The Business of Sports: Where’s the Money?

The Business of Sports: Where’s the Money?

Dr Justin Wolfers Assistant Professor of Economics www.stanford.edu/people/jwolfers jwolfers@stanford.edu

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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Why the Business of Sports?

For all his brilliance, we’re going to have to replace Trewell. He never quite seems able to reduce his ideas to football analogies.

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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ta R W e te ho t a le il s B C us o H ale in ns ea es tr u lth s ct se i o rv n ic B an es k O t h U ing C er til om s it m ervies un ic i c es at io C Spo n h r El emi t s ec ca t M ron ls ac ic In hin s su er ra y nc e Tr Foo uc d ki n Le g Pr ga in l tin A g ut M os et Fa als Fi rm n s A Oi anc ut l & e o se g a rv s ic es

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Output measured in billions of $US pe

Gross Domestic Sports Product Output by Industry

$1,000

$500

GDP: Top 25 Industries

$750

The Sports industry is the 11th largest, reflecting around $152 billion of output, or just over 2% of GDP

$250

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB 3

Decomposing the Sports Industry Entertainment 30%

Products & Services 65%

Advertising revenues 5%

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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Decomposing the Sports Industry Sports medicine 13%

Participation fees 22%

Admissions 4% Pari-mutuel 2% Concessions 2% Sports equipment and footwear 50%

Advertising 5% Publications 2%

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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Decomposing the Sports Industry

Participation 84% Sports Fans 16%

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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The Business of Pro Sports Big Four Sports: Valuing the Leagues (Approximate Values; $Million) $18,000

$13,500

$9,000

$4,500

$0

Football (NFL)

Baseball (MLB)

Basketball Hockey (NHL) (NBA)

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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Attendance Big Four Sports: Annual Attendance (Total bums-on-seats; 2001) 80,000,000

60,000,000

40,000,000

20,000,000

0

Football (NFL)

Baseball (MLB)

Basketball (NBA)

Hockey (NHL)

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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TV Deals NFL:

Deals with Fox, CBS, ABC, ESPN worth $17.6 billion; with DirecTV worth $2 billion MLB: $2.5 billion contract with Fox; with ESPN worth $800 million NBA: $4.6 billion with AOL Time Warner and Disney NHL: $600 million with ABC/ESPN

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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Economic Structure of Pro Sports MLB

NFL

NBA

NHL

Gate Receipts

39%

29%

41%

60%

Media Rights

38%

55%

37%

15%

Venue revenues

19%

10%

13%

19%

Miscellaneous

4%

6%

9%

6%

60%

73%

58%

56%

Revenues

Expenses Player salaries

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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Participation inSports: Big 42001 Sports Participation in Millions of Participants

30

20

10

0

Football (inc. Touch)

Baseball/Softball

Basketball

Hockey (Ice/Roller)

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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Gym Hiking Walking Cycling Golf Swimming Skating Shooting Fishing Aerobics Bowling Boating Billiards/Pool Skiing Basketball Baseball/soft Jogging Football Darts Soccer Volleyball Tennis Self-defense Riding Horseshoes Table Tennis Scuba Badminton Gymnastics Hockey Wrestling Cheerleadin Racquetball Handball

Millions of Participants

Participation in Sports Participation in Sports: 2001

100

80

60

40

20

0

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB 12

The Future: Women in Sports

In 1972 Congress passed Title IX of the Educational Ammendments Act – Schools required to provide equal access to sports for women as for men – Currently under review by the Bush administration – In 1972, 1-in-27 girls played sports; today 2 in 5.

Consider the Title IX generation: – – – –

World Cup soccer champions (Mia Hamm) WNBA has become a viable commercial league Fledgling WUSA soccer league shows early success Olympic gold medallists: Since 1984 US women have won 301 gold medals (of a total of 1285 female golds = 25%) – 80% of female CEO’s of Fortune 500 companies have sports backgrounds

Women’s apparel and athletic gear market yields revenues in excess of $20 billion Did you know? Women purchased 46% of official NFL merchandise last year

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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High School Sports 5,000,000

High School Sports Participants

3,000,000 2,000,000 1,000,000

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

2001-02

1999-00

1997-98

1995-96

1993-94

1991-92

Year

1989-90

1987-88

1985-86

1983-84

1981-82

1979-80

1977-78

1973-74

0

1971

Number of competi

4,000,000

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Soccer: “The Big Five?

S po rts Partic ipatio n by Ag e 40,000,000 35,000,000 30,000,000 25,000,000

Ba s ke tba ll S occe r

20,000,000

Footba ll 15,000,000

Ba s e ba ll

10,000,000 5,000,000 0 Tota l

Unde r 18

Unde r 12

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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Conclusions The

sports industry is large It is growing While professional sports are only a segment of the sports industry, the Big Four sports realize massive revenues and huge mindshare The future: – Participation numbers suggest that the mindshare of the Big Four may decline – Soccer may be the sleeping giant – Massive transformations as women become more important consumers of sports The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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Some Issues in Sports Economics

Peculiar structure: Sports teams do well if their opponents do well (“competitive balance”) – Parity issues, revenue sharing, salary caps, luxury tax

Labor relations: One of the most highly unionized industries in the US – Labor agreements, strikes, role of agents, arbitration

Competitive threats: Rival leagues, rival sports, rival entertainment (and antitrust) Market size: Small market and big market; national market and international Politically salient industry – Stadium agreements and public financing

Competing objectives: Profit, public interest, owner’s whims – How to define success; building a successful organization The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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Scorecard: The Health of Pro Sports Force Shaping the Future

NFL

NHL

NBA MLB

Market Growth Labor Relations TV and Media League Leadership Ownership Stability Other?

Recommendation: Buy/Sell/Hold???

The Business of Sports: Where’s the Money? Justin Wolfers, Stanford GSB

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