In recent years, money has become a deciding factor for professional sports franchises that want to put together winning teams, and for cities that hope to keep their teams and the civic pride and prestige they bring. From the rising costs of players’ and coaches’ salaries to some team owners’ demands for new publicly financed stadiums, this article by Pulitzer Prize-winning sportswriter Dave Anderson of the New York Times examines the all-pervasive role of money in pro sports.
Show Me the Money!: Financing Pro Sports in the 1990s
By Dave Anderson
Professional sports in the 1990s are dominated by money and marked by financial chaos. The three major sports leagues—Major League Baseball, the National Football League (NFL), and the National Basketball Association (NBA)—have struggled throughout the decade with franchise relocations, controversial stadium projects, spiraling player salaries, the rich-poor gap between big-market and small-market teams, and prolonged labor troubles.
As pro sports have become a huge business in the last three decades, players and owners have fought increasingly bitter battles over their share of the growing pie. As owners have watched player salaries grow astronomically, they have demanded lavish new stadiums and negotiated huge television packages to increase revenues. The strategy has been rewarded, as the average pro sports franchise has risen steadily in value. But as private citizens have been called upon to fund the expensive stadium projects and pay higher salaries and bonuses to teams of free agents, a debate has take shape on whether a pro franchise is important to the community, and at what price?
As the 1998 baseball season opens, the debate rages in Miami, home of the World Series champion Florida Marlins. Thanks to an investment of more than $175 million in long-term free-agent contracts by billionaire owner Wayne Huizenga, Florida won the championship in 1997, only its fifth season as a franchise. It was the fastest rise to the title in baseball history.
Shortly after the victory parade, however, Huizenga announced that he had lost more than $30 million during the championship season alone and needed a publicly funded new stadium to become profitable. When no stadium deal appeared likely, Huizenga put the club up for sale and began trading away his high-priced talent. On the field, the 1998 Marlins more closely resemble an expansion team than the defending champions, and face reduced expectations and fan backlash.
Money in Sports History
Baseball, America's most popular professional sport for most of the 20th century, has a history that reflects the rise of money as a dominating factor in pro sports. For nearly a century, baseball's reserve clause gave franchise owners great leverage over the players. The clause dictated that a player could not move to another team unless traded or released, limiting the player's ability to negotiate his salary. Baseball players formed a labor union to combat the owners' power shortly after World War II (1939-1945), but it was not until Marvin Miller, once an executive with the United Steelworkers of America union, took charge in 1966 that the union began to exert influence.
Miller led the union into its first strike in 1972, a 13-day work stoppage that won the right to salary arbitration (deciding contract disputes by an independent third party). In 1975 a lawsuit by players Andy Messersmith and Dave McNally killed the reserve clause, clearing the path for free agency. Other teams were then able to bid for a player after his contract expired. Players were soon signing multiyear, multimillion-dollar deals that grew larger every year.
Another strike in 1981 wiped out nearly two months of the season, as team owners fought to limit player salaries. The struggle continued every few years, each time the basic labor agreement between the owners and the players expired. In 1994, with owners demanding a salary cap (an annual team payroll limit) that the players refused to accept, a major strike wiped out the final two months of the regular season. The playoffs and World Series were cancelled for the first time in more than 90 years. The following season the owners even threatened to use replacements for the striking players, a common management tactic during labor strikes, until an injunction ended the dispute. Many fans came away from the 1994 strike angry and disenchanted with baseball.
To an extent, the NFL and NBA have learned from baseball's mistakes. Although both followed the trend to free agency in the 1980s and early 1990s, both leagues also saw the financial problems that unlimited player salaries could cause. The NBA, which has never had a player strike, instituted a salary cap in 1982. The NFL, which suffered brief player strikes in 1982 and 1987, adopted a salary cap of its own in 1994.
These measures of control have only been somewhat effective. Wealthier owners can get around such caps by paying huge signing bonuses to star players. Salaries in these sports also continue to rise. Franchise owners continue to search for ways to increase revenues to offset the rising labor costs.
New state-of-the-art stadiums and arenas have proved to be a key source of additional revenue for club owners, especially for those with a high payroll. Such facilities invariably include the more profitable luxury suites, which are occupied primarily by corporate customers who can afford the exorbitant price. New Jersey's Giants Stadium, where the pro football New York Giants and Jets play, will add an additional 46 luxury suites in 1998 to go with their 72 existing suites. The new suites will have a season cost ranging from $156,000 to $350,000 per suite, compared to the average one-game ticket price in the NFL in 1997 of about $38.
These lucrative new income streams are especially important in the NFL. The league divides almost 90 percent of its revenues equally among all league teams, three times the amount split in baseball and basketball. Revenues from suites, stadium advertising and naming rights, concessions, and parking are not shared, however, and go directly to the owner's bottom line. Experts say these features can mean as much as $20 million to $30 million a year in extra revenue for owners.
In many cities, sports franchises that formerly shared a facility will often demand equal treatment—when one team wins a new, single-sport stadium the other wants an equally lavish one of their own. The multisport, general-use stadiums built for these teams in the 1960s and 1970s, many quite functional and not yet paid off, are rapidly becoming economically obsolete in the era of luxury-box sports palaces.
One after the other, pro sports owners have pronounced their current facilities inadequate and demanded major renovations or replacement, threatening to pack up and move if they are not appeased—often to cities which have or promise a brand new stadium. This has led to a boom in new stadiums and arenas in the 1990s. These new facilities include those for teams in Baltimore, Maryland; Cleveland, Ohio; Arlington, Texas; Atlanta, Georgia; Chicago, Illinois; Boston, Massachusetts; Philadelphia, Pennsylvania; and Washington, D.C.
Others are under construction or in blueprints in Cleveland; San Francisco, California; Seattle, Washington; Detroit, Michigan; Milwaukee, Wisconsin; Nashville, Tennessee; and Denver, Colorado. Other owners, notably those of baseball's New York Yankees and Mets, continue to campaign for new stadiums. One estimate by industry experts pegs the cost of new facilities for pro sports teams at $7 billion by the year 2006.
Who pays for these expensive, single-sport facilities? Increasingly, the taxpayer foots the bill. Many owners have demanded that local municipalities pay all or part of the price tag for a new stadium. A 1997 Los Angeles Times study of 75 newly proposed, planned, or built sports facilities found that 66 percent of them used a combination of public and private financing. Twenty percent of the projects were funded entirely with public financing, and just 14 percent were paid for with solely private money.
Cities and states have not always accepted this arrangement without a fight. Voters in Pittsburgh, Pennsylvania, shot down a proposal to build new football and baseball stadiums with public funds in the fall of 1997. Referendums to build a new baseball stadium in the San Francisco Bay Area failed four times between 1987 and 1992. The Giants baseball team finally went ahead with a privately financed facility, Pacific Bell Park, which is scheduled to open in downtown San Francisco in April 2000.
Not to be outdone, the owners of the city's popular NFL franchise, the 49ers, demanded a new stadium of their own. In June 1997 the city's voters narrowly approved plans for a $525-million mall and stadium complex, $100 million of it from public money.
Two weeks after the San Francisco vote, the state of Washington approved a somewhat similar football stadium plan, also by a narrow margin. Approval of the controversial $425-million project, including $325 million in public financing, was a precondition set by local billionaire Paul Allen to purchase the Seahawks NFL franchise and keep the team in Seattle. The previous owner had threatened to move the club to Los Angeles, which ironically had seen both of its NFL teams move out during the 1990s. Opponents ridiculed the plan, calling it “welfare for millionaires.” As in San Francisco, the new stadium would go up on the site of the team's existing home, in Seattle's case the two-decade-old Kingdome.
In another parallel to the San Francisco situation, the Seahawks vote came on the heels of a baseball deal. Seattle voters turned down a ballot measure to build a new ballpark for the Mariners baseball franchise in September 1995. However, with the team in the middle of its first postseason appearance and the owners vowing to put the club up for sale at the end of October, state lawmakers convened a special legislative session to approve an emergency financing package for a new retractable-roof baseball stadium. These maneuverings, which probably averted a team move, also drew heavy criticism from opponents. All but $45 million of the $417-million project, originally budgeted at $320 million, will come from taxes and other public money. It is due to open by mid-1999.
Voters and government officials realize that a team may simply leave town if its stadium demands are not heeded. The sports leagues have a monopoly on their franchises, and there are numerous cities interested in landing such a rare prize. When Cleveland Browns owner Art Modell was not able to win approval for a new football facility, he uprooted his franchise and moved to Baltimore, which offered him a sweetheart deal on a fancy new stadium. The move angered loyal fans in Cleveland, where the Browns were organized in 1946.
Modell's Baltimore Ravens replaced the city's previous franchise, the Colts, which moved to Indianapolis in 1983. The NFL made amends to Cleveland by promising the city a new Browns team by 1999, which was confirmed by a unanimous vote of league owners in March 1998. For its part, Cleveland built the new stadium that they had previously denied Modell, to make sure its new NFL franchise would stay put.
Other NFL teams to pull up stakes in the 1990s include the Los Angeles Rams, which moved to St. Louis (replacing an earlier franchise that left the city) following the 1994 season; the Los Angeles Raiders, which left at the same time as the Rams and moved back to Oakland, California, where the franchise originated; and the Houston Oilers, which moved to Tennessee after the 1996 season. In each case, a new or newly renovated stadium was a big part of the package used to entice the team to move.
Baseball, a sport where owners have been more reluctant to approve franchise moves in recent years, could soon see its first team relocation since the Washington (D.C.) Senators became the Texas Rangers in 1972. The owner of the Minneapolis-based Minnesota Twins, unhappy with the Metrodome facility that first opened in 1982, announced in October 1997 a letter of intent to sell the team to North Carolina interests. The Twins owner said the sale could be averted if a new stadium were built, but Minnesota legislators rejected public funding for such a project a month later. However, the sale is contingent upon a public vote for a new baseball stadium in North Carolina, which does not have a major-league-caliber park. Other cities, such as Houston, Texas, have prevented their baseball franchises from leaving in recent years by approving expensive new stadiums.
How do politicians and franchise backers justify using public funds for stadiums built exclusively for a private enterprise? Stadium supporters usually promote the potential for economic redevelopment and growth as a result of a new facility, along with the emotional value of civic pride. But the actual benefits are somewhat unclear and hard to quantify.
Baltimore's new baseball stadium is often cited as the prime example of how a sports facility can improve the fortunes and image of a city and team. Located near the Inner Harbor and downtown areas, Oriole Park at Camden Yards has the charming appearance of ballparks built early in the 20th century, such as Wrigley Field in Chicago, Fenway Park in Boston, and the long-leveled Ebbets Field in Brooklyn, New York. Built at a cost of $210 million, it has 48,262 seats, including 72 luxury suites that sell for up to $95,000 annually. Sold out for every game since it opened in 1992, Camden Yards has been credited with revitalizing Baltimore's downtown economy.
But the benefits of even such a successful facility as Camden Yards can be questioned. Economists Roger Noll and Andrew Zimbalist, authors of the 1997 book Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums, noted in a related article for The Brookings Review that Maryland residents pay $14 million annually in financing and operations costs for Camden Yards, on top of the millions already paid for construction. The authors go on to say that “the net gain to Baltimore's economy in terms of new jobs and incremental tax revenues is only about $3 million a year—not much of a return on a $200 million investment.”
Pro sports proponents and fans maintain that a major franchise brings great economic value to its region, generating tax revenue and supporting the restaurant, hotel, and tourist-related industries. However, Noll and Zimbalist state, “A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment.”
There are also the intangible benefits of civic pride, proponents say. For some, a pro sports franchise promotes the city's image and makes it a more appealing and exciting place to live, work, and visit. Noll and Zimbalist concede this fact: “A professional sports team, therefore, creates a ‘public good’ or ‘externality’—a benefit enjoyed by consumers who follow sports regardless of whether they help pay for it. The magnitude of this benefit is unknown, and is not shared by everyone; nevertheless, it exists.”
Television money, especially from network contracts, has emerged as the most vital and lucrative form of income for most pro sports franchises. In January 1998 the NFL triumphantly announced a blockbuster television deal worth $17.6 billion through 2005. The broadcasting package, signed with the four networks that won the bidding war, will double the league's payout from the previous four-year contract to about $2.2 billion annually. Each of the 30 pro football teams will collect an average of $75 million annually, if not more when the NFL (not the networks) can reopen negotiations after the fifth year.
The NFL was spurred to its giant deal by the NBA, which saw its television money double in its current four-year, $2.64-billion contract with the National Broadcasting Company (NBC). Major League Baseball has had less success with its national television packages, but its five-year television deal is still worth $1.73 billion. National television money is shared among all league teams. However, local broadcasting money, a significant chunk of baseball revenues, has not been so equally divided up. Baseball only began forcing clubs to share local television and radio money in 1996.
One trend that bears watching in the professional sports world is corporate ownership of franchises, especially media corporations with television networks that need sports programming. Madison Square Garden, which operates both the NBA's Knicks and the Rangers of the National Hockey League (NHL), is now owned by Cablevision, the cable television giant. Ted Turner bought the Atlanta Braves in 1976 to ensure that his Turner Broadcasting System (TBS) would retain baseball as a programming feature. One of the first satellite superstations, TBS (now part of the Time Warner empire), made the Braves into “America's Team” and a rival in the local markets of many other teams.
A potentially similar deal that raised eyebrows recently was the Australian tycoon Rupert Murdoch's purchase of the Los Angeles Dodgers, one of the country's most respected and valuable sports properties. The deal, which includes Dodger Stadium and other real estate, is estimated to be worth as much as $350 million. It was approved by major league owners at a March 1998 meeting. Murdoch, a media magnate who made his fortune in tabloid newspapers, is expected to use the Dodgers as a key part of his vast sports television empire, which includes network rights in baseball, the NFL, and the NHL as well as an expanding collection of local sports networks.
Murdoch takes over a franchise that had been run by one family, the O'Malleys, since its Brooklyn days in 1950. But some observers see single-family ownership of a sports franchise like the O'Malleys' Dodgers as an endangered species. Ownership in the future will come primarily from groups of investors or powerful corporate entities that have the resources to compete for top talent. But some fellow owners are wary of the power that Murdoch will wield in baseball, because of his many local television deals that could influence league decisions.
The Bottom Line
For all the billions of dollars involved in sports, few franchises acknowledge an annual profit. Since almost all teams are privately held, their books are closed. The Green Bay Packers is the only publicly owned pro football team. Four NBA clubs are operated by public corporations—the New York Knicks, Boston Celtics, Philadelphia 76ers, and Denver Nuggets.
According to the Financial World survey, based primarily on figures from the 1996 season, the average NBA team was worth $148 million and had the highest average operating income (net income before noncash charges, interest expenses, and taxes) of any league, $11.2 million on revenues of $57.4 million. The New York Knicks were the most valuable NBA franchise at $250 million.
The typical NFL franchise was worth $205 million, with an average operating income of $5.5 million on revenues of $77.7 million. The Dallas Cowboys had the highest market value in sports at $320 million.
In baseball, where the New York Yankees topped the charts at a net value of $241 million and the typical team was worth $134 million, the average team made $7.3 million in operating income on revenues of about $66 million. The three most profitable franchises overall were in the NBA—the Knicks, the Detroit Pistons, and the Chicago Bulls.
With so many billions up for grabs in today's professional sports, there is a real possibility of further labor difficulty in the future. Hoping to head off any problems that would jeopardize its huge new television contract, the NFL agreed in principle with the players in February 1998 to extend the league's collective bargaining agreement through 2003. The agreement retains the salary cap and free agency and includes a funding pool for stadium construction. NFL owners hope that the two deals will help stabilize a league where some franchises have been on a merry-go-round in recent years.
Next up is the NBA's labor deal, which the owners have voted to reopen in March 1998 now that more than 51.8 percent of the NBA's basketball-related income is allotted to player salaries. Ever since the NBA adopted unrestricted free agency in 1988, salaries have spiraled. Kevin Garnett, drafted by the Minnesota Timberwolves out of a Chicago high school in 1995, signed a six-year, $126-million contract in 1997. Even coaches have cashed in, as Rick Pitino signed a 10-year, $70-million deal to become coach and president of the Boston Celtics in 1997. The NBA's day of reckoning on this issue may be on the horizon.
In an attempt to stop the bleeding of ballooning team payrolls, baseball managed to approve a so-called luxury tax in 1997. The luxury tax is assessed on the teams with the biggest payrolls, those that exceed the average of the fifth- and sixth-highest salary totals, and is distributed among baseball's lower-revenue clubs. In 1997 the Yankees' $68-million payroll required a tax of $4.4 million. Baltimore was taxed about $4 million, Cleveland about $2 million, Atlanta $1.3 million, and Florida $150,000. But this measure may only be a small Band-Aid applied to a raw wound that continues to hamper the nation's pastime. Until baseball leaders, along with top officials in the other major pro sports, can implement strict policies on salary limits, franchise movement, and revenue-sharing, financial instability will be the only thing that fans and communities can count on.
About the author: Dave Anderson, a sports columnist for the New York Times and the author of 22 books, was awarded a Pulitzer Prize for distinguished commentary in 1981.
Source: Encarta Yearbook, March 1998.1