SIC 7941

This category covers establishments primarily engaged in operating and promoting professional and semi-professional athletic clubs. It also covers establishments engaged in promoting athletic events, including amateur athletics, and in managing individual professional athletes. Stadiums and athletic fields are included only if the operators are actually engaged in the promotion of athletic events. Otherwise, establishments engaged in operating stadiums and athletic fields are classified in SIC 6511: Operators of Nonresidential Buildings. Amateur sports and athletic clubs are classified in SIC 7997: Membership Sports and Recreation Clubs.

NAICS Code(s)

711211 (Sports Teams and Clubs)

711410 (Agents and Managers for Artists, Athletes, Entertainers, and Other Public Figures)

711320 (Promoters of Performing Arts, Sports, and Similar Events without Facilities)

711310 (Promoters of Performing Arts, Sports, and Similar Events with Facilities)

711219 (Other Spectator Sports)

Industry Snapshot

Sports is one of the fastest growing and most complex industries in the United States. According to U.S. Census Bureau figures, in recent years more than 300 professional and semiprofessional sports teams existed in the United States, with almost 20,000 employees. In 2001, companies in the spectator sports industry generated revenues of approximately $20 billion. In addition to established sports like baseball, football, basketball, and hockey, professional clubs also were springing up across the country in sports such as volleyball, soccer, roller hockey, and lacrosse. The industry additionally supported approximately 775 sports management and promotion firms, with about 14,000 employees. In 2001, the U.S. Census Bureau revealed that promoters of arts, sports, and similar events achieved total revenues of about $9 billion.

Some 50 cities host professional sports teams, while more than 100 cities are home to minor league franchises. Salaries paid to top professional athletes increased dramatically during the 1990s and early 2000s, even as team owners continually expressed a desire to stem the tide. For example, in 1998 National Basketball Association star Michael Jordan made in excess of $30 million for a single season of work. In 1999, the Los Angeles Dodgers of Major League Baseball signed Kevin Brown to a seven-year, $105-million contract. In 2002, the San Francisco Giants' Barry Bonds secured a deal worth $90 million over five years. A decade earlier, players in both baseball leagues averaged less than $500,000 in annual salary.

Organization and Structure

Most professional sports teams are organized into leagues that establish rules and regulations controlling nearly every aspect of the business—from competition to player compensation. The three most influential professional sports organizations in the United States are Major League Baseball (MLB), the National Football League (NFL), and the National Basketball Association (NBA). Another large professional sports organization, the National Hockey League (NHL), has franchises in both the United States and Canada, as do MLB and the NBA.

Major League Baseball. As of 2003, MLB consisted of 30 franchises organized into six divisions within two leagues: the National League of Professional Baseball Clubs and the American League of Professional Baseball Clubs. MLB is controlled by the team owners who appoint a president for each league and a commissioner of the entire sport. Bud Selig, formerly of the Milwaukee Brewers, was appointed commissioner in 1998 after acting in that role for several years. Players in the league are legally represented by the Major League Baseball Players Association. Sales for 2001 totaled an estimated $3.5 billion, a 10 percent increase from 2000.

National Football League. As of 2003, the NFL consisted of 32 professional football teams organized into six divisions and two conferences: the American Football Conference and the National Football Conference. The NFL is controlled by the team owners and the commissioner of football, who is appointed by the owners to oversee the league's operation. The former NFL Players Association was decertified after a strike in 1987. In 2001, sales increased by nearly 17 percent from the previous year to reach an estimated $4.2 billion.

National Basketball Association. The NBA includes 29 professional basketball teams organized into four divisions and two conferences: the Eastern Conference and the Western Conference. The NBA also is controlled by the team owners, who appoint a commissioner of basketball. The players are represented by the NBA Players Association. Two professional basketball leagues for women, one of which was affiliated with the NBA, began operations around the United States in the mid-1990s, though by 1998 the NBA-operated league was the only one still in operation.

National Hockey League. The NHL includes 30 professional teams organized into six divisions and two conferences: the Eastern Conference (Northeast, Southeast, and Atlantic Divisions) and the Western Conference (Central, Northwest, and Pacific Divisions). The NHL was formed in 1917, and the players are represented by the National Hockey League Players Association (NHLPA).

Background and Development

Baseball. An American game that evolved in the early 1800s, baseball is thought to be a derivative of the English game "rounders." Rules for rounders, including the number of players and bases, varied widely by locale. Sports historians believe that sometime in the late 1830s or early 1840s, players in New York decided to stop throwing the ball at base runners, an aspect of the rounders game, and begin tagging them out. A commission established by Major League Baseball in 1906 gave credit to Abner Doubleday for inventing the game in Cooperstown, New York, in 1839. However, the commission's findings were most likely rooted in a patriotic desire to brand baseball as a purely American sport. Historians later disputed whether Doubleday did any more than organize a game of rounders.

During the Civil War, baseball was a favorite pastime for northern troops, who sometimes taught the game to their southern prisoners. When the war ended, the game's popularity led to rivalries between towns, and baseball clubs began enticing the best players with offers of jobs or money. James Creighton, a pitcher for the Excelsior Club of Brooklyn, purportedly became the first professional player in 1860 when his team agreed to pay his lost wages so he could join them on a road tour. When the National Association of Base Ball Players was founded in 1858, the organization had restrictions against professionalism. By 1868, however, the association had more than 300 member clubs in 17 states and officially recognized two classes of players, professional and amateur.

By the late 1860s, promoters were building enclosed ballparks and charging spectators for admission. To attract the best teams to their fields, the promoters shared a percentage of the gate receipts. In 1871, players from 10 professional baseball clubs from New York formed the National Association of Professional Base Ball Players. Nine clubs eventually paid a $10 membership and competed for the first national baseball championship.

National League. In 1876, the Cincinnati Red Stockings and seven other teams formed the National League of Professional Base Ball Clubs. The league set ticket prices, agreed to pay umpires, and prohibited playing games on Sundays and selling alcoholic beverages in the ballparks. The league granted the Chicago-based sporting goods company of A.G. Spaulding & Brothers the exclusive right to supply baseballs to the league; the company remained the exclusive provider of baseballs to the league for 101 years. Albert G. Spaulding was a former baseball player in Boston and Chicago who broke ranks with the players' association because he believed baseball needed to be run by businessmen. He later became league president.

In 1878, the National League created the League Alliance to cover minor league baseball. For a $10 membership fee, the National League would recognize a minor league's territorial rights and player contracts. It was the first working agreement between Major League Baseball and the minor leagues. The most controversial act by the young league, however, was its adoption of the "reserve rule" in 1879. The reserve rule, at first a secret agreement among team owners, gave each club the exclusive right to re-sign players from one season to the next. Only if a club gave up that right could a player be signed by another team. In Spaulding's words, the rule was "to prevent competition for the best players." The reserve clause was challenged many times before baseball players won the right of limited free agency in 1976.

American League. Hard hit by the depression of 1893, the National League struggled along with 12 teams until 1900, when the owners voted to eliminate financially weak franchises in Baltimore, Washington, Louisville, and Cleveland. The Western League, a minor league that actually operated in the Midwest, saw this as an opportunity to expand. Changing its name to the American League, it claimed major league status and established teams in Boston, Philadelphia, Chicago, and the four cities abandoned by the National League.

The American League received support from the newly formed Ball Players Protective Association, which urged its members not to sign contracts with National League teams unless the salary cap was lifted. The American League signed several top National League players and in its second season in 1901, surpassed the National League in attendance. When the American League then set its sights on expanding into New York, the National League capitulated by acknowledging the American League as a second major league. The two leagues agreed to honor each other's contracts, enforce the reserve clause, and respect each other's playing territories. The American League was also allowed to establish a franchise in New York that eventually became the Yankees.

In 1903, the National and American Leagues signed another agreement that established a three-member commission consisting of the league presidents and a chairman elected by the club owners to set policy. The two-year-old National Association of Professional Baseball Leagues, which then represented 13 minor leagues, also signed the agreement. Under the agreement, major league baseball clubs, which had been created, moved, reorganized, sold, and disbanded with regularity for the past 20 years, achieved some stability.

Labor Movement. Major League Baseball players were without a labor organization from the time the Ball Players Protective Association folded in the early 1900s until 1946, when the eight-year-old Congress of Industrial Organizations convinced the players to form the American Baseball Guild. In August 1946, the Pittsburgh Pirates debated on striking for better pay and working conditions. Although there was no strike, the threat was sufficient to win some concessions for the players from the owners, including a $5,000 minimum salary, a limit of 25 percent on pay cuts from year to year, and a pension plan.

Decline of the Minor Leagues. The 1950s and early 1960s were turbulent years for organized baseball. Although the minor leagues enjoyed record crowds in the early 1950s, major league attendance fell 25 percent between 1948 and 1952. By the mid-1950s, the minor leagues were also having financial trouble, which was blamed on the emergence of television. Television provided plenty of entertainment at home, which kept people away from both major league and minor league ballparks. Major league teams compensated by negotiating broadcast rights with local television stations, although the results were mixed. In 1959, for example, the New York Yankees received $1 million in television rights fees. In contrast, the Washington Senators received only $150,000; the minor league teams, however, received nothing.

At first, organized baseball tried to protect the minor leagues from the effects of television by restricting broadcasts to within 50 miles of the home ball park, as it had done for many years with radio. But a Congressional investigation prompted organized baseball to lift the restrictions in 1953, and millions of Americans saw their first major league baseball game. When given this choice of watching baseball on television or going to a ballpark, the fans chose television. Although national television exposure gave baseball a boost in the late 1950s and early 1960s, the sport began to slump again in the mid-1960s when interest in professional football rose dramatically. By 1965 baseball games were among the least watched programs on television, and to attract fans to the stadiums, team owners resorted to rule changes, colorful uniforms, exploding scoreboards, and offbeat promotions that were reminiscent of minor-league ballparks.

Labor Relations. Labor relations between the owners and the players also came to the forefront in the mid-1960s. In 1966, Sandy Koufax and Don Drysdale, then all-star pitchers for the Los Angeles Dodgers, presented salary demands to owner Walter O'Malley and forced him to negotiate with their agent, attorney J. William Hayes. Hayes negotiated $60,000 raises for both players, more than doubling Koufax's salary and tripling Drysdale's.

Also that year, the Major League Baseball Players Association (MLBPA), which had carried little influence since it was created in 1954, hired Marvin Miller, a former United Steelworkers of America union official, as its first full-time executive director. Within a year, Miller had negotiated an agreement with the owners that increased the players' minimum salary by more than 50 percent, from $6,000 to $10,000, and increased the owners' contributions to the players' pension plan. When the first agreement expired in 1969, the MLBPA used the threat of a strike to force the owners to recognize the union as the sole bargaining unit for all major league players in everything but salaries. For the first time, the owners also agreed to deal with the players' agents on matters of salary.

The first strike in organized baseball occurred after the second agreement expired in 1972 and the players voted 663 to 10 to walk out of spring training camps. The strike lasted one week past the scheduled opening day and cost club owners about $5 million in lost ticket revenues. The players lost about $1 million in salary. The strike ended when the owners agreed to contribute another $500,000 to the players' pension fund; however, the two sides did not reach a new labor agreement until the next year.

In 1973, the owners agreed that players with 10 years of major league experience and five years with the same team could veto trades. They also agreed to binding arbitration in contract disputes involving players who had been in the majors at least two years—a concession that was to cost the owners millions of dollars in later years. The reserve clause, however, remained intact, especially after the Supreme Court reaffirmed baseball's antitrust exemption in 1972 by ruling against former St. Louis Cardinal outfielder, Curt Flood.

Free Agency. Baseball regained favor with sports fans during the 1970s. The dramatic World Series between the Boston Red Sox and the Cincinnati Reds in 1975 was the most watched sporting event in history. However, the most crucial event for baseball that year came after the season ended. On the advice of their agents, pitchers Andy Messersmith and Dave McNally had played the entire 1975 season without signing their contracts. When the season ended, the two pitchers claimed that the reserve clause, which had guaranteed clubs the right to re-sign players since 1879, did not apply to them because they were not under contract. They were, they said, free agents.

The issue went to arbitration, and Messersmith and McNally's position was upheld by a professional arbiter, Peter Seitz, who was promptly fired by Major League Baseball. The decision, however, forced the owners to face the question of free agency. In the spring of 1976, the owners shut down training camps and threatened to cancel the season until the MLBPA agreed to restrictions on the movement of players between teams, but commissioner Bowie Kuhn interceded and the season began on time. That summer the MLBPA and the league ownership signed their fourth contract, in which they agreed that players could become free agents after six years in the major leagues. Technically, the players became part of a re-entry draft, and the clubs who lost players were entitled to compensation in the form of an additional pick in the amateur draft.

With free agency, players' salaries began to escalate rapidly. The average professional baseball player's salary more than doubled in a short period of time, from $45,000 in 1976 to more than $100,000 in 1979. The owners also began to issue dire predictions that wealthy teams would prosper, while less affluent teams, especially teams in small urban markets without large local television contracts, risked bankruptcy. The MLBPA's response was that television revenues would more than cover rising costs.

In 1979, baseball club owners decided that any team losing a player to free agency should be entitled to compensation in the form of a player from the free agent's new team. Teams would be allowed to protect either 15 or 18 players, depending on the quality of the free agent, but all other players would be at risk. The MLBPA objected and when negotiations between the owners and the union broke off in April 1980, the players again walked out of camp. The season, however, started on time when the negotiations resumed. When the two sides ultimately failed to reach an agreement, the owners unilaterally declared that the compensation plan would become effective in 1981. That led to the most damaging strike in major league history. The players struck on June 11, 1981, shutting down a baseball season that was already in progress. The strike lasted 50 days. It cost the owners an estimated $116 million and the players an estimated $30 million. Polls taken during the strike showed that fans supported the owners over the players, whose average annual salary had by then climbed to $130,000. Eventually, the players and owners compromised on a player-compensation plan. Despite the labor problems, baseball enjoyed a renaissance throughout the 1980s, with record-setting attendance at major league ballparks. Salary levels rose as well, as did debate about the economics of the game.

By the time the players' average annual salary reached almost $1.2 million in 1994, things had taken a serious turn for the worse. "Realizing they are unable to control themselves, or each other, in holding the line on players' salaries, the owners … asked the players to split all revenue 50-50 and accept a salary cap," according to the Detroit Free Press. The relationship between owners and the players' union continued deteriorating in an escalating war of words until August 12, 1994, when players who had refused to accept a new collective bargaining agreement with the salary cap provision walked out of the nation's ball parks and went on strike. They did not return to work for 234 days, which canceled the 1994 World Series for the first time in 90 years and delayed the start of the 1995 season. They went back when forced to by a federal judge. Fan interest was initially slow to rebound, and average salaries declined for the first time in 30 years. MLB responded by adding new franchises (in Tampa and Phoenix), scheduling regular-season interleague play, and embarking on various marketing and public relations efforts designed to boost interest and attendance. In November 1996, owners and players brought the unrest to an official end by finally ratifying a collective bargaining agreement that held into the next century. Significant recovery was evident by 1997, when both attendance and salary figures again began to climb. The recovery was further fueled in 1998 by a chase of the single season home run record, held by Roger Maris. St. Louis Cardinal Mark McGwire and Chicago Cub Sammy Sosa were able to break the record and draw fans back to the ballparks in record numbers.

Football. American football evolved from rugby in the late 1800s. In 1874, Harvard University, whose students played a form of soccer, accepted a challenge from McGill University, a Canadian school that played rugby. The schools played one game of each sport. Afterwards, Harvard switched to playing rugby and introduced the sport to other Eastern colleges in the United States. Walter Camp, who played on and later coached the rugby team at Yale University, is credited with developing many of the rules in the early 1880s that eventually made American football a sport distinct from rugby. For example, he created the center snap and the system of yards and downs. The first professional football game was played in 1895.

National Football League. Professional football remained generally disorganized until the American Professional Football Association was founded in 1920, with the Chicago Cardinals and the Staleys of Decatur, Illinois, as the original charter members. The Green Bay Packers joined the league a year later. In 1922, George Halas and Dutch Sternaman purchased the Staleys for $100 and moved the team to Chicago where it was renamed the Bears. The American Professional Football League also changed its name in 1922 to the National Football League (NFL). The New York Giants made it a three-team league in 1925. Additional clubs joined the NFL throughout the 1930s and 1940s, but, as is the case with many young leagues, the early years of the NFL were characterized by the rise and fall and relocation of many of these franchises.

Rival Leagues. The first of several leagues formed to challenge the NFL was the All-America Football Conference. Founded in 1944, the league played four seasons and folded in 1950. The next challenger was the American Football League (AFL), formed in 1960, which proved to have greater staying power and fan appeal. The AFL began play with teams in New York (Titans), Dallas (Texans), Los Angeles (Chargers), Denver (Broncos), and Houston (Oilers). The Buffalo Bills, Boston Patriots, Oakland Raiders, and Miami Dolphins joined the league over the next five years. The Chargers would move to San Diego after only a year in Los Angeles, and the Texans moved to Kansas City in 1963, where they became the Chiefs, but none of the original AFL teams folded.

The NFL and AFL battled over fans, players, and television revenues for six years before agreeing to merge in 1966 under the banner of the NFL. The first Super Bowl, pitting the AFL champion against the NFL champion, was played in 1967. Regular season play between the realigned National Football Conference and the American Football Conference began in 1970.

There have been two other challenges to the NFL since the American Football League, although neither has lasted long. The World Football League was formed in 1974 and played only a season and a half before folding. The United States Football League (USFL) was organized in 1983 and enjoyed a brief, three-season existence. The USFL played its first two seasons as a spring and early summer league and enjoyed modest acceptance from football fans, even though all of its teams lost money. However, in 1985, the league switched its schedule to the fall and went head-to-head with the NFL, a strategy that proved faulty. Still, the USFL did have a significant impact on the NFL. In 1983, the average NFL salary was $126,000. With the USFL bidding for top college players, the NFL average increased to $205,000 by the 1986 season.

The USFL also filed an antitrust suit in 1984, charging the NFL with conspiring to block a national television contract, deliberately expanding its rosters to prevent the USFL from signing players, tampering with players under contract to the USFL, and refusing to allow USFL teams to play in stadiums that were either owned or controlled by NFL teams. The USFL won the lawsuit, although by then the league had ceased to field any teams. In addition, instead of the $400 million the league had asked for in damages, which would have been increased to $1.2 billion under antitrust laws, the jury awarded only $1.

Union Representation. The NFL Players Association was formed in 1956, and even though the NFL owners refused to acknowledge the organization as a union, the first basic agreement was negotiated in 1957. It covered minimum wages, preseason pay, and medical care and salaries for injured players. The owners formally recognized the union in 1968.

When a contract negotiated with the NFL in 1982 after a 57-day strike expired, the players called another strike during the 1987 season. The owners, however, hired replacement players from the ranks of semipro and former NFL players and continued play. The strike ended after 24 days. Afterwards, in a strategic move, the union voluntarily decertified itself as the players' collective bargaining unit and became a self-described trade association. The move opened the door to antitrust suits by individual players because technically there was no longer a collective bargaining agreement or ongoing negotiations with a union. The union was recertified to represent NFL players in 1993.

Free Agency. Like baseball and basketball players, professional football players achieved a degree of free agency only after a lengthy series of legal challenges. The first significant case involved William Radovich, a former Detroit Lion who jumped to the All-America Football Conference in 1946. The NFL blacklisted Radovich and, in 1948, the NFL prevented him from playing for a team in the Pacific Coast League. Radovich sued and, in 1957, the Supreme Court ruled that unlike baseball, football was subject to antitrust laws. The court awarded damages to Radovich.

Then in 1971, John Mackey, president of the NFL Players Association, and 15 other players challenged the Rozelle Rule, named for the late NFL commissioner Pete Rozelle. The Rozelle Rule gave the commissioner absolute authority to order teams that signed free agents to give up other players in compensation, effectively stopping almost all free-agent signings. In 1976, a Federal District Court in the Mackey case ruled that the Rozelle Rule was unreasonable and had been unfairly forced on the players during labor negotiations.

The NFL draft of college players was also challenged in the 1970s as a violation of antitrust laws. In the key case, James "Yazoo" Smith, who had been drafted by the Washington Redskins, suffered a career-ending injury in the last game of the season. Smith, who did not have a guaranteed contract with the Redskins, claimed that the draft, which limited him to dealing with a single team, prevented him from negotiating a better contract. The court ruled that the draft was unreasonable restrictive and awarded Smith $276,000 in damages.

Armed with favorable decisions in these and other cases, the players association signed a new agreement with the NFL in 1977 that sanctioned the draft and allowed for some restrictions on player movements in return for financial incentives for the players. In another antitrust case that went to court in 1978, the court ruled that antitrust trust laws did not apply because the players had voluntarily given up certain rights when they agreed to the contract with the NFL.

After an abortive strike in 1987, the players association claimed in 1989 that it was no longer a union, and therefore, the expired labor agreement no longer protected the NFL from antitrust suits. The association also claimed that all players would become free agents as their individual contracts expired. NFL team owners argued that the players association was continuing to operate as a union despite its self-decertification.

In the absence of a negotiated contract, team owners also unilaterally instituted a free-agency plan in 1989 that came to be known as "Plan B," as in "let's go to Plan B" when the initial plan fails. Plan B allowed teams to "protect" 37 of their 47 players after each season. The remaining 10 unprotected players were free to negotiate with whatever team they wished. A protected player whose contract had expired could also enter the free agent market; however, his former team had the right to match any offers or to receive draft picks as compensation. Several players challenged Plan B in court, and late in 1992, an eight-member Federal District Court jury in Minneapolis found Plan B was overly restrictive and, therefore, in violation of federal antitrust laws. However, the jury also agreed with the NFL that some restrictions on free agency were necessary.

Finally, observed the Monthly Labor Review, "the National Football League and the National Football League Players Association reached a collective bargaining settlement in 1993 that the parties hoped would auger a more progressive, cooperative relationship, instead of the contentious and litigious one that had existed since the 1980s. In the end, the parties had a seven-year agreement with free agency, and the union was recertified to represent National Football League players." Salary cap figures and free agency restrictions were included in the agreement, and in 1999 the cap was increased to $58 million.

Basketball. The game of basketball was invented by James A. Naismith, a physical education instructor at the former International YMCA Training School in Spring-field, Massachusetts, who needed a game that would keep the school's rugby and football players occupied during the winter months. Naismith's game became so popular that professional basketball teams were formed by 1895, although modern fans would hardly recognize the game.

National Basketball Association. Most early professional teams were touring squads that would challenge a local community's best players for a share of the gate receipts. There were, however, early attempts to organize professional basketball into leagues. The first league was probably the National League. Founded in 1898, it lasted only until 1903. The next major attempt to organize professional basketball was the American Basketball League (ABL). Players on most NBL teams worked for their corporate sponsors during the day and played basketball at night. Teams were often named for their sponsors' products, such as the Zollner Pistons of Fort Wayne, which later became the Detroit Pistons. In 1946, the owners of several professional hockey teams formed the Basketball Association of America (BAA) to help keep their arenas filled during hockey's off-season. The more established NBL boasted better players and more competitive play, but the East Coast-based BAA played in larger cities and better facilities. In 1948, the two strongest teams in the NBL, the Minneapolis Lakers and the Rochester, New York, Royals, bolted to the BAA.

The loss of its two best teams and its fiercest rivalry nearly devastated the NBL. In a desperate attempt to survive, the NBL signed all the graduating starters from the NCAA champion University of Kentucky team and assigned them to a new franchise in Indianapolis. The college stars had all played on the Gold-medal winning U.S. Olympic team in 1948, and the franchise was named the Olympians. The team gave the NBL enough leverage to force a merger with the BAA in 1949. The combined league, which sported 17 teams, was named the National Basketball Association.

Modern Basketball. Professional basketball in the early 1950s was a plodding game characterized more by pushing and shoving than by scoring. In 1954, the NBA instituted two rule changes designed to speed up the game and increase fan interest. The first was to award free throws after a team had accumulated five personal fouls in a quarter. This eliminated much of the rough play and intentional fouling that had bogged down the games. The second rule change had an even greater impact. Stalling occurred when one club held possession of the ball for long periods of time without attempting a shot, and it was a common tactic in basketball. But Danny Biasone, owner of the Syracuse Nationals, proposed giving teams 24 seconds to shoot or lose the ball to the other team. Biasone chose 24 seconds because that would allow each team about 60 shots a game, which was considered an optimum pace. In addition to raising scores so that 100-point games became common, the 24-second clock also had a dramatic impact where it counted most—at the box office. Basketball closed out the 1950s as the fastest growing professional sport in the United States.

Union Representation. The NBA Players Association (NBAPA) was formed in the early 1950s, but it operated more as a fraternal organization than a labor union until the early 1960s. In 1964, however, the union threatened to boycott the All-Star Game unless the owners agreed to improve pensions. The players literally refused to leave the locker rooms until the owners capitulated. In 1967, the union negotiated the first basic labor agreement in professional basketball.

American Basketball Association. The American Basketball Association (ABA) was formed in 1967 and introduced several innovations, such as the three-point shot. Billing itself as "the Lively League," the ABA also drove up salaries by competing with the NBA for the best players. However, the league never achieved financial stability. After a decade of playing with its signature red, white, and blue basketball, the ABA was merged into the NBA in 1976. ABA franchises in Denver, New York, San Antonio, and Indiana each paid $3.2 million for the privilege of joining the NBA. The three remaining ABA franchises in Kentucky, St. Louis, and Virginia folded.

Free Agency. The NBAPA attempted to stop the league from merging with the ABA by filing an antitrust suit in U.S. District Court. The union also challenged the NBA's option clause, which, like baseball's reserve clause, gave teams the exclusive right to re-sign players when their contracts expired. Although the players failed to stop the merger, they did receive a preliminary ruling that cast doubt on many of the NBA's labor practices. Armed with the ruling, the NBA Players Association negotiated an agreement in 1976 that did away with the option clause and league rules, which provided for compensation for teams that lost players to free agency.

The players negotiated further concessions on free agency in 1987. Under the old agreement, players became free agents when their contracts expired, but their old teams had the right to match any offers they received. Because teams were seldom willing to lose star players, bidding on free agents drove up salaries, but few quality players actually changed teams. In 1987, the owners agreed to give up the right of first refusal for veteran players whose contracts had expired. In the first year of the agreement, the liberalized rules applied to players with seven years of experience, but that dropped to four years in 1989.

Salary Cap. The merger between the NBA and ABA eased the pressure of escalating salaries, but the long fight for players, a series of drug scandals, and sagging attendance left professional basketball with serious financial problems. Pro basketball was then the least-watched sport on television, trailing even golf, and the NBA was the only major professional sports league without a national television contract.

By the early 1980s, 16 of the 23 NBA teams were losing money, and four teams were on the verge of bankruptcy. To save the league, the NBAPA agreed to a limit on the total amount that teams could pay in salaries. In return, the owners promised that team payrolls would never fall below 53 percent of the leagues' gross revenues. Although NBA teams were still free to offer multimillion-dollar contracts to their superstars, the salary cap slowed the overall growth of salaries and helped put the league back on firm financial footing. These fiscal steps, coupled with the emergence of a number of particularly popular star players and an upswing in marketing savvy, enabled the NBA to reverse its fortunes. By 1987, almost every NBA club was profitable.

The growth of the league continued unabated into the mid-1990s, as evidenced by increasingly lucrative television contracts and attendance records. Player salaries surged as well. By 1994, the average NBA player made $1.4 million. In 1998, the NBA owners put a stop to the salary surge by putting a cap on the amount that could be paid to individual players. This amount increased based on a player's experience in the league. It is felt that this system may well be a model for other professional leagues to follow.

Hockey. Ice hockey was originally known as ice hurley in the early 1800s and was started in northern Europe. By 1950, it was commonly called hockey. In 1873, J.G.A. Creighton became known as the father of organized hockey after he introduced the sport in Montreal. In 1892, the English Governor General of Canada, Lord Stanley of Preston, bought a trophy that was given to the best amateur team in Canada. By the 1900s, the game was rapidly expanding across the United States and Canada and professional leagues were created in 1904 and 1910. In 1914, two leagues were in existence, the National Hockey Association (NHA) and the Pacific Coast League (PCL). The NHL opened in 1917 with five teams, and the winner played the PCL champion for the Stanley Cup. The PCL folded in 1926 and the NHL was the only remaining professional league.

Approximately 700 players are represented by the National Hockey League Players Association (NHLPA), which is headed by Trevor Linden. The association even had its own television show in the late 1990s—"Be a Player! The Hockey Show," which profiled players and presented trivia challenges. The Stanley Cup is now awarded to the best professional team in the NHL.

Professional sports have assumed ever greater economic importance over the past three decades and the rise of mega-dollar contracts, powerful sports agents, dominant player organizations, fashionable superstar personalities, rewarding product endorsements, and lucrative broadcast deals has mirrored their growing popularity. In the early 1990s, professional sports were arguably more popular than ever before. The NFL and NBA were selling more than 90 percent of all available seats for their games, while MLB was enjoying record attendance. The NHL was steadily increasing in popularity. Television networks were willing to spend billions of dollars to broadcast sports events. Cities were willing to spend millions of dollars to build new stadiums or provide incentives to keep or attract professional sports teams. Sports franchises were escalating in value. In 1997, 52 public companies owned part of the 113 MLB, NBA, or NHL franchises; they were being viewed as "brands" that could be used in many profitable ways.

But in the midst of plenty, most professional teams also faced serious financial challenges due to operating costs, most of it tied up in spiraling player salaries that were rising far more rapidly than revenues. In many instances, teams were faced with declining revenues without any expectation that the incredible growth in salaries would slow.

Revenues. Heady bidding among the major broadcast and cable television networks, plus the sale of local broadcast rights, provided professional sports with steadily increasing revenues throughout the 1980s. Each NFL team, for example, received about $5.9 million from national broadcast rights in 1980; by 1990 that amount had increased to more than $26 million per team. Television revenues for MLB increased from about $3.3 million per team to $14 million. The NBA saw television revenues increase from $1.2 million per team to $5 million. In 1997, football brought in revenues of more than $160 million; basketball garnered close to $120 million; baseball brought in approximately $110 million; and hockey garnered more than $70 million.

In the 1990s, however, fees for sports broadcast rights began to reflect a glut of TV programming and a dearth of advertising revenue. The NBA, the only major sports league with increasing television viewership, signed a four-year, $750 million contract with NBC in 1993 that represented a 25 percent increase over its previous contract. But two years later and with many of its teams already operating at a loss, MLB accepted an unusual $516 million joint contract with NBC and ABC that paid each team only $4.6 million—about one-half of what they received in the final year of the previous deal with CBS. MLB's continuing rebound was reflected in a new national deal in 1996 that put total broadcast revenue at $730 million. Around the same time, the upstart Fox network jumped into the picture and helped up the ante by paying $395 million to broadcast NFL games and $31 million to bring NHL contests to a national audience. The NHL now has a $600 million television deal with ABC and ESPN, and the NFL has a $2.2 billion television contract with four networks through 2006.

The broadcast issue has been more complicated for MLB than for other sports, because its teams also negotiate individual fees with local outlets. Owning to their location in the nation's top media market, the New York Yankees reportedly received almost $60 million in 1997 in total broadcast revenues—more than every other franchise and about three times the league average of $20 million. Baseball teams in smaller markets generally fare far worse, which was one of the prime rationales for the rich team/poor team revenue-sharing program included in the long-delayed collective bargaining agreement accepted in late 1996.

With traditional revenue sources no longer guaranteed, sports franchises in the late 1990s were developing new income sources. Chief among these were new or renovated stadiums with more seats, higher ticket prices, private "skyboxes" and "club sections" that commanded premium prices, and a widening array of commercial licensing opportunities that ranged from jumbo electronic scoreboard advertisements to naming rights for the stadiums themselves. Some teams also struck previously unheard-of endorsement deals with major sponsors; others were purchased outright by corporations that also controlled broadcasting properties or other avenues for peripheral profit. Additionally, in the late 1990s all of the major professional leagues were looking to increase their international operations.

Salaries. The greatest cost involved in operating a sports franchise is the salaries paid to the professional athletes. In the 1980s, free agency, player unions, and seemingly unlimited television revenues combined to drive salaries ever higher. In 1995, according to Financial World, they represented 68 percent of revenues in the NFL, 62 percent in MLB, 49 percent in the NBA, and 41 percent in the NHL. All of the major leagues have tried to reign in these escalating salaries, with different results.

During the late 1990s, the NBA system achieved some initial success in limiting salaries. The NFL-implemented salary cap has been somewhat successful, although it has increased from $37 million in 1995 to $57 million in 1999. An average increase in salaries of $5 million per year per team is not what NFL owners hoped for.

Baseball owners initially tried to stem the rising tide of player salaries by simply agreeing among themselves in the late 1980s not to bid on free-agent talent. But the MLBPA filed suit against the owners, charging collusion. The owners lost the court battle, were ordered to pay $280 million in damages, and saw salaries begin to rise again. In 1992, the average salary for a major league baseball player was slightly more than $1 million and at least 30 players earned more than $3 million annually; in 1997, according to Associated Press figures, the average had climbed to nearly $1.4 million and about 130 players were in the $3 million club.

Current Conditions

By the early 2000s, weak economic conditions led to decreased levels of consumer and corporate spending. This ultimately had a negative impact on cash flow and revenues for professional sports teams, as ticket buyers were less likely to invest in skyboxes and premium club seating. In addition, some observers noted that many of the revenue sources professional teams rely on—including sponsorships, corporate stadium naming deals, advertising, Web sites, and sales of premium seating—were more or less exhausted. As TV ratings declined— much to the dismay of broadcast networks like Fox, ABC, and CBS, which were losing money on long-term contracts—leading sports leagues effectively saw the value of their broadcast rights fall.

By early 2003, challenging conditions within the industry had forced some teams into bankruptcy. Many owners subsequently put their teams on the market. According to Business Week , across the four major professional sports, some 20 teams were for sale in early 2003. Conditions were particularly bleak in the NHL, where analysts indicated that approximately one-third of the league's teams were for sale. Making matters worse, sellers were faced with a limited universe of potential buyers. Interested investors had the advantage of choosing from a wide variety of cash-strapped teams in a number of different markets.

Among the owners seeking to exit the industry were corporations and entertainment companies, which began to view sports teams as not fitting into their core business offerings. For example, Fox Entertainment Group, Inc. sought to rid itself of the Los Angeles Dodgers; the Walt Disney Co. sought to sell the California Angels; and entertainment giant AOL Time Warner sought to divest its Turner Sports subsidiary. Turner Sports owned three Atlanta-based professional sports teams, including the NHL's Atlanta Thrashers, MLB's Atlanta Braves, and the NBA's Atlanta Hawks, among other sports interests. In response, banks stepped in with creative financing arrangements to accommodate such high-stakes deals. American Banker reported that by the early 2000s a number of leading banks, including J.P. Morgan Chase & Co., Bank of America Corp., and FleetBoston Financial Corp., had established teams of bankers who were dedicated to working on deals involving sports teams. This was in stark contrast to the early 1990s, when such ventures were not of interest to many bankers. As the publication explained, "With player salaries and stadium costs skyrocketing, teams are increasingly relying on banks to arrange financing and negotiate franchise sales."

Although the number of new stadiums being constructed was slowing during the early 2000s, the influence of corporate naming had been significant within the industry. According to Advertising Age , across the four major professional sports leagues, more than 50 stadiums had corporate names by late 2002. These collectively represented some $3 billion in revenue for sports teams. In addition, Forbes indicated that in 2002 alone, such deals were responsible in garnering about $500 million for sports teams. In an industry climate where revenue new streams are increasingly scarce, such deals are almost certain to continue.

Industry Leaders

Driven by multimillion-dollar television contracts, the value of professional sports franchises ballooned in the 1980s, increasing an average of 20 percent per year. However, as television contracts and other revenues became less certain in the early 1990s, franchise values began to fall.

In early 2003, Forbes reported that the top professional baseball teams by value were the New York Yankees ($849 million); the New York Mets ($498 million); the Boston Red Sox ($488 million); the Los Angeles Dodgers ($449 million); and the Atlanta Braves ($423 million). The most valuable NFL franchises were the Washington Redskins ($845 million); the Dallas Cowboys ($784 million); the Cleveland Browns ($618 million); the Carolina Panthers ($609 million); and the Baltimore Ravens ($607 million). The most valuable NBA franchises were the Los Angeles Lakers ($426 million); the New York Knicks ($398 million); the Chicago Bulls ($323 million); the Dallas Mavericks ($304 million); and the Philadelphia 76ers ($298 million).

Gaining entry into the world of professional sports ownership has consistently become more expensive. In 1996, Financial World said it would cost at least $150 million to start up a new baseball or football team and $100 million for a team in basketball or hockey. By the early 2000s, the cost for new professional teams had surpassed $500 million.

Further Reading

Alexander, Charles C. Our Game: An American Baseball History. New York: Henry Holt and Company, 1991.

Badenhausen, Kurt, et al. "Inside the Huddle." Forbes, 2 September 2002.

Bjarkman, Peter C. The History of the NBA. New York: CrescentBooks, 1992.

Boraks, David. "Preferred Issues: Financing Pro Sports No Longer Just a Niche." American Banker, 2 December 2002.

De Reza, Christopher. "Box Seats No Longer Promise Profits." Asset Securitization Report, 10 February 2003.

Deacon, James. "Spoiled Sports." Maclean's, 17 February 2003.

Fatsis, Stefan. "Sports Teams For Sale." The Wall Street Journal, 13 February 2003.

Grover. "Name Your Price, Sport." Business Week, 10 February 2003.

Hahn, Avital Louria. "A Blueprint for Pro Team Sales?" Investment Dealer's Digest, 24 March 2003.

Hoover's Company Capsules, 30 April 2003. Available from .

"In The Money." The Denver Post, 3 April 1997.

Kump, Lesley. "Naming Rights." Forbes, 28 October 2002.

"Naming Rites." Advertising Age, 28 October 2002.

National Hockey League Players Association. "What is the NHLPA?" 30 November 1999. Available from .

Ozanian, Michael K., and Cecily J. Fluke. "Inside Pitch." Forbes, 28 April 2003.

U.S. Census Bureau. 1997 Economic Census—Arts, Entertainment, and Recreation. Washington, DC: GPO 2000.

——. 2001 Service Annual Survey: Arts, Entertainment, and Recreation Services. 2 December 2002. Washington, DC: U.S. Department of Commerce, Economics and Statistics Administration, U.S. Census Bureau. Available from .

Weinberg, Ari. "The NBA's Most Valuable Teams." Forbes, 6 February 2003.

Zimmerman, Paul. "Strapped." Sports Illustrated, 18 January 1999.

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