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‘It’s not a typewriter plant’: The economic gospel of sports according to Don Fehr
Published February 14, 2011, Page 28
“You had a growing economy that was spending more and more on recreation and entertainment,” he said. “It’s different than an industry where the products may have gone out of favor, or where they had pressure from more direct kinds of traditional economic competition. It’s not a typewriter plant.”
Yet that same economic model that looks so healthy in one respect — higher total attendance, more money being spent on tickets and ancillary products, new facilities that enable franchises to create incremental revenue streams — seems fundamentally unsound in others. Reports have more than half of NBA teams losing money, half a dozen NHL teams flirting with bankruptcy, and profit margins down from coast to coast. Not surprisingly, owners in all four leagues have talked about the need for concessions.
Fehr explains the discrepancy by inventing a hypothetical sports league. Franchises cost from $10 to $40. “You start generating a lot of revenue,” he said, “and everybody’s making a lot of money. So management decides to sell and take their profits.” Because they’re such successful business, those franchises that originally cost from $10 to $40 are sold to new owners for, say, $100 to $200. Revenue has remained steady, but the investment cost of the owners — now often involving debt service — is now far higher. “And they say, ‘My God, I’ve got to have concessions,’” Fehr said. “The players haven’t done anything different. But the new owners want a return on their investment, and the investment is much bigger. The world has changed in a way the public won’t see.” The same franchises are playing in the same places. They’re just as popular, and bringing in the same amount of revenue. But suddenly, it’s a precarious economic model. In Fehr’s mind, that’s hardly the players’ fault.
As for salaries driving up the cost of tickets, a common management claim, Fehr argues strenuously that it just isn’t so. “A businessman says, ‘Given my reasonable revenue projections from tickets, concessions, parking, TV, signage, central revenue from whatever it is, what can I spend on players? It’s not, ‘Gee, I want to have Joe Jones and he costs X, so I’ve got to charge Y, so it’s the fans’ fault if they don’t come.’ That’s not the way it’s done.”
Beyond that, Fehr believes that high player salaries, in the form of superstar contracts that make the headlines and generate the talk-show controversy, actually contribute to the glamour and ultimate success of sports. “Back in Hollywood in the ’50s we started defining everyone by how much money they make,” he said, “And the smart owners and the moviemakers and the Broadway producers say, ‘My guy is so good, I pay him this much. You can’t find anybody that good. You should go and watch him. You can’t see this anywhere else.’ And they make him a celebrity. The same thing with Reggie Jackson and Catfish Hunter as with Nureyev and Barbra Streisand.”
It’s the position a union leader would take, of course. But during the time that Fehr has argued it, the average MLB player salary has increased from $100,000 to more than $3 million, and franchise values have jumped exponentially. Someone on the far side of the table must be listening.