What makes sports franchises unique?
In Monday’s edition of the Financial Times, Ian Wylie wrote an article discussing the emergence of MBA programs in the United States with dedicated sports business options.
Wylie fumbles through the opening of the article, as he incorrectly retells the story of a failed play the New England Patriots ran back on Nov. 15. He eventually notes that the Patriots opponent that day was the Indianapolis Colts, who played in the Super Bowl this past weekend. That’s a bit like beginning an article about the State of the Union by referencing an obscure campaign gaffe made by John McCain, but then again, Wylie is British.
After Wylie finds his way out of the woods, he manages to include some fascinating reporting on the subject.
“Sports leagues and teams receive high media coverage but, aside form one or two exceptions like Manchester United [the UK soccer team], most aren’t big businesses or organizations that employ a lot of people,” says Stephen Greyser, marketing professor at Harvard Business School. “And many are still run as family businesses.”
According to Greyser, more sports teams and leagues need to apply the kind of management principles taught in business schools.
I caught up with Greyser and asked him to elaborate on exactly what makes running a sports franchise similar to other businesses and what makes it unique.
“There has to be a focus on consumer satisfaction,” he said. “In sports fan satisfaction is reasonably similar compared to frequently purchased consumer goods.”
But there are many factors that make achieving consumer satisfaction uniquely elusive for sports executives.
“The product is the people on the field or the court or the ice,” he said. “The product ages, and there is a need for refreshing the talent. It’s really challenging to manage in a situation where the product is the people.”
I suggested that the difference between sports franchises and other businesses is how dangerous it can be for sports executives to engage in cost saving measures, especially when the costs being cut are player personnel expenditures. Fans can feel easily antagonized if they do not believe management is doing everything it can to win.
Greyser responded with a question: “What about companies that are cutting back on product on normal consumer good situations?” he asked. “Products in under-filled containers.” He agreed that a cheaply compiled roster is only so dissimilar to a partially filled bag of potato chips.
Nonetheless, Greyser admitted that I had a point, saying that the “naked visibility” of sports franchises makes cost cutting measures more easily identifiable.
Another difference may be the fact that sports franchises are not “growth” businesses in the sense that many other companies are. Yes, a team can always have more fans or sell more apparel, but because of the physical limitations arenas pose (there are only so many seats to fill) and the revenue sharing agreements many of the major sports leagues have adopted there is a ceiling on how much revenue a franchise can bring in.
That does not mean a team cannot accrue value. The Dallas Mavericks NBA franchise is an interesting example. According to Forbes, the team has posted an operating profit only twice since 2000 (2003 and 2007). But because of the franchise’s success (they have not once missed the playoffs over the past decade), and the addition of a new stadium in 2001, the team’s value has risen to $446 million from the $280 million for which owner Mark Cuban purchased it in 2000.
The reality may be that, while franchises do not offer the annual financial rewards most businesses are measured by, a well managed franchise can be a lucrative long term investment.
Tags: Financial Times, sports business
