Michael Oriard ’70, an All-American at Notre Dame, made $27,000 in 1973 as a backup center for the Kansas City Chiefs. Even the All-Pros among his fellow offensive linemen had salaries no higher than $50,000 — about $300,000 in 2014 dollars. This season, Minnesota’s John Sullivan ’07, the 10th highest-paid center in the National Football League, will earn more than $4 million.
Back in Oriard’s era, the Chiefs’ Arrowhead Stadium was one of the first in the NFL to have luxury boxes. When Oriard saw the people in those glassed suites, he says he felt like the players were modern-day gladiators maiming themselves for the moneyed aristocracy’s amusement.
Today’s multimillionaire professional athletes are part of the luxury suite universe, notes Oriard, a retired Oregon State University professor and the author of several football histories, including Brand NFL: Making and Selling America’s Favorite Sport. In it he asks, “How has all that money affected the game and its meaning for those it touches?”
The same question could apply to all professional sports. Answers might have shades of interpretation — at a certain level, it’s a personal question — but overall there seems to be only one possible response: All that money has not affected the meaning of sports in American life at all, except to magnify it. Player salaries, television revenues and franchise values increase based on fan interest, which has never experienced a perceptible recession.
The modern amounts can boggle the mind, but commerce has always been at least as important as competition. Don Ohlmeyer ’66, a legendary television executive who produced Olympic, Super Bowl, Monday Night Football and World Series broadcasts, once summed it up: “If the question is about sports, the answer is money.”
Over the past generation, that answer has become so conclusive that it raises new questions — about competitive integrity, about commitment to team and community, about the social responsibility of athletes, about the effect on loyal fans priced out of the experience.
Lance Armstrong risked his reputation for cycling glory and the windfall in its wake. Major League Baseball’s Bonds-McGwire-Sosa home run glut revived the sport after a player strike canceled the 1994 World Series, but the suspicious source of all that power ultimately impugned the game’s integrity. When the preternatural discipline Tiger Woods displays on the golf course was revealed not to extend beyond the links, the revelations produced a scandal commensurate with his cultural status, measured in endorsements as much as championships.
Beyond scandal, the cost-benefit analysis for franchises and players has changed. Would Willis Reed have hobbled onto the court for the New York Knicks in 1970 — his mere appearance from the locker room was voted the greatest moment in Madison Square Garden history — if he had hundreds of millions in future earnings at stake? Or would he have nursed his injury like the Chicago Bulls’ Derrick Rose in the 2013 playoffs? Neither choice seems unambiguously right or wrong, just inescapably influenced by the investment teams make in players and the earning potential a severe injury could compromise.
None of the residue from extreme financial incentives has diminished spectator passion from the luxury boxes to the cheap seats. There’s really no such thing as “cheap seats” anymore, except perhaps the couch. As technology has improved, watching sports on television has become a more intimate experience than attending games, perhaps even strengthening the connection fans feel with athletes. That emotional intensity fuels the entire industry.
LeBron James left the Cleveland Cavaliers — and his hometown region, not just his home team — for the Miami Heat in a made-for-TV event that was shamelessness incarnate. He’s never lived that down, but the blowback has been a small price to pay. Two NBA titles and many endearing commercials since The Decision have maintained his magnificently profitable if not entirely favorable image. As long as controversy fades into accomplishment, players reap financial rewards — to the tune of about $60 million for James in 2013, making him the fourth highest-paid athlete, according to Forbes. Almost 70 percent of that total came from endorsements.
The top earner last year? Tiger Woods, his infamy redeemed, at least financially, with $78 million. Less than 20 percent of that was from tournament winnings, despite six victories.
Professional athletes receive little criticism for their earnings. The concept of a merit-based market rewarding talent and hard work seems more straightforward in sports than almost any other industry. That represents a shift from decades of artificial economic limitations. As recently as the 1970s, the notion of players exercising the freedom to move from one team to another was controversial.
St. Louis Cardinals centerfielder Curt Flood risked his career in the late 1960s and early ’70s for the principle that would help propel the top professional athletes into the aristocracy: free agency. Flood’s quest faced legal resistance from owners, who fought to preserve baseball’s “reserve clause” all the way to the Supreme Court, where they prevailed. But acceptance of the historic restrictions had begun to crack. Within a few years baseball had a system in place, and by 1993, when the NFL instituted unrestricted free agency, the concept had become commonplace across sports.
For two contentious decades leading up to the labor agreement that instituted NFL free agency, owners resisted on the grounds that “freedom for the players would mean anarchy for the league,” Oriard writes in Brand NFL. “Instead, labor peace stabilized costs for player salaries and benefits, key elements in an economic structure in which the value of an NFL franchise could increase from $140 million in 1993 (for the expansion Carolina Panthers and Jacksonville Jaguars) to $530 million in 1998 (for the new Cleveland Browns) to $700 million in 1999 (for the Houston Texans).” And counting.
Player salaries have followed a similar trajectory. Free agency has had a rising-tide effect in every sport with no discernible downside, even as seemingly every iconic Boston Red Sox player eventually signs with the hated New York Yankees. Watching extravagantly wealthy players has hardly dampened the excitement of fans. They keep supplying the tributaries of money that flow into the financial gulf between them and the top athletes. And they want owners of their favorite teams to spend to win.
Leagues, meanwhile, have a vested interest in competitive balance — or franchise profitability, depending on how you look at it — prompting them to incorporate complex salary-cap and revenue-sharing rules into collective bargaining agreements. Craig Leipold, owner of the National Hockey League’s Minnesota Wild, describes the salary cap as a benefit even for teams in the most lucrative markets, which would otherwise spend more on players. “Because their ticket prices are so high and their local TV revenue is so high, they’re making lots of money,” Leipold says. “The league, because of the cap, has enabled them to control their own spending.”
Through revenue sharing, lucrative teams prop up the profits of smaller-market teams and, in theory, promote competitive equality — the preferred method of leveling the playing field in American pro sports. “You need 30 healthy teams,” Leipold says, “and if you have three or four teams that are losing so much money, pretty soon you start losing those markets and it hurts the value of the entire league.”
That’s not a problem for any of the major leagues right now. The average value of NHL franchises rose 46 percent to an average of $413 million in 2013, according to Forbes. As NBA commissioner David Stern ended his 30-year tenure, he left the league with an average franchise value of $634 million, up 25 percent from a year earlier. Major League Baseball values grew only 9 percent in 2013, but at an average of $811 million, they trail only king football. After a 5 percent increase, the average NFL team is worth $1.7 billion.
Red McCombs, the former owner of the Minnesota Vikings, says the free agency deal meant as much to his team’s value as the other big revenue gusher: television. In the two decades since free agency established relative labor peace, the league’s relationship with its amplifying media partners has only become more symbiotic. Similar lucrative collaborations exist in the other leagues.
Free agency and free speech, exercised in constant televised debate, offer year-round fodder for ESPN’s “family of networks” and proliferating national and regional sports channels, feeding their ravenous appetite for programming. And no programming is more valuable — in all of broadcasting, not just sports — than the games themselves.
Commercial timeout
Kevin Schulz ’96, an attorney who represented the new owners in recent sales of the Chicago Cubs, Los Angeles Dodgers and Texas Rangers, explains the advantage of live athletic events: “DVR immunity.”
People still want to watch games as they happen. This gives advertisers a large and demographically appealing audience that might otherwise record a show and scan commercials in a fast-forward blur.
Feared in its infancy as a threat to ticket sales, television has become perhaps the single biggest source of today’s insatiable interest. Cable subscribers pay for the privilege, but ubiquitous broadcasts extend the experience of watching games to tens of millions effectively for free, creating the closest thing to a shared cultural experience in the modern niche-media world.
At the college level, Notre Dame understood that before most of its competitors, maximizing its national appeal by offering radio and television rights to football games when others restricted them. Everybody’s alma mater has long since awakened to the smelling salts of multimillions in television revenue.
Of the big four American professional leagues, only football commands an exclusively national broadcast agreement. The other three have team-specific regional deals that supplement less comprehensive national TV agreements. Either way, they’re all awash in cash. “Both at a league level and at a team level, the numbers are going up,” Schulz says, “by multiples.”
The attorney worked with the Dodgers on a 25-year, $8.35 billion deal with Time Warner Cable. There are now five Major League Baseball teams worth at least a billion dollars and each has a similar regional TV contract.
High-definition TV serves hockey especially well, Leipold believes, making the fast-paced flow of the game — and the puck — easier to follow. In addition to its core Canadian and U.S. markets, he adds, Europe offers promising growth potential for television and online audiences.
New NBA commissioner Adam Silver recently established an advisory committee for the league’s next round of TV negotiations, expected to produce a deal worth well over a billion dollars a year.
Then there’s football. A nine-year NFL television contract with Fox, CBS and NBC is worth about $3 billion a year, an annual increase of more than a billion dollars over the league’s previous broadcast agreement. “Factor in other media deals with the NFL Network, DirectTV ($1 billion annually), Westwood One radio and others,” Forbes reported, “and NFL teams will divvy up nearly $7 billion in media money starting in 2014.”
The league’s ratings dominance, not only over other sports but broadcasting in general, explains the price tag for its programming. Nine of the 10 most-watched telecasts in 2013 were NFL games — the Oscars came in seventh. A January 2014 wild-card playoff game between Green Bay and San Francisco drew 47.1 million viewers, making it “the most-watched telecast of any kind” since the previous season’s Super Bowl.
Even regular-season games make a deep imprint on ratings. NBC’s Sunday Night Football was the year’s top primetime program, and ESPN’s Monday Night Football was the only cable presence in the top 10.
“The fan base crosses gender, race, class boundaries — everybody watches NFL football,” Oriard says.
Other professional sports leagues live in football’s shadow — even in hockey-mad Minnesota, the Wild’s Leipold acknowledges the hierarchy — but they occupy their own lands of plenty.
Taking care of business
In many ways professional sports franchises operate like any other business. “We have sales, we have marketing, we have a legal department, accounting, finance, maintenance, custodial,” Leipold says. “So there is a business side that is really, really important, and that’s what generates all the revenue.”
Owners with hundreds of millions or even billions invested cannot profit on television income alone. “To get a return on that kind of money,” Schulz says, “you have to pursue every revenue stream you can.”
New facilities promise revenue waterfalls. Dallas Cowboys owner Jerry Jones — who presides over the most valuable team in football, second only to baseball’s New York Yankees in American pro sports — even turned the old Texas Stadium into his personal mint. Between 1992 and 1993 his stadium-related income increased from $700,000 to $30 million after he added 100 luxury boxes, doubled ticket prices and charged for personal seat licenses. “Suddenly,” Oriard writes, “every owner wanted a new stadium with all the trimmings.”
Pretty soon that included Jones himself, whose AT&T Stadium, known less profitably as “Jerry’s World,” opened in 2009. Between 1992 and 2010, 22 NFL teams (including the New York Giants and Jets together in a single facility) built new stadiums. In all, Pacific Standard reported last year, 101 stadiums and arenas have been built in the past 20 years, “a 90-percent replacement rate — and almost all of them have received direct public funding.”
City and state governments offer incentives to many corporations, but the civic significance of sports — and the sheer volume of taxpayer money involved — magnify support and criticism alike for subsides to owners. In that environment, teams and government entities construct financial arrangements that can be complex to the point of being impenetrable.
Legal scholar Matthew Parlow’s 2002 University of Miami Business Law Review article found that “on the whole” public financing is not worthwhile, but with caveats to that conclusion. “The devil is in the details,” he says, and the mechanisms of repaying public debt vary so much that it’s almost impossible to make direct comparisons.
For team owners, the economic benefits are more straightforward. New facilities come with a virtual guarantee of rising franchise values. “In fact, disparities between sports teams’ values,” Parlow writes, “are related more to arena or stadium revenue than to the geographic market size in which the team plays.”
Another key difference between sports and other businesses is in how that revenue is invested — most notably, and precariously from an owner’s perspective, in a payroll worth hundreds of millions for young players who are one injury from retirement or one indiscretion from disgrace. The emotional investment can be just as immense.
Leipold considers himself a fan, thrilled in victory, morose in defeat. When the Wild wins, “I’m just ecstatic. If I’ve got paper in my hands or something it goes flying, I’m high-fiving everybody all around me, and it’s just fantastic,” he says. “When we lose, the feeling is awful, you’re depressed, no one will look at you.”
On that roller coaster he conditions himself to remember that the players are employees. It’s his general manager’s job to conduct the dispassionate evaluations that determine who comes and goes, to build a hockey team which can give Leipold and his fan base more ecstasy than depression.
Although traditionally kept separate, the sports and business sides are aligned. Coordinated effort between those realms — executive teamwork — can be the difference between success and failure on the scoreboard.
Connections
Two Stanley Cup titles in the past five years have made the Chicago Blackhawks a model NHL franchise, but not long before their renaissance the organization’s prospects were bleak. Stan Bowman ’95, the first general manager to win two championships during the league’s decade-old salary-cap era, credits president and CEO John McDonough for changing the way the Blackhawks do business.
“He wanted to try to have the business operations and the hockey operations be integrated in a manner that had never been done before to his knowledge,” says Bowman, who was an assistant general manager when McDonough arrived. “At the time, I was just eager to try something different because we hadn’t had much success.”
In the years before longtime owner Bill Wirtz’s death in 2007, the team’s archaic approach — including a refusal to televise home games, ostensibly in fairness to season-ticket holders — desiccated its coffers. Rocky Wirtz, who succeeded his father as team chairman, infused $40 million from other family business revenue to fund player salaries. He also hired McDonough away from the Chicago Cubs.
One of the new CEO’s innovations involved regular communication between traditionally separate departments. He had hockey execs like Bowman attend finance, marketing and public relations meetings, and vice versa, to make the overall effort more efficient and profitable. Bowman offers information, for example, on players the team does not intend to retain, allowing the marketing and PR groups to tailor efforts toward promoting the core roster.
The hockey operations staff can also provide incentives to enhance the “products” marketers sell. “Maybe giving people behind-the-scenes access, and sell that as part of a sponsorship, which is going to help get a new sponsor and also it’s going to bring revenue in, which in turn will allow us to sign players to contracts,” Bowman says. “It sort of all works together.”
Few teams have coordinated their efforts to such successful effect. An ad campaign called “I AM” reflects the connection the resurrected Blackhawks have established with their fans. The spots show people in the stands wearing jerseys emblazoned with players’ names while a play-by-play voiceover describes unseen action on the ice. Those fans assume the iconic identities of Jonathan Toews, Patrick Kane and Patrick Sharp.
It’s transparent marketing but transcends that, too, illustrating how the team and its fans have renewed their commitment to each other, creating a relationship deeper than mere customer loyalty. What’s for sale is not a product but an experience.
From the hockey perspective, the game hasn’t changed much over the years, but the approach to assembling a championship roster worthy of such attachment has. Navigating the scouting of pro and college players, the development of minor leaguers and especially the mathematical thicket of the salary cap has complicated front-office functions. “I think the system that kind of governs the player movement and the salary cap and those things are very complex,” Bowman says, “and they weren’t in existence 10 years ago.”
A lot about sports has become more complicated in recent years. Evolving analytics shape which qualities executives value most. This is most prevalent in baseball’s “Moneyball” effect, named for the influential Michael Lewis book about the small-market Oakland A’s disproportionate success-to-payroll ratio.
In The Sabermetric Revolution: Assessing the Growth of Analytics in Baseball, Smith College colleagues Andrew Zimbalist and Benjamin Baumer evaluate the competitive importance of the game’s increasing mathematical sophistication. They found that sabermetric innovations — emphasizing statistics such as on-base percentage over traditionally favored batting average — were successful for teams that used them starting in the late 1990s. “Over time other teams began to incorporate that, too,” Zimbalist said at the 2013 MIT Sloan Sports Analytics Conference. “So what happens in the marketplace is the valuation of these sabermetric insights changes, so . . . something that was undervalued in the past can be overvalued in the future.”
The use of novel statistical ideas is popular in other sports but not easily applied. Their games, Zimbalist noted, “are less discrete and more continuous than baseball is, and . . . the production of the game is much more interdependent, much more cooperative than it is in baseball.” Those sports also don’t have baseball’s decades of open analytical debate and development of best practices, making the use — and therefore the economic and competitive value — of the techniques more opaque.
Ultimately, everybody’s objective is to win. The salaries players command will necessarily prompt a search for skills that matter more but cost less, a constantly moving target as successful innovation inspires copycats.
The free-agent market, on the other hand, fuels competition that, in effect, compensates work already done. “You know if you’re getting a free agent, you’re overpaying, it’s just, how much?” Bowman says. “If you’re trying to build a team that way, you’re going to run out of money really quick.”
Whether it’s the college feeder system for football and basketball or the minor leagues in hockey and baseball, winning grows out of well-tended evaluation and development. Even the richest teams or sports can’t afford to overlook the grass roots.
Staying the course
Peter Bevacqua ’93 directs a leading organization in golf, the sport perhaps most associated with wealth but also one of the most egalitarian, as any weekend hacker with a high handicap can attest. He’s CEO of the PGA of America, “the world’s largest sports organization.” Its 27,000 members include everyone from Tiger Woods to club pros to rules officials to course superintendents. “It’s an unbelievably eclectic group,” Bevacqua says.
As a participatory sport for amateurs — the group that most PGA members serve — golf has been “stagnant at best” in the last decade, he adds, and part of his job is reviving interest. Toward that end, the PGA has instituted a Little League-esque team program around the country and offers a series of five group lessons for beginners, called “Get Golf Ready,” for $99. “We want to loosen up what it means to have a golf experience,” Bevacqua says.
That includes incorporating technology, something the sport has been slow to adapt. “Golf and church,” he says, are the only places left where mobile devices remain off limits. To change that, the association is working with such companies as Samsung to develop technologies that would chart an individual’s game and compete virtually across social-media channels, and could offer detailed, personalized tracking of major professional events such as the PGA Championship.
Bevacqua’s association also oversees the Ryder Cup, the biennial U.S.-Europe challenge matches. “Probably the biggest and most exciting event in golf,” he says. “Granted, I’m biased.”
His bias aside, the Ryder Cup’s popularity highlights a paradox of professional sports. The world’s best players in an individual sport join teams to compete not for a paycheck (although some have asked for one) but for country, with intensity on par with any for-profit major championship.
Money might be the answer to the question, but it’s not necessarily the source of the motivation. Michael Jordan did not tearfully embrace his first NBA championship trophy — and then will his way to five more — because of the salary bonuses. Golfer Phil Mickelson was rich beyond most people’s imaginations before he ever won a major title, but wealth did not relax his championship ambition. And for fans, the vicarious thrill is in the achievement more than the paycheck, those moments when cheering mutes the commercial interruptions.
When Gillette Fusion user Derek Jeter fields a groundball deep in the hole, or Papa John’s part-timer Peyton Manning throws a touchdown pass, or Sprint family plan member Kevin Durant scores point after fluid point, the experience can only be described with a Mastercard slogan: priceless.
Jason Kelly is an associate editor of the University of Chicago Magazine. His most recent book is Shelby’s Folly: Jack Dempsey, Doc Kearns, and the Shakedown of a Montana Boomtown. Email him at jasonkelly545@gmail.com.