The Sports Business

Subject: Sports
Type: Analytical Essay
Pages: 10
Word count: 3199
Topics: Capitalism, International Business, Management, Soccer
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Introduction

The history of sports dates back to around 4000 years ago.  During the period,horseracing was the most popular sport played in Greece. At around 3000 BCE, chariot racing and archery started to gain popularity (Baimbridge et al, 1996). These were soon followed by athletic competitions that had rules.  In 1000BCE, the first games with a cash price were played in Greece. The first Olympic Games were held in Greece in the year 776BCE. Note that these games were played as a symbol of health, prestige, and control but did not have any financial value attached to them. The games acted as a transition into the way modern sports is shaped currently. Soon after the growth of gladiator, games and mass betting among the rich became exceedingly popular. In the wake of the 19th century, the Marxist viewed sport as an avenue through which people would become united. The unity associated with sports would in time be transmitted to the capitalist industrial society. (Baimbridge et al, 1996). The modern sport as we know it was developed through bureaucracy, quantification, and rationalization. Essentially, the shaping of the modern game is because of the laws established and the procedures that followed.

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The first steps towards the modernization of the sports were made by the Marylebone Cricket Club (MCC). This was followed by the establishment of Royal Ancient Golf Club and the Jockey Club. During this time, the managers of the clubs noticed that the clubs could be viewed as entities that have their own rules that guide their operations (Elias et al, 2014).  The central focus of this study will be delving into the commercialization of sports. In addition, an assessment of how commercialization has led to dominance in performance of certain teams in different leagues will prove vital in the study. Moreover, an in-depth look at the challenges that are faced by the sports management across the contemporary sports organizations will also be critical in this analysis. Finally, a focus on how income earned by teams influences the competition in the leagues and what impact the perceived dominance has on the growth of the clubs and the league in general.

Development of the modern sport

The formation of modern sports was as a realization that sports can stand on their own and through their set laws.  The understanding that sports can stir rivalries, bring a competitive spirit as well as create value in form of the financial revenue sport collects enhanced its development (Borland et al, 2016). In order to achieve this, the sports managers realised that they needed a league that they could operate in.  This realization that sports as a business is a gradual process is credited for path that the moderns sport has adopted (Borland et al, 2016). The formation of a league would form a crucial part to the selling of the sport. For instance, the establishment of a league meant that the competition between different clubs was highlighted. In addition, the league meant that teams had to invest in order to get the prices offered by the football association. In most cases, establishment of the league also meant that there would be better monitoring of the funds that have been shared to the different clubs. At the onset of the 19th century, the clubs that were part of the league were attracting huge crowds. Therefore, huge corporate and industries saw the crowds as a way of advertising their products.  In 1976, southern league club Kettering Town became the first club to have a kit sponsor. However, the first league team to have a kit sponsor was Liverpool in 1979 (Baimbridge et al, 1996).  During the time other revenue was collected form the media attention to sports, purchase of tickets when people wanted to watch the games in the stadia, involvement of the state for the sake of either control or prestige among others. These factors are responsible for the changes that have been experienced in the modern sport. In fact, currently, most of the revenue that is collected from sports is because of other factors apart from the game itself (Kashani, 2012).

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For instance, TV rights in games such as football and baseball rake in huge revenue. Note that the English premier league made 5.136 billion sterling pounds for the rights sold to sky sports alone. On the other hand, the NFL has made over 15.2 USD in the 2017 season from the TV rights.  The worldwide interest in popular sports has made the games transcend and become multibillion enterprises. For instance, football clubs such as FC Barcelona and Manchester United have grown to become global giants that earn massive revenue (Elias et al, 2014). As of 2016/2017 season, Barcelona made 18 million Euros after tax. On the other hand, Manchester United made 50.4 million Euros making it the biggest sports franchise in the world according to Forbes Magazine. Out of the figure, 12 million was attributed to have come from TV rights (Borland et al, 2016).. These returns prove the doubters who at the inception of the modern games viewed the games as a total waste of time.

Emergence of the first professional league

The development of the game in England led to the formation of football clubs. The first football club to be formed was Sheffield United in 1855. After this, the Football Association (FA) was founded in 1863 with an aim at administering control over the game. The first competition the FA Cup was initiated in 1871. This was soon followed by the establishment of a four-team league in 1888/89(Elias et al, 2014).  The growth of the league was mainly influenced by increased competition and the willingness of people to pay in order to watch games. . As a result, a period commonly referred to as the commercialization period arose. The Kettering Tyres Company and Hitachi were the first sponsors of clubs in England. The growth of sales that was exhibited by the company due to the advertisement they made through the teams T-shirts was responsible for emergence of multiple sponsors in the league. . This meant that the competition in the league grew and dominance in the performance of the teams declined.

In 1992, the Premier League was formed. Note that, the league was specifically formed in order to allow for the access to larger broadcasting rights. At the time, sky sports signed and agreed to showcase the league on television. The uniqueness of the product that the broadcaster was expected to sell was based on the uncertainty of the outcome of Matches. This was because of teams being evenly balanced across the league (Flores et al, 2010). Unlike in most businesses, sports require competition for it to thrive. Monopoly in sports is an attribute that can lead to the collapse of the entire sports business. In fact, the income that is to be earned in sports is gained when there is a lot of competition. In most cases, Most of the competing teams do not see each other as rivals in term of finances. The rivalry between most teams starts and ends on the field. Most club owners face the challenge of determining whether performance should be measured in terms of off-field success (profitability and the number of fans) or on field measures such as trophies and league standings (Flores et al, 2010). In recent times, for a club to be considered successful, they have to be able to perform well both on the field and off the field (Rosen, 1981).  Therefore, the assertion that clubs that hold top positions are likely to be the same clubs that have more financial muscle than their other peers is true. This assertion is supported by the fact that the clubs receive higher earnings in form of TV rights as well as the fanbase that they enjoy.

Revenue trends and composition

Revenue trends and composition are affected by several factors. These factors are either long-term factors, medium factors, or short-term factors. Examples of long-term factors that influence sport and its revenues include the size of the market, social economic abilities of individuals, competition from other clubs as well as the social culture and a clubs history (Borland et al, 2016).. On the medium term, factors such as loyalty of the fans to their team as well as the performance of the team across the season also affect a teams’ general performance. In the short term, weather patterns, the day of the week a match is played, as well as the number of recent home matches, influence the revenue of a club in the short term. If one keenly observes, you may notice that teams with a social culture such as Celtic and Barcelona may have a higher attendance level and higher revenue as compared to teams that are currently on a sudden ascendance such as Tottenham and Manchester City.

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Note that, the social economic characteristics of a region may also determine the price of the tickets sold to the spectators. For instance, a season ticket in the Romanian league is expected to cost far less than a season ticket in the Major League Baseball (Collins, 2013). Essentially, spectator demand is determined by the uncertainty of the outcome as well as television. The uncertainty of a contest is the leading cause of an increase in revenue returns to a league. Note that, if the matches are predictable it is very common to find individuals shying away from attending matches or even watching them on television. In recent times, TV rights have become a major contributor to the revenue that a club earns. In fact, bigger clubs benefit immensely from the TV rights as compared to their less popular peers. This is because of the rights being granted to teams because of merit rather than because of participating in the league (Kashani, 2012).  In the end, if a single club decides to dominate the league, the general competitiveness of the league drops. This scenario has been recently observed in the French and the German league where a single team has been able to win the league consecutively for several seasons (Flores et al, 2010). In fact, the two leagues, which were worth more than the Premier League during 1980, are currently lagging behind both the English and Spanish league.

The globalization of the modern game has led to an increase in revenue. Most of this revenueis derived from broadcast media. Note that, traditionally, the media did not showcase all games to a global audience (Collins, 2013). However, the growth of technology and the digitalization of the broadcasts have made it possible for the teams to collect TV rights revenue from across the world. As of 2016, over 15 million people watched the Tour De France on television. The figure is two million more than the viewers of the previous year. This is further testament of how sports viewership is bound to increase. On the other hand, over half the American population watched the super bowl final in the same year. In spite of this, the Olympics and the world cup still remain to be the largest attraction to viewers across the world. In fact, it is approximated that over 2 billion people watched the world cup final in Brazil. such huge numbers are responsible for the huge TV rights that come with the games.

This tremendous growth of TV rights means that clubs and individuals are earning more and more due to participation in sport. Note that, the rise of the Premier league’s revenues from TV rights from 191 billion sterling pounds to the over 5.136 billion means that the clubs that the clubs in the premier league are at an advantage when compared to their peers from the French or German league.  Notice that the high revenue among all the teams of the premier league makes the league the most competitive in world football (Collins, 2013). Leagues such as the Spanish league that has been dominated by two teams over the same period gather less revenue in comparison to the more competitive Premier league.

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Impact of revenue on the competitive balance

In recent times, there has been a concentration of success in specific clubs across the world. This success has been a major concern to the development of the leagues and more specifically the emergence of new teams that can dominate the game (Flores et al, 2010). The increased rewards in the leagues mainly through TV rights have led to a competitive imbalance. Noticebly, the teams that have been recently successful have financial mantle and as a result are able to dominate the game. Over time, this leads to a decrease in TV viewership and ticket sales as the product becomes more predictable.

For instance, the first final between the Golden State Warriors and the Cleveland Cavaliers attracted a huge crowd as compared to the one held in the subsequent year. The financial ability of the two teams meant that it became very difficult for teams from their own conferences to compete with them in turn, the turnout for the league’s games decreased due to the predictability of the result when one was facing either of the two teams (Collins, 2013). Note that, TV rights are usually distributed based on proportional value rather than as a rest of sporting merit. As a result, countries with smaller TV audiences are at a disadvantage since the revenue collected by clubs in such countries is considerably low. For instance, the size of the TV audience in the Scottish league is lower as compared to the Spanish or English Premier league; as a result, teams with higher sporting merit such as Celtic may be at a competitive disadvantage as compared to teams in the lower ranks of the Spanish and English games. As such, smaller teams end up being more financially equipped as compared to their stronger counterparts in disadvantaged leagues. Competition between such teams is usually in danger of being replaced by structural self-perpetuation.

Total dominance by teams from the four major Europeans league in the champion’s league is another example of structural self-perpetuation (Kashani, 2012, p.76). Note that, Chelsea, Manchester United and Arsenal have been constantly entering the Champions League group stages for several years. The same case applies to Barcelona and Real Madrid in the Spanish league. These same teams have also won a majority of the league titles in their countries since the inception of TV rights (Kashani, 2012, p.77). Essentially, this means that the teams have more financial muscle as compared to their competitors from the other European nations. As a result, the status quo of the champion’s league would always remain the same because of this teams being able to acquire the best players and managers. In addition, the teams would also be able to enjoy a global fan base. This fan base will not be shared with the teams, which are disadvantaged leading to dominance. In the end, this dominance would mean that the outcome of the games would be more predictable making the demand for the product to go down.

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In the Italian league, the country has allowed each team to be able to sell its own TV rights. In some instances, this has led to the dominance of the three most popular teams in the country Inter Milan, ac Milan, and Juventus.  Because of each team selling their own rights, the three teams were handed a competitive advantage because of the support that they have in the country. In fact, the three clubs have won all the league title since 2008 (Flores et al, 2010, p.571). Essentially, this has led to lower attendance numbers in the pitch with most grounds only recording half the total number of people it would take to fill the stadiums.  On the other hand, the three teams continue to enjoy the support of their fans with full capacity stadium attendance a normal occasion in their operation.  Considering the general success of the league is attached to higher revenue, the three teams agreed to share 18% of their earnings from TV rights to the rest of the teams in the league (Flores et al, 2010, p.576). This amount was expected to increase competition and the general quality of the league through the promotion of an uncertain product. Note that, the legislation passed in 2007 was passed too late when the clubs had already established their dominance. The dominance of Barcelona and Real Madrid is also attached to the teams getting over 45% of the TV rights that are guaranteed in the league.

Conclusion

In general, it is safe to say that the changing of sports from being considered as pass time activities into the full-time multibillion businesses they currently are can be attributed to the restructuring of the sports through the creation of rules. The realization that people could make money from the sports also led to the massive changes that are experienced in the current world of sports. Note that, competition and the uncertainty of the product increase the value of sports (Flores et al, 2010). Therefore, it is important to always have positive competition on the field. In most cases, this competition is responsible for the viewership that is either in the form of TV rights or stadium entrance fees. Note that, there has been a loss of competition due to the dominance of teams that have strong financial backing due to the huge revenues that they are able to collect from the sports. In fact, the maintenance of the status quo in modern sports is associated with the difference in financial abilities between clubs worldwide. Clubs such as the Cavaliers and Barcelona are set to dominate their respective leagues due to the huge difference in sponsorship and Rights that they have been able to acquire as compared to many of the teams in their respective leagues. Eventually, this leads to the loss of the competitive edge of the league. In the end, this loss of competition bites the leagues by reducing the number of people who attend the games and lowering the revenue returns that have been recently on an upward spiral.

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Did you like this sample?
  1. Baimbridge, M., Cameron, S. and Dawson, P., (1996). Satellite television and the demand for football: A whole new ball game?. Scottish Journal of Political Economy, 43(3), pp.317-333.
  2. Borland, J. and MacDonald, R., (2016). Demand for sport. Oxford review of economic policy, 19(4), pp.478-502.
  3. Cashmore, E., (2015). Making sense of sports. Routledge.
  4. Collins, T., (2013). Sport in capitalist society: A short history. Routledge.
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  6. Elias, N. and Dunning, E., (2014). Quest for excitement. Sport and leisure in the civilizing process. Basil Blackwell.
  7. Flores, R., Forrest, D. and Tena, J.D.D., (2010). Impact on competitive balance from allowing foreign players in a sports league: Evidence from European soccer. Kyklos, 63(4), pp.546-557.
  8. Kashani, O., (2012). Regulating competitive balance in sport (Doctoral dissertation, Nottingham Trent University).
  9. Rosen, S., (1981). The economics of superstars. The American economic review, 71(5), pp.845-858.
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