It seems that major professional sports in America get to play by a different set of rules than other, less-publicized industries from a business perspective. I would not normally bring it up in this blog, but these issues effect anyone living in a city with a professional sports team. Plus, I find it to be an interesting debate.
As a sports fan myself, 2 issues in particular have provoked many questions for me ...
1. How Teams Pay for New Venues
The business of building new sports venues in America is big. More than 50 have been built since 1990, with more under construction. What I don't get is how in the world these venues are financed and paid for mostly by taxpayers, yet owners make all the profits.
Cities sell the public on these stadiums, citing all the long-term economic benefits. However, no new jobs are created from new stadiums, and per capita income does not increase. So how do the taxpayers benefit again? The City of Pittsburgh paid for nearly ALL of their baseball team's (the Pirates) new stadium just a few years ago, a $262 million "bargain". And this is standard procedure all across the country, which goes without mentioning all the other things local governments SHOULD be spending the money on.
Leave it to the New York Yankees to knock this one out of the park. This New York Times article from 2004 is the laughable proposal for the NEW Yankees stadium scheduled to open next season. The Yankees originally told the city they would pay for most of what they said would be a $700 million stadium. The city and state was originally asked to only put up around a total of $100 million, including parks, garages and so forth around the stadium.
So how have things shaped up since then? The new Yankees stadium will be the most expensive ballpark in American history, costing more than $1.3 billion (and still counting). But the city/state is only in it for $100 million, right? WRONG. Taxpayers are now responsible for $204 million of the park, then another $300 million for parking garages and parkland.
The local community had no input on the decision to move forward with the stadium. No vote, no public hearings. Mmmmm, democracy. All in all, the Yankees ownership will end up paying $650 million, while taxpayers will pay over $500 million. Yet somehow, and this is the kicker, the city makes NOTHING from this "investment" other than sales tax. The Yankees will make all the profits (tickets, advertising, souvenirs, etc.), have no rent to pay (like they do currently), and will continue to thrive as baseball's biggest spenders in the game.
Not only are taxpayers stuck with the bill, but they may not be able to afford season tickets next year. Not only does a ticket priced at $12 in 1990 cost $250 in 2008, but the same ticket is expected to cost $500 or more next year. These numbers are based on the top ticket price for a box seat.
Thankfully, because I have to end this on a less depressing note, some organizations choose to be responsible about new stadiums. For instance, the San Francisco Giants (baseball team) built the first privately-owned stadium since 1962, requiring almost nothing from taxpayers.
How many of you out there would be willing to fund Project83, and our software company Brightwurks? We will happily take your money, however you won't make any of the profits and will still have to pay the regular price to use our software or have access to our services. Any takers? I didn't think so.
For more on this issue, check out Field of Schemes by Neil deMause and Joanna Cagan.
2. Re-negotiating Player Contracts
Why is it that players in all major sports are not only able to demand unbelievable sums of money for performing on the field, but if they actually do their job and live up to expectations, they want to re-negotiate their contract for more money before it is up? Yet if they get a big contract, then don't play up to their pay grade, management has no right to re-negotiate a contract in the other direction.
Since the football season is upon us, there is always a group clamoring for more money because they want to be paid like the other guys are. This year's crowd includes Devin Hester, Anquan Boldin, Kellen Winslow and Steven Jackson. Those players all had great years last year, and all but one have ended their holdout in favor of a big fat contract. But how about the guys making a ton of money that did not deliver last season? Where are those contract re-negotiations?
Maybe I'm old school, but if you sign a contract, you play for the money you agreed to until the contract is up. Period. If you want to re-negotiate in the middle, then general managers should be able to do the same upon a lack-luster performance.
I wonder how that philosophy would work in the real world. Major executives just stay home and decide not to come to work because the guy in the same position at their competitor now makes more money. I am pretty sure in most cases that executive can forget about having a job at all.
The best thing for pro sports would be to simply make player salaries PRIVATE. That way there is no basis for comparison. This exact same thing happened when Corporate CEO salaries were made public (Predictably Irrational has a great study about this). When the rule was instituted, regulators thought that it would force companies to keep salaries low and prevent public outcry. That never happened, only the opposite. CEOs began demanding more based on what "the other guy" was getting. And off to the races we go ...
As a sports fan, entrepreneur and taxpayer, I think these issues are very important to come out against. I would encourage others to speak up and end ridiculous practices within this industry, which have a profound effect on our lives OUTSIDE of sports too.