top league in the next season. Instead, the relegated teams will receive an apportionment equal to other teams in the next lower league. Which is usually an amount much less than the apportionments given in the top league.

Other open systems merely employ a multiple conference or large group play system with an expanded playoff format but lack the quality of play benefits of a league hierarchy system.

Yet in all open systems, never are private corporations permitted to arbitrarily limit the number of competitors in the marketplace.

Economic Benefits Of An Open System

Every team created, like any business, means jobs and tax income based off of those jobs. As an example, the NBA has thirty teams, thirty administrative staffs, thirty coaching staffs and player rosters. In total, a few thousand people involved in the sport, deriving incomes they spend in their communities and taxable to local, state, and federal authorities. Along with the direct employees, many thousands more rely on the income the sport creates including support staff, stadium vendors, merchandise manufacturers, hotels workers, security staffs, local law enforcement agencies and so forth.

Overall, in our nation of over 300,000,000, the US sports industry represents only a tiny fraction of our GDP and employment, tallying approximately $14.5 Billion in earnings per year (less than 0.001% of US GDP) and contributing 456,000 jobs (0.3% of all US Jobs). [source]

England, a comparable economy and culture to the United States, has only a population of 50,000,000 but uses open sports systems. Though their population and GDP is less than one-sixth of the United States, their sports industry generates $24 Billion USD (1.9% of England’s GDP) and 400,000 full-time equivalent jobs (2.3% of all jobs in England). [source] If the labor percentages between these nations were equal, it would translate to an additional 2.8 Million American jobs. Under our current system, the United States is not close to fully tapping the incredible potential of the economies of sports to grow further in the future.

With an open system, there would not be only 30 or so professional teams across each sport. The amount would be determined by how many teams the American sports market could sustain. Accordingly, there would be multiple the number of executives, managers, trainers, vendors, manufacturers and athletes. The economic expansion of professional sports may be the largest short-term job creation vehicle available to our nation. Job creation that would also benefit the many minority groups which represent a large percentage of the labor within the sports industry.

For many cities like Austin and Louisville or states like Iowa or West Virginia, an open system is the only method by which they are ever likely to have a pro-sports team. Within England, there are thousands of professional football clubs in the interconnected league system, each ensured the same opportunity, based on performance, to enter into to the top league.

Is there any city in America with more than 150,000 people that would not have at least one professional sports team placed into an overall open system like England’s? Per the 2010 Census, there are over 170 cities in America with more than 150 000 people. Green Bay, the 283rd largest city in America and only the 153rd largest metropolitan area already hosts a professional sports team whereas metropolitan areas like Providence (38th), Louisville (44th) and Birmingham (49th) host none. Cities or metropolitan areas like New York, Chicago, and LA could likely sustain many multiple teams. By example there are over 30 professional football clubs in London alone, six of which currently compete in their nation’s top league.

Diversity of Ownership of Sports Teams

Creating objective standards to entry and enforcing capitalistic principles of fair competition would also eliminate long-standing concerns regarding diversity of ownership of sports franchises. In order to compete and start a franchise, minority or female ownership groups would no longer need permission from rich men maintaining their monopoly.

[FiveThirtyEight – Source: The Institute for Diversity and Ethics in Sport]

Public Financing of Stadiums

Beyond job creation or concerns regarding diversity of ownership, ending this system of corporate protectionism would end the game of exploitation teams routinely play with local governments when asking for handouts to build new stadiums. We allow these professional leagues to limit the number of entrants and their individual teams are able to hold cities and towns hostage with the threat of departure. As there can only be so many teams in the leagues in a closed system, the threat of a team leaving leaves local populations with the tough choice of coughing up millions or saying goodbye to professional sports with little hope of its return.

This scheme of public exploitation would not exist if these protected businesses knew a new entrant could immediately fill the market they left. Cities and towns would not feel as compelled to hand over money, often previously allocated to schools and social services, to a private business. Rather than be able to dangle the threat that a town would be permanently left without a sports franchise, the towns would know that if their market can support a franchise, another ownership group would come along.

[Graphic: Bloomburg Businessweek – Data: By Robert Baade & Victor Matheson – 2012]

The current system places all the negotiating leverage with private businesses and they use their leverage to extort local politicians. Requiring objective standards to entry within the sports marketplace would switch the dynamic and place the leverage with public officials and save billions for cities and towns across America.

The NCAA Monopoly

Open systems would also greatly alleviate many of the economic inequities that persist within the NCAA by providing alternative paths to professional sports. The NCAA owns a monopoly on the path to professional football and basketball and use it to profit immensely from the work of young Americans while exercising draconian rules against their behavior and holding their career hopes hostage. For a university, a scholarship and a dorm room, or simply not charging a student, is cheap currency. Yet, for the athlete, they must take a nominally compensated gamble on their future while actively doing an activity that generates millions in profits.

As we have seen among the many open systems in Europe, removing barriers to entry allows enough entrants into the marketplace that the paths to finding employment within the overall industry also multiply, from lower division or smaller teams holding tryouts to larger teams creating development academies to scout and sign young talent. With this system, young athletes are provided with a choice of whether to enter the workplace and receive compensation for their services immediately after high school or continue to college for an education while also playing sports.

Women’s Pro Sports

An open sports system would also have profound effects on women’s professional sports in America, which has failed to develop in comparison with our European counterparts. Many of America’s professional female athletes seek employment abroad because of the lack of opportunities within the major team sports in America. All notable attempts to start female sports leagues in the United States have been in the form of closed systems with similar obstacles placed upon new entrants to protect the already established entities and prevent open competition from any outside groups.

As such, there is no incentive for individuals or groups to invest in new female teams unless they are provided assurances they will be allowed to enter the closed system or unless they intend to invest sufficiently to establish an entire league themselves. Since the already established entities limit and control competition to protect their investments and since seeking out sufficient investment to form an entire league is an incredibly high burden, the current dynamic works to dissuade new investment into female sports and limits the potential growth of the overall industry in America.

An open system of female sports would provide a stable and reliable structure for which new entities can enter the market and compete against already established entities upon meeting certain objective standards and criteria. Doing so would promote new investment into female sports since new teams would never need permission from established entities to enter the marketplace and never need to seek out sufficient capital to form an entire league.

Rather than permit the development of women’s pro sports to be constrained by closed systems that serve only the interests of a select few, it would be supported by a stable overall structure that allows it to grow organically with the free market determining where in America teams could thrive.

Conclusion

In summation, the potential benefits of reforming the economies of sport could be far reaching for many Americans. Unfortunately, the potential impact and benefit to us all through quality of play, economic growth, direct or indirect employment, tax revenues, consumer benefits, youth and minority economic empowerment, or public finances is prevented to preserve the status quo of current monopolies in our closed sports system.

Thus, I present this for your consideration: To urge Congress to reform the structures of American professional sports with the creation and enforcement of an open and inclusive sport system.

— Mehdi Manseur holds a BS in Finance and Juris Doctor from the University of Florida and currently practices law in Miami as a commercial litigator.  He is a long time advocate for common sense reforms in American sports and vocal critic of the use of public funds to finance stadiums.  An avid fan of international soccer, the United States Men’s National Team and Les Fennecs, he is a passionate student of World Cup history and the evolution of the beautiful game.