SportsInvest Column #2 | A brief history of sports league ownership
In this first Sports Investment Unchained piece, we dive into the history and corporate structure of major sports leagues across the world
In our journey to understand why institutional capital is suddenly flowing into professional sports, it seems necessary to first get a grip on the history of sports ownership - including both leagues and teams - by trying to answer the following questions:
Where do major professional sports leagues come from, and how are they structured?
Who historically owned professional sports teams, and why?
In today's article, let’s first focus on the league topic.
The corporate structure of a league is a key factor influencing how teams are distributed across the country, how they compete against each other and ultimately how sports are offered to the main stakeholders out there, the fans. Depending on their corporate structure and regulations, leagues will also have a varying weight in embracing private and institutional investment, both in league assets and teams.
Here are the top 15 professional sports leagues worldwide ranked by 2018/2019 revenue:
Let's try to understand how these corporate structures differ across sports and geographies.
Although professional sports leagues vary in terms of legal structure, organization and operating model, two main league archetypes can be distinguished:
The North American league model: Closed structure relying on a franchise model, limited league memberships, and the use of minor leagues - based on a complex regulatory system to collectively increase the revenues of the whole franchise
The European league model: Tiered structure leveraging a promotion/relegation system to determine participation in a hierarchy of leagues or divisions - based on the competition between clubs to individually increase the revenues of each club
The European league model
In Europe, it all started in England when the Football League was founded in 1888, making it league the oldest competition in world football. The model developed for the Football League later across most European countries.
This model relies on:
Clubs being members both of a league (e.g., English Premier League gathering the top 20 teams) and of an elected governing body overseeing all clubs at all levels (e.g., The Football Association gathering all competitive football clubs).
The well-know (or not enough?) promotion/relegation system.
In terms of league ownership, clubs are traditionally sole members of their respective leagues, without any ownership right over the league. However, this situation is evolving and the English Premier League (EPL) is a notable exception. Legally formed in 1992, the EPL is a private company wholly owned by its 20 member clubs who make up the league at any one time - resulting in ownership structure changes every single year. Each club is a shareholder, with one vote each on issues such as rule changes and contracts. The clubs elect a chairman, chief executive, and board of directors to oversee the daily operations of the league.
The North American league model
In North America, major professional sports leagues traditionally include Major League Baseball (MLB), the National Basketball Association (NBA), the National Football League (NFL), and the National Hockey League (NHL). Other prominent leagues include Major League Soccer (MLS) and the Canadian Football League (CFL).
Baseball, American football, and ice hockey have had professional leagues continuously for over 100 years: early leagues such as the National Association of Professional Baseball Players, Ohio League in American football, and National Hockey Association formed the basis of the modern MLB, the NFL, and the NHL, respectively.
The model developed by most North American leagues relies on:
A franchise operating model, where leagues grant some sort of territorial exclusivity to their owners, precluding the addition of another team in the same area unless the current team's owners consent, which is generally obtained in exchange for compensation, residual rights, or both.
A closed league system finding its roots at the creation of the National League of Professional Baseball Clubs in 1876. Back then the league's founders considered that making baseball's highest level of competition a "closed shop" would allow team owners to monopolize fan bases in their respective exclusive territories, thus giving them the confidence to invest in infrastructure, and ultimately generate the revenue needed to support traveling across the continent.
In terms of league ownership, two types of corporate structures can be distinguished in North America:
The multi-ownership corporate structure, where the owners of the clubs/franchises are also the owners of the league. Member teams are independently owned and managed, and collectively create the league as a joint venture to coordinate their league activities. They appoint a ‘commissioner’ who has the full authority to make decisions regarding the league (essentially acting as a CEO), even if the true power is in the hands of team owners.
The NBA, the NFL, and MLB all maintain a multi-ownership structure.
The league-owned corporate structure: Major League Soccer (MLS) is an especially interesting case. MLS did not emerge from a group of existing teams, but was created by Alan Rothenberg, who successfully organized the 1994 World Cup in the United States. MLS developed a distinctive model in which the league operates as a single-entity league and has an ownership stake in each team. It is technically not an association of franchises but a single business entity, with each team owner-operator being a league shareholder, and all player contracts held by the league. In these leagues, teams are not independent organizations, but are operating divisions of the league.
Major League Rugby (MLR), which was (re)launched in 2018 as the second attempt to launch a professional rugby competition in the US, was established with an identical business structure identical to that of MLS.
For those who would want to deep-dive on the MLS case, I can only recommend Isaac Krasny's excellent article 'Unpacking the Major League Soccer Business Model'.
How these league models spread across the globe
In most countries, professional sports leagues usually follow one or the other of these league models, with a few changes found locally.
A few examples below:
The 'North American league model' is followed by most sports leagues in Australia (except for football and rugby), the Nippon Professional Baseball in Japan as well as the Indian Premier League launched in 2008 in cricket.
The 'European league model' is widely used:
In football across the globe
For most sports in Europe, even for US-founded sports such as basketball where the Spanish league is based on promotion and relegation.
To be noted as well, most Asian countries follow the European model for 'European' sports (e.g., football, rugby) while 'American' sports (e.g., baseball, basketball) use franchising and minor leagues, with a few differences varying from country to country.
I hope this article will have been helpful to better understand how professional sports leagues are structured and operated across sports and geographies.
Next stop, a background on sports team ownership.
Would you like to know more about sports investment over the coming weeks? Please feel free to subscribe and to share!
Best,
Achille
Sources
'The Organization of Sports Leagues' | Roger G. Noll | Stanford Institute for Economic Policy Research
'Governance of Professional Sport Leagues: Towards a Convergence Between North America and Europe?' | Gilles Paché | International Conference on Advances in Management
'Governance models across football associations and leagues' | Camille Boillat & Raffaele Poli | CIES (Centre International d'Etudes du Sport)
'Major League Soccer’s Single-Entity Structure' | Lex Sportiva