Academic journal article International Journal of Sports Marketing & Sponsorship

A Comparative Study of Market Entry Strategies in Sport Leagues: Two Australian Examples

Academic journal article International Journal of Sports Marketing & Sponsorship

A Comparative Study of Market Entry Strategies in Sport Leagues: Two Australian Examples

Article excerpt

Executive Summary

Existing sport leagues are subject to the potential market entry of new leagues playing essentially the same sport. This is despite the tendency for these leagues to operate as monopolies. Two particular cases are examined in this paper: World Series Cricket and Super League, each of which has its origins in Australia. In these cases, the role of the media in the creation of both new leagues was crucial, providing a commercial rationale for entry, as well as seed-funding and organizational capabilities. The media also helped spread the risks and costs of entry between the media, promoters, venues and players, while strategic input competition for venues and players helped weaken the incumbent league.

The cases are analysed in accordance with contestability theory. This theory suggests that markets can only be regarded as perfectly contestable if there are no entry and exit barriers, monopolists can be replaced totally and rapidly, and there are no costs of entry.

In examining the cases against these criteria, the authors find several common points in the entry of rival leagues into preexisting monopoly competitions. First, the incumbent leagues were oblivious to the prospect of rivalry and therefore did not put in place sufficient protective entry barriers. Second, through poor management of inputs (players and venues), the incumbents left themselves open to poaching and the opening of new or neglected markets. Because of media organisation involvement this could be achieved rapidly, thereby allowing for possible replacement of the monopolist in a very short time. Third, because of the huge cash reserves available to media organisations and the large rewards on offer, entry costs in terms of scale are minimised and principally borne by players and clubs.

It is suggested that sport managers need to develop strategies that will address competition issues, in particular media-driven competition. This involves a clear understanding of the role of players in new entry and a need to consider how to spread broadcasting so as to reduce the attractiveness of creating a new league.

A Comparative Study of Market Entry Strategies in Sport Leagues: Two Australian Examples

The status of professional sports clubs as economic enterprises is unusual. On-field success does not necessarily bring commercial success and failure to win trophies and championships need not imply failure as a profit-making concern. For example, between 1980 and 1989, San Francisco, the most successful team in the USA's National Football League (NFL), suffered a $45 million loss, while arguably the least winning team of that period, Tampa Bay, made a $47 million profit. In addition, existing clubs within a league are commercially privileged by their league membership--an enormous commercial asset, as without on-field competition any new club lacks the symbolic reason for its existence (1). Clubs cannot exist in isolation, requiring entry to the league in order to engage in on-field competition. The same, however, does not apply to a league. While a club has to be part of a network of competing clubs, a league best exists commercially without competing leagues. For these reasons leagues, rather than the clubs themselves, are an appropriate unit for analysing sport market entry strategies.

The media are crucial in providing a commercial rationale for entry to a putative league. But existing media organizations, especially those that are lacking rights in certain sports, can provide not only a market but also seed-funding and organizational competencies. Under these conditions, incumbent monopoly sports leagues are open to potentially much greater ease of entry (and possibly exit) in their markets. In this paper, we discuss some simple analytics of market entry and exit--in particular, contestability theory--in order to interpret two Australian cases (cricket and rugby league) of new league entry. …

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