Academic journal article International Journal of Sports Marketing & Sponsorship

Media Ownership of Pro Sports Teams: Who Are the Winners and Losers?

Academic journal article International Journal of Sports Marketing & Sponsorship

Media Ownership of Pro Sports Teams: Who Are the Winners and Losers?

Article excerpt

Executive Summary

The professional team sports industry is characterised by a "peculiar" economics, strategic complexity and intense structural change. An important recent trend in the industry has been the full or partial acquisition of teams by media groups. This represents vertical integration--the move of a business into another stage of the value chain. Teams are content providers; media groups are distributors. The ownership of teams by media groups is upstream (or backward) vertical integration as media groups move into a prior stage in the value chain.

Economic theory suggests that lower costs, reduced uncertainty and increased market power provide general explanations of vertical integration. The industry-specific reasons why media groups should want to own teams include security of access to broadcasting rights, a hedge against structural uncertainty in the sport (especially with the development of the Internet), greater control over programme costs and a closer involvement in the sport's decision-making processes.

Vertical integration in the professional team sports industry has potentially far-reaching implications for teams, leagues and fans that may ultimately undermine the sporting and financial viability of leagues. The crucial issue is the impact of media ownership on the corporate objectives of teams. The adoption of a "loss-leader" strategy with media groups prepared to bankroll teams in pursuit of sporting success may destroy the competitive balance of leagues as well as accelerating player wage inflation. Fans of media-owned teams may benefit from the acquisition of more star players but may resent the loss of their team's independence. Fans of other smaller teams may become increasingly disillusioned, as their teams become "doormats" with little or no prospect of sporting success.

The possible serious consequences of media ownership of teams may necessitate intervention by sports administrators and government regulators. Such intervention must be based on appropriate analytical frameworks that identify the key policy issues and provide an understanding of the economics of the professional team sports industry. This paper is a contribution to this urgent research task.

Introduction

An important trend in recent years in the professional team sports industry worldwide has been the acquisition of full or partial ownership stakes in teams by media groups. For example, News Corporation, Time Warner and Disney each have ownership stakes in several North American major league teams. European soccer clubs have also become prime acquisition targets for media groups. BSkyB, a subsidiary of News Corporation, attempted to acquire full ownership of Manchester United, the largest soccer club in the world, but the UK regulatory authorities blocked the proposed merger on the grounds that it was against the public interest. As a consequence, BSkyB has now adopted the alternative strategy of acquiring small strategic stakes in several English soccer clubs. Other media groups such as NTL have followed suit.

The objective of this paper is to analyse the economic rationale for the media ownership of professional sports teams and to consider the implications for teams, leagues and fans. The analysis is based on a thorough examination of the specific characteristics of professional team sports as an industry. Two organising devices are suggested as the starting point for any economic analysis of the professional team sports industry: (i) the fundamental performance trade-off that provides a framework for understanding the major economic decisions of teams; and (ii) a strategic map of the industry identifying the key groups of strategic actors and the major sources of environmental turbulence.

The economic analysis of the media ownership of teams draws on the economic theory of vertical integration--the move of a business into another stage of the value chain. …

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