SportsInvest Column #3 | Who owned sports teams before the 2000s?
Understanding the evolution of sports team ownership over the 20th century
“Buying and selling teams is not a phenomenon of the late 20th or early 21st century. Private owners have been capitalizing on the rising popularity of sports and the value or desirability of sports ownership for at least 120 years”.
In Sports Finance and Management (2011), Jason Winfree and Mark Rosentraub take us back to the origins of investment in sports teams in North America. Understanding when and how sports teams became a relevant target for investors, be they individual investors, ownership groups or corporations, is a key step in our journey to get a grip on the recent wave of institutional investment in sports.
So let’s try to answer this today: who owned sports teams before the 2000s?
1890s-1910s: The rise of the “spectator sports market”
In the United States, a market for “spectator sports” progressively emerged in the decades following the Civil War (1861-1865), before strongly expanding in the first years of the 20th century.
Jason Winfree and Mark Rosentraub highlight three main factors driving the rising demand for spectator sports at the end of the 19th century:
An growing pool of large American cities creating viable market sizes to support investments in emerging businesses such as entertainment and sports
Increasing wages and purchasing power of industrial workers, enabling them to spend a share of their income on “discretionary” expenses such as entertainment
Along with increasing wages, an increasing amount of available time for workers driven by the spread of weekends
A similar observation can be made for Western Europe, where the beginning of the 20th century saw the first wave of professionalization of sports teams as a consequence of accelerating industrialization and urbanization. For the first time, athletes became professional paid "workers" and fans turned into ticket-buying consumers.
As with any other market, the perspective of a rising demand automatically attracted investors willing to build and expand the offer to meet consumers' needs, especially in North America.
North American sports teams in the 20th century: From one owner to another, from one city to another
In North America, investors quickly saw the opportunity to enter the emerging sports and entertainment market. Sports investment emerged with wealthy individuals leading major companies across industries, and local American entrepreneurs would soon become the first owners of professional sports teams.
Jason Winfree and Mark Rosentraub quote Quirk and Fort's Pay Dirt: The Business of Professional Team Sports (1992):
“Initial owners were usually individual entrepreneurs or partnerships that merged into syndicates (or groups of individuals) who owned the teams in order to spread the risk across multiple co-owners.”
Along with first-basis ownership goes the creation of a “secondary market” where owners buy and sell assets for a profit. The beginning of the 20th century saw the first waves of transactions between individual investors looking for a cash-out.
In 1919, the Boston Braves were sold by Miller, Roe & Hagen to George Washington Grand for $400,000, which would be equivalent to $8.8 million on a constant currency basis. Grant had spent the previous 10 years “being the pioneer American moving picture house man in England”, owning cinemas and selling them for a huge profit in 1917.
The same year, the New York Giants were sold for $1,092,000 in 1919 ($14 million on a constant currency basis).
As local team owners were looking to grow the potential of their investment, they started moving their teams to larger cities. For instance, Fred Zollner was the owner of Zollner Corporation, formed in 1912 and which became a leading Tier-1 supplier of pistons to companies such as Ford, General Motors or John Deere. Zollner Corporation was located in Fort Wayne, Indiana. This is where the local basketball team was later formed as the “Zollner Pistons”. By 1957, Zollner realized the NBA was outgrowing Fort Wayne, and he made the decision to move the team to the open Detroit market. The Detroit Pistons were born.
Various waves of franchise relocation moves took place across professional sports leagues over the 20th century as explained in this article:
“The NBA has seen a steady stream of moves since its inception, while the NHL has experienced the same since it began expansion in the late 60s. MLB was pretty much done with its various relocations by the early 70s, while the NFL hadn’t really gotten started […] due to presence of two rival football leagues, the AFL and the NFL.”
European football clubs: Associations vs. corporations?
In Europe, football clubs were at the heart of sports professionalization during the 20th century.
As stated by Marc Rohde & Christoph Breuer in the article The market for football club investors: a review of theory and empirical evidence from professional European football (2017), one of the earliest types of investors in European football were company clubs. Company clubs can be traced back to the worker movement in the late 19th century when companies founded clubs to enact company sports. Prominent examples of such company clubs include Manchester United (1878), Arsenal London (1886) or Bayer 04 Leverkusen (1904). Later, wealthy local and national businessmen and families also became interested in acquiring European football clubs, such as the Agnelli family starting to support Juventus Turin as early as 1923.
The history of football club ownership in Europe is tied to the evolution of legal structures adopted by clubs to follow either national laws or league regulations. Various legal forms can be found in European professional football including non-profit organizations, member associations, private limited companies (LTDs), and public limited companies (PLCs).
In England, most football clubs were set up as corporations - private companies with limited liability - as early as the late 19th century.
But in most other European countries, football clubs were traditionally legally founded as member associations. It was only during the second part of the 20th century when clubs progressively adopted the status of private or public limited companies with several distinctions across countries:
In Spain, most football clubs started adopting a Sociedade Anónima Desportiva ("Public Limited Sports Company") structure during the 1980s to deal with financial struggles and overwhelming debt. In 1992, Spain’s Sports Law even made it mandatory for professional football clubs to become privately-owned SADs/PLCs.
However, four Spanish clubs (Real Madrid, FC Barcelona, Athletic Bilbao & Club Atlético Osasuna) were exempted based on a provision of the law and chose to keep their former structure whereby they were owned by "socios" i.e. fan-members.
In Italy, football clubs were allowed to voluntarily transform into corporations voluntarily, before they were legally required to do so in 1981. They were granted the right to share dividends in 1996, while having to allocate 10% of benefits to the academy and youth teams.
In France, a sports organization is first and foremost a non-profit association. In the 1930s, football clubs were mainly held by industrial and commercial companies such as the car manufacturer Peugeot at FC Sochaux-Montbéliard, the Compagnie des Mines at RC Lens, or national retailer Casino at AS Saint-Étienne.
In 1984, the French sports code introduced three legal structures - an updated association status and two corporation-like “sports company” legal forms - under which “sports groups” might be registered. But in most cases, the association retained either a majority share or a minority one ensuring a blocking position in the newly-established sports companies. These regulatory changes allowed local entrepreneurs to takeover football clubs as private investors, such as Jean-Michel Aulas who invested in Olympique Lyonnais in 1987 with the objective of turning the club into an established Ligue 1 side. Media companies also started acquiring clubs in the 1980-1990s, such as Canal+ with PSG or M6 with Girondins de Bordeaux. Two new legal structures will be created between 1999 and 2001 to bring the “sports company” status a step closer to traditional incorporated companies.
Germany is a specific case in Europe, where the "50+1" rule is the main element defining club ownership. Historically, German football clubs were prohibited from being privately owned and run as profit-oriented corporations. Clubs were structured as registered members associations owned by their members, the club’s fans, with executive decisions taken by a member-elected board.
In 1998, football clubs were allowed to obtain a PLC status only if they followed the well-known 50+1 rule, stating that at least half plus one of the controlling votes should remain in the hands of the original association. Exceptions were granted for the so-called "works clubs" Bayer 04 Leverkusen (started by workers of the Leverkusen-headquartered pharmaceutical company Bayer in 1904) and VfL Wolfsburg (started by workers of the car manufacturer Volkswagen in 1945).
Notwithstanding this, several clubs have outsourced their professional football divisions to finance their activities. Currently, only 7 Bundesliga sides don’t allow for external investments into the club.
The singular case of company-owned sports teams in Japan
As a lifelong Japan fan, it was nearly impossible for me to write this article without mentioning Japan’s specificities in terms of sports team ownership.
While the organisation of sports in across the world is structured primarily around regional sports clubs, sports in Japan are based to a large extent on corporate sports. Sports teams have historically been largely owned by corporations and industrial companies.
In the Japanese Baseball League, which operated from 1936 to 1949 before reorganizing in 1950 as Nippon Professional Baseball, teams were usually named after their corporate owners/sponsors rather than the cities or regions in which they played. The Yomiuri Giants, which won nine league championships, including six in a row from 1938 to 1943, was founded in 1934 by Yomiuri Shimbun Holdings, Japan's largest media conglomerate owning two newspapers (including the eponymous Yomiuri Shimbun) and the Nippon Television Network.
In multiple J1 League football clubs, corporations often became both majority shareholders and main shirt sponsors, such as Yokohama F. Marinos with Nissan, Kashiwa Reysol with Hitachi and Gamba Osaka with Panasonic. For instance, the Yokohama F. Marinos was founded in 1972, as the Nissan Motor Football Club based in Yokohama - in 1991, it became one of the founding members of the J1 League.
Thus, professionalization of sports in Japan has been mainly driven by company-owned teams: how to explain this?
During the 20th century, Japanese companies first formed sports teams to raise morale and provide a focus for loyalty in labor-intensive industries. After World War II, for example, textile companies formed volleyball teams designed to attract young rural women to work in their factories and live onsite.
Later, as consumer culture began to expand in the 1960s, sports teams were used to build brand image outside the company. Consumer electronics companies like Toshiba Corp. and NEC Corp. set up teams that generated free publicity when games were broadcast on television and results appeared in newspapers.
Large corporations spent hundreds of millions of yen (millions of dollars) a year on the best teams. Examples can be found beyond football and baseball: top Japanese rugby teams are Toshiba Fuchu and Kobe Steel. Basketball is led by the Isuzu Motor Giga Cats and the Toshiba Red Thunders. The top teams in American football are the Nissan Prince Tokyo Skyliners and Asahi Beverages. In 1996, more than half of the athletes Japan sent to the Olympics belonged to corporate sports teams.
A professional sports history driven by early private investments and successive relocations in North America, regulatory changes turning clubs into corporations across European football, and the singular case of company-owned sports teams in Japan.
I hope this article will have been helpful to better over how various forms of private ownership have developed across sports and geographies during the 20th century.
Next stop, jumping into the 21st century and the new wave of sports investment from 2000 onwards.
Would you like to know more about sports investment over the coming weeks?
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Best,
Achille
Sources
Sports Finance and Management | Jason Winfree and Mark Rosentraub
Pay Dirt: The Business of Professional Team Sports | Quirk and Fort
The market for football club investors: a review of theory and empirical evidence from professional European football | Marc Rohde & Christoph Breuer in the article
Articles from Les Echos, New York times, LinkLaters, FanGraphs