CHAPTER FOUR

Emerging and Niche Leagues

INTRODUCTION

In the United States, beyond the four major professional team sports leagues and individual sports, such as NASCAR, golf, and tennis, a number of start-up leagues and niche sports are competing for space on the professional sports landscape. An early 2010 count of such entities found 272 baseball teams competing in 24 affiliated and independent minor leagues, 75 basketball teams playing in 4 basketball leagues, 4 football leagues featuring 74 teams, 7 hockey leagues with 122 teams, 7 soccer leagues housing 166 teams, 2 lacrosse leagues, and various softball and team tennis leagues. In addition to those disparate leagues are athletes competing in individual sports such as horseracing, rodeo, beach volleyball, various motor sports, fishing, billiards, bowling, mixed martial arts, and action sports, embodied largely in festival-type atmospheres such as the X Games and Dew Tour.

The varying sports discussed in this chapter can best be described as belonging to at least one of four nonexclusive categories, with some accurately described by multiple categories. The first of these categories is minor leagues, in which the league does not represent the top level of competition in its sport. Minor leagues may serve three functions: player development, entertainment, and grassroots marketing. With regards to the player development function, athletes are trained for a potential future career at the sport’s top level of competition. Examples of leagues serving in this capacity are the affiliated minor leagues in baseball, with Major League Baseball (MLB) teams involved in a relationship with teams at the AAA, AA, A, and Rookie levels. These teams act as the MLB’s player development system.

A minor league may also serve an entertainment function, with a focus on providing fans with low-cost, family entertainment at the stadium. Although affiliated minor league baseball serves in this capacity as well, independently owned and operated minor league baseball, hockey, basketball, and football leagues focus on this function, rather than serving as a vertically integrated player development system. The proliferation of unaffiliated independent minor leagues over the past decade indicates that entrepreneurs believe that the demand for low-cost, family entertainment outstrips the available supply of these entertainment options.

Minor leagues may also serve a grassroots marketing function. Primarily located in smaller markets, affiliated minor leagues have historically provided large segments of the population located in secondary and tertiary markets with access to professional sports that would otherwise be unavailable. Thus, along with television, they help allow interest in a sport to continue in these markets. Recently, independent minor league franchises have been established in close proximity to major media markets, providing a lower-cost alternative to the major leagues and allowing segments of the population to have increased access to sports that may be available geographically but not economically. MLB teams have responded to this strategy by placing some of their affiliated minor league teams on the outskirts of their home territories. This allows the MLB teams to capitalize on cross-promotional opportunities, promotes brand domination by the MLB teams throughout their home markets, and makes it easier to closely monitor the progress of their prospects. Fans have the opportunity to follow players closely as they progress to the big leagues.

Leagues in the remaining categories of emerging and niche sports often aspire to become the next major professional sports league in the United States. The second category that these leagues fall into is those emerging and niche sports that represent the top level of competition in their respective sport. These sports often have large numbers of recreational participants. This combination of high-level competition and recreational participation would seem to bode quite well for the future of professional competition in these sports. However, this has yet to translate into financial success in anything but action sports. Examples of leagues fitting into this category are Major League Soccer (MLS); Women’s Professional Soccer (WPS) and its predecessor, the now defunct Women’s United Soccer Association (WUSA); Major League Lacrosse; World Team Tennis; the Women’s National Basketball Association (WNBA); and National Pro Fastpitch, a professional women’s softball league. The challenge for sports industry leaders is to convert the large number of participants in these sports into commercial users. It remains to be seen whether this can be accomplished, or whether the popularity of these sports is limited to participation rather than as a spectator.

A third category of emerging and niche sports involves leagues that are indoor variations of traditionally outdoor sports. Seeking to capitalize on the popularity of established outdoor leagues, entrepreneurs have created separate indoor leagues that utilize a different (and usually less-talented) pool of athletes than the outdoor leagues and that adopt modified playing rules to tailor the sport to a smaller playing field. Typically played in hockey and basketball arenas, these leagues allow the operators of these facilities to host events when the facility otherwise would have been unused, thereby generating additional revenues in the forms of rental payments and ancillary activities. Examples of these leagues include the Arena Football League (AFL), the National Indoor Soccer League (NISL), and the National Lacrosse League. Although it is possible for these leagues to achieve financial success, it is unlikely that they will ever eclipse their outdoor counterparts in either revenues or popularity. The demise of the AFL and several indoor soccer leagues are instructive.

The fourth category of emerging sports is the gender-specific leagues that offer women the opportunity to participate in their own league in a sport in which there is a separate men’s league. These leagues are attempting to take advantage of an opportunity created by the increased buying power of women resulting from societal changes and the increased female participation rate and interest in sports resulting from Title IX. None of the women’s leagues that have been established—including the WNBA, WPS, World Team Tennis, NPF and various women’s football leagues—have been profitable thus far, and most have mounted substantial losses. The future viability of these sports on the professional level is dependent on a change in the financial status of the leagues, which must translate women’s increased buying power, participation, and interest in sports into involvement in their products as paying spectators, television viewers, and consumers of league sponsors.

In general, emerging sports are monetized from four different sources: gate receipts, parking and concessions, broadcast-related revenues, and sponsorships. The importance of these revenue sources varies according to the sport. For example, minor league baseball teams rely very heavily on gate receipts, parking fees, and concessions sales, whereas many action sports, such as the X Games, do not rely on admission fees. Correspondingly, broadcast-related revenues are important to action sports and are insignificant to most minor league baseball teams; sponsorships are important to both.

Sponsorships may impact an emerging sport in several ways. At both the national and local levels, sponsorships can serve multiple roles: not only do they provide the property with revenues, but a sponsorship that provides products-in-kind that are necessary to support team and league operations allows teams and leagues to conserve their scarce resources. In addition, sponsorships can provide emerging and niche leagues with invaluable exposure when activation of the sponsorships occurs, allowing the sport to receive broad distribution at little cost. For sponsors, relationships with emerging and niche sports allow them to attempt to reach a particular demographic in a cost-effective manner. The appeal of these sports is their lower cost and the quality of the individuals reached rather than the quantity reached, because the overall audience is generally small compared to established sports. Emerging sports can thus prove to be a good value for sponsors.

Similar to other businesses, start-up costs for emerging sports leagues can be substantial, with expenditures reaching well into the millions of dollars. Once initiated, the primary operating costs for emerging sports are the playing facility, administration, and athletic talent. In recent years, many start-up leagues have adopted a unique, single-entity structure in order to help them control costs. Although the single-entity structure has been somewhat effective in controlling costs (particularly with respect to expenditures on athletic talent), thereby allowing a league to survive the start-up phase, it is sufficiently flawed such that it may be an ineffective long-term structure. See Chapter 2 for further discussion of the single-entity structure.

For an emerging sport to achieve long-term financial success, it must possess several characteristics. First, the sport must be appealing to an audience. Although it may seem obvious that a sport lacking in audience appeal will likely fail, what makes a sport attractive to an audience is unclear. The presence of a transcendent athlete aids greatly in this process. An athlete whose singular excellence in the sport and compelling storyline outside of the sport can singlehandedly lift the entire sport and bring it into the mainstream, allowing revenue growth. Although athletes such as Lance Armstrong, Tiger Woods, Tony Hawk, Michael Phelps, Mia Hamm, and the Williams sisters are few and far between, their transcendence brought their respective sports historically unmatched levels of attention. At a minimum, it must be interesting to watch highly skilled participants compete in the sport, and the general population must have a significant participation rate in the sport. In other words, the sport must be fun to watch and people must be interested in playing it to allow for a large enough following. Although the presence of both of these elements does not guarantee success, the absence of either one will ensure long-term failure.

The second important factor is a television presence. Television is very important to emerging sports, because it provides the sport with the exposure needed to grow interest. This exposure drives attendance figures upward. The increased attendance, in turn, can lead to increases in both local and national sponsorship revenues and ancillary, facility-driven revenues such as concessions and parking. Sponsorship revenues can be increased, because a larger audience is reached, making an affiliation with the sport more valuable. Facility-driven revenues can be increased because a larger audience will lead to increased consumption of concessions and parking spaces.

Continuous improvements in technology have led to a dramatic increase in the number of cable television networks. The increased size of the cable universe has created broadcasting opportunities for sports that were previously unavailable, because these networks need programming content. Sports are attractive to cable television networks because of the potentially strong demographics, even if the overall audience size is small. Thus, the opportunity for emerging sports leagues to receive broad television exposure is greater than ever. Even if a television presence is not possible, at a minimum a sport can stream its events over the Internet at a fairly low cost. The audience size will be considerably smaller, but it provides a platform from which it can begin to reach consumers.

The third important factor for emerging sports to possess is deep-pocketed ownership. Not unlike other entrepreneurs, owners in emerging sports must be both willing and able to withstand substantial start-up costs and significant operating losses in at least the first several years. Unwilling or undercapitalized ownership leads to franchise instability or suboptimal management practices, either of which can lead to the ultimate failure of the entire league enterprise. It is important that the league consider this issue when selecting ownership. It is perhaps better for the league to begin play with a smaller number of well-financed franchises than with a larger number of thinly capitalized ones. In addition, the sport must consider the amount of the entrance fee that it will charge to prospective owners. The franchise fee must be sufficient to support league operations yet not lead to owners becoming overleveraged.

The fourth factor is that the sport must access appropriate markets. This is dictated by the desire to be located in major markets, the regional popularity of the sport, and ownership preferences. These determinants of franchise location often conflict. Location in major markets historically has been the primary determinant of franchises in emerging sports leagues. The impetus behind this idea is the notion that media outlets are only interested in broadcasting sports with broad audience appeal that can generate meaningful ratings, which is more likely in large population centers. Having placed itself in these centers, the league would thus be able to sign a lucrative national television contract. In addition, attendance is likely to be higher in larger markets. Location in major markets also allows for increased attention from both the national media and potential advertisers, because it lends a sense of cultural relevance to the sport that makes it worthier. More potential fans and more potential sponsorship dollars are available. However, there is a hubris associated with locating an emerging sport in major markets. Operational costs are likely to be significantly higher in major markets, and there is increased competition for fan and media attention in the form of other sports franchises. This may render the emerging sport irrelevant on the landscape of the large markets, making it a “small fish in a big pond.”

Location that is driven by the regional popularity of an emerging sport may allow the sport to have large attendance revenues and local sponsorship revenues. Operational costs are likely to be lower in smaller markets, and the existing interest will allow the sport to avoid many of the costs associated with developing a fan base. This is the equivalent of “fishing where the fish are.” In addition, there is likely to be less competition for fan and media attention in the local marketplace. Yet location that is based on a sport’s regional popularity will likely place it in smaller markets where it will be unable to generate a meaningful national television rating, which will make it unattractive to national broadcasters. This could relegate the sport to fringe status, with revenue growth limited because of the regional nature of the sport. This could also make the sport less appealing to investors, because it may lack the glamour of a “big league” sport.

A final determinant of franchise location in emerging sports leagues is investor preference. An owner may choose to eschew major markets or regions where a sport is popular in favor of another location. Sports ownership has a high consumption value, and factors such as an individual’s ego, desire to foster civic pride in the city of residence, or an opportunity to exploit the potential synergies available through the existing ownership of other investments may dictate location in a particular market. However, an owner’s preferences may conflict with the best interests of the sport. An emerging sport requires investors, but it must consider the long-term impact of its decisions. The short-term investment in the league by a willing and able individual may have negative repercussions in the long term if the sport is located in inappropriate markets.

The fifth factor is that an emerging sport must have strong leadership. Although it is desirable to have an independent leader free from any involvement with any individual team or athlete that could create a conflict of interest, it is just as important that the leadership possess other characteristics. The leadership must have the vision to guide the long-term direction of the league. The leadership must also be able to build consensus among the entity’s ownership interests while addressing their conflicting agendas; coordinate and negotiate league-wide broadcasting, marketing, and sponsorships; and generate enthusiasm for the sport.

While the aforementioned elements are necessary for an emerging sport to be successful, the athletes participating in these sports remain an essential component. Unlike many of the athletes competing in established sports, the athletes competing in emerging sports typically earn low salaries as a group, although the top athletes may earn substantial incomes. There are several reasons for this disparity. First, emerging sports do not generate sufficient revenues to justify significant expenditures by ownership on athlete compensation. Second, athletes competing in emerging sports typically do not unionize. There are some exceptions to this rule; athletes competing in the WNBA, MLS, AFL, and minor league hockey and baseball have unionized. These efforts to seek increased bargaining power through a collective voice may be shortsighted, however. Although unionization may result in increased compensation for athletes, it may lead owners to incur increased operating losses. Ultimately, those increased operating losses may lead to the market failure of the emerging sport, which would render the union members unemployed. Third, the organization of many emerging sports leagues into single-entity structures decreases athlete compensation. Because athletes are signed by the league itself and then allocated to a particular franchise in this model, this precludes competition for athlete services among league teams. Thus, single-entity leagues act as a monopsony, with only one purchaser of athletic talent. This prevents athlete compensation from reaching competitive levels in leagues structured in this manner.

The original version of the Arena Football League (AFL) is a defunct sports league that was founded in 1987. Its two decade lifespan ended when the league cancelled its 2009 season and filed for Chapter 11 bankruptcy protection. A different league playing under the same name launched in 2010. Most AFL clubs struggled financially from the league’s inception, with numerous teams sold after suffering staggering losses, including the Orlando Predators, a franchise that lost nearly $6 million in 2002 before its sale in 2003. Other teams that were poorly managed or undercapitalized either folded or relocated, with a migration to larger markets from second-tier cities. The AFL’s financial situation began to improve in 1999, when the National Football League (NFL) purchased a 3-year option to buy a 49% stake in the AFL. Although the option to buy was not exercised, three individual NFL owners purchased AFL expansion teams at a 50% discount, and others held options to buy AFL expansion teams in the future. This lent the AFL a sense of credibility that proved somewhat valuable.

The revenue sources for AFL teams were similar to other emerging sports. Beginning in 2003, the AFL entered into a 3-year television deal with NBC that was the first of its kind in professional sports and offered hope that it could bring the AFL the exposure that it needed to become the fifth major league. The agreement required NBC to broadcast 70 regular-season AFL games and 5 playoff games. The financial aspect of the deal was unique. NBC did not pay the AFL a rights fee in the initial 3-year contract, which it had the right to renew in perpetuity. The parties agreed to a revenue-sharing partnership in which NBC received the first $8 to $10 million in revenues to offset its production costs. After NBC’s production costs were covered, the AFL received the next $3 million in revenues, after which the parties shared all advertising revenues equally. In its first year, the advertising revenue stream was sufficient to allow the parties to reach this final level of revenue sharing. The contract offered little risk to NBC and allowed it to avoid the potentially untoward situation of developing the AFL into a valuable property and then having to pay an inflated rights fee in the future as a result of the league’s increased value. The AFL deal also provided NBC with a near-guarantee that it would not lose money on the deal and potentially high returns if the league became popular with viewers. Although this did not occur and average ratings never reached a significant number, the potential upside could not be ignored. Despite this, NBC dropped its coverage of the AFL after the 2006 season, when ESPN/ABC agreed to purchase a stake in the league and reached a 5-year deal in 2007—even playing AFL games on Monday nights. The ratings story there was much of the same. For the AFL, the NBC and ABC/ESPN exposure helped lead to an increase in attendance, which increased the value of local sponsorships. Combined with the additional revenues yielded by the television contract, franchise values increased, with average valuations reaching approximately $20 million in 2007 from $500,000 in 1998. The AFL conceded its long-term television revenues for short-to-medium term growth and exposure. This benefitted both franchise owners and NBC, as the network reaped 5% of the sale price for any franchise that sold for more than $12 million. Although, as noted, television ratings for AFL games on NBC and ABC/ESPN were quite low, AFL per game attendance increased from 9,155 in 2001 to 12,957 in 2008. Finally, AFL sponsorships also increased, with league-wide sponsors reportedly paying fees in the midto-high six-figure range. Notwithstanding its growth, AFL teams lost a reported $24 million in both 2007 and 2008, and the league cancelled its 2009 season due to a combination of the recession and the failure of the team owners to come to a consensus on reorganizing from a traditional league structure to a single-entity structure. The league subsequently filed for bankruptcy. Despite the recent struggles of the AFL and failures of a number of football leagues in prior decades (the XFL, USFL, WFL and NFL Europe, to name a few), entrepreneurs continue to believe that there is sufficient pent up demand to support a new professional football league. Four leagues were in various stages of development in late 2009: another iteration of the AFL, the All American Football League, the United National Gridiron League, and the United Football League. Although the business models vary, all four face an uphill battle for survival.

In the aftermath of the 1999 Women’s World Cup, WUSA initiated play in 2001 with an initial $40 million commitment to the venture. WUSA’s investors were seeking to exploit the opportunity created by the combination of this highly successful event, the high participation in the sport for girls, the increased interest in sports by women, and the substantial buying power of women. Similar to other start-up leagues, WUSA was organized as a single-entity structure with teams located in eight cities. With revenues derived from attendance, sponsorships, and television, WUSA struggled financially, and lost an estimated $100 million during its existence. Spurred by a 30% decrease in costs, the league’s losses decreased 45% from 2001 to 2002, yet WUSA remained far from profitability. In 2003, the players agreed to cooperate with WUSA’s cost-saving measures. The league’s financial situation was considered dire enough that WUSA’s top players accepted a 25% pay cut from $80,000 to $85,000 to $60,000. They were not alone in their sacrifice, as the league’s average salary decreased approximately 20% to $37,000 and roster sizes were decreased by two. Including complimentary tickets, league attendance decreased from 8,103 in 2001 to 6,957 in 2002, a 14% decrease. Although these figures exceeded league expectations, attendance needed to improve for WUSA to survive. League-wide sponsorship revenues were between $5.5 million and $12 million, with two charter sponsors paying between $1 million and $2.5 million each, and seven league sponsors paying between $500,000 and $1 million each, depending on the sponsorship category and details. The league’s television revenues and ratings were below expectations. After the 2001 season, in which games broadcast on the highly visible cable networks TNT and CNN/SI resulted in 0.3 Nielsen ratings, WUSA’s shift to the better time slots offered by the relatively obscure PAX network yielded a 0.1 rating in 2002, as it competed head-to-head with MLS broadcasts on ESPN on a weekly basis. Although it is debatable whether WUSA partnered with the appropriate channels, these moribund ratings had to improve if WUSA games were to continue to be broadcast on broadly distributed cable networks. Several league games were broadcast on ESPN2 in 2003. Perhaps an even greater challenge for WUSA was to differentiate itself from two other competitors—MLS and the WNBA. Although WUSA and MLS competed in the same sport during the same calendar months and their games were often broadcast at the same time, they targeted largely different audiences. MLS consumers are primarily young men of various ethnicities; WUSA targeted families and younger females. In this sense, the WNBA seemed to be the most significant competition for WUSA. With both leagues competing for the same consumers during the same time of year, the marketplace could not support both the deeper-pocketed WNBA and the WUSA. WUSA folded after completing its third season in 2003. The void in women’s professional soccer in the United States was filled when Women’s Professional Soccer (WPS) launched in seven cities in 2009, with each team losing approximately $1.5 million, and had 8 teams in 2010. The league operates with a traditional league structure, as opposed to the single-entity structure used by WUSA.

Action sports have emerged as the most significant of all of the sports described in this chapter. These sports, which include snowboarding, skateboarding, BMX biking, in-line skating and aerial skiing, as well as their various sub-disciplines, have entered the sporting mainstream but have been the subject of little academic research. Exciting, fast-paced, and dangerous, action sports are particularly appealing to 12- to 34-year-old males, a target market that is highly desirable to advertisers. Skateboarding and snowboarding are the fastest-growing sports among 7- to 17-year-olds.

Youth participation and interest in most team sports is slowly declining. Although the overall audience for action sports is still much smaller than that for the more traditional sports, its desirable demographics and increasing participation rates and interest levels should concern the leaders of the traditional “stick-and-ball” sports. Faced with a potential long-term erosion of their fan bases as these youths mature into adults, the traditional sports cannot merely hope that there will be a migration back to them when they become adults or that action sports will fade away. Recognizing this, each of the “big four” sports leagues has responded to the threat posed by action sports by adopting grassroots marketing programs aimed at youths.

Long participated in on an informal basis and considered to be part of the counterculture, action sports began to enter the mainstream in 1995 with the creation of the Extreme Games by ESPN. An amalgamation of competition in nine different sports, the 8-day, Olympic-style event provided ESPN with its own low-cost programming during a lull in professional sports, when only regular season baseball is available. Simultaneously, the Extreme Games introduced an organized platform for action sports. Largely ignored and mocked by both broadcasters and leaders of mainstream sports, ratings were surprisingly strong, resulting in a 1.0 Nielsen rating on ESPN and 0.5 on ESPN2. In 1996, ESPN changed the name to “X Games” in order to gain greater audience appeal and allow for easier international marketing. As the popularity of the summer event increased, the Winter X Games were added in 1997 to fill a similar void in ESPN’s programming and to further exploit the increasing demand in the marketplace. The X Games are monetized through television advertising and sponsorships. ESPN’s ownership of its programming inventory allows it to reap directly the revenues generated from the sales of advertising and sponsorships. Top-level sponsors of the Summer X Games pay in the low-to-mid seven figures, and second-tier sponsors pay in the low seven figures; sponsors of the Winter X Games paid $2 million in 2009, with second-tier sponsors paying $1 million. ESPN regularly sells out most of its sponsorship packages and generated $30 million in sponsorship revenues in recent years, along with an additional $10 million in advertising revenues. Despite total event attendance that regularly exceeds 200,000 in the summer and approximately 80,000 in the winter, the X Games charges admission fees ranging from $10 to $100 based on the event, the time of day, and the age of the fan. The X Games have generated annual profits of approximately $12 million over the past several years. ESPN has expanded the X Games brand globally by adding competitions in Latin America, the Middle East, Asia, and Europe. It has also added global team competitions, as well as qualifying events for all X Games competitions, Junior X Games, and touring skate park events.

Given its extraordinary success, it should not be surprising that competitors to ESPN’s X Games have emerged. Other entities have focused on presenting action sports tours, with live music acts joining in with the athletic demonstrations in festival-like events. NBC and MTV Networks own Alli, the Alliance of Action Sports. Alli owns a number of action sports properties, including the multi-stop Dew Tour and Winter Dew Tour and the lower-level Free Flow and Winter Free Flow tours, the King of Wake tour, the AMA Pro Motorcross tour, and single events such as the China Invitational. Despite these efforts, the X Games remain the dominant brand in action sports.

Athletes competing in action sports receive compensation primarily in the form of endorsements, with top athletes earning well over $1 million a year and very good athletes earning between $250,000 and $500,000. Athletes also receive income in the form of prize money earned in competitions, with the X Games offering over $1.5 million in prize money in 2008. However, this pales in comparison to the profits generated by the owners of these events.

Action sports now appear to be a permanent part of the sports landscape, but the genre has not yet achieved first-tier status. Action sports have strong demographics that attract top-tier sponsors, an increasing participation rate, a year-round presence, and strong product extensions, such as video games, music, and toys. Its lifestyle appeal is undeniable. However, the lifestyle that action sports embraces has strong anticorporate roots. Its notoriously fickle fans and athletes have traditionally shunned the mainstream and could abandon the mass presentation and media coverage of action sports as the genre becomes further embraced by the corporate world. In addition, action sports are unlikely to generate revenues comparable to established sports properties until this occurs. The irony is that the same corporate embrace that could send revenues skyrocketing could also lead to the demise of action sports. Thus, leaders of the action sports properties face an interesting dilemma: how is big business made out of a sport whose fan base, participants, and athletes have traditionally avoided big businesses?

This chapter looks at various emerging leagues and niche sports in detail. In the first selection, Tim Bezbatchenko reviews MLS and its single-entity structure in depth. The second article, by Marc Edelman and Elizabeth Masterson, examines Women’s Professional Soccer. An article by Marc Edelman and Keith Harrison then details the business of the WNBA. Keith Willoughby and Chad Mancini provide an obituary for the dearly departed Xtreme Football League. The final excerpt is Michael Davis’ examination of the determinants of location for minor league baseball teams.

MLS

BEND IT FOR BECKHAM: A LOOK AT MAJOR LEAGUE SOCCER AND ITS SINGLE ENTITY DEFENSE TO ANTITRUST LIABILITY AFTER THE DESIGNATED PLAYER RULE

Tim Bezbatchenko

I.   INTRODUCTION

[Ed. Note: As this book was going to publication in early 2010, MLS and its players union reached a new 5-year collective bargaining agreement that extends the Designated Player Rule to 3 players per team, whose first $335,000 in annual salary is paid for by the league and counts against the team salary cap. The remainder is paid for by the player’s team. MLS has announced that it will add teams in Portland and Vancouver in 2011 and Montreal in 2012, bringing the league to 19 teams.]

Major League Soccer (MLS or the league) has undergone many changes since 2002 when, in Fraser v. Major League Soccer, L.L.C., a federal appeals court rejected the players’ claim that the league’s organizational structure violated antitrust law and granted MLS single entity status.1 No longer a young league with an uncertain future, MLS has established an identity in the United States with its proven ability to maintain a consistent fan base and expand into new geographic markets.2 Recent developments in league policy, one of which permitted David Beckham’s new contract,3 highlight the league’s maturity and growth potential in its adolescent years. Yet these developments likely affect the league’s existing defense to antitrust liability under section 1 of the Sherman Antitrust Act.4 Specifically, by changing league rules, MLS’s single entity distinction hangs in the balance.

Most notable among the recent league’s developments is the implementation of the Designated Player Rule (the Rule).5 Created in November 2006, the Rule allows MLS teams to sign players whose salaries extend beyond otherwise restricted team salary budgets.6 Unlike non-designated players, the cost of designated players above $400,000 is the financial responsibility of the club rather than the league itself.7 As soon as the Rule was announced, clubs’ player recruitment personnel began scouring the globe in search of designated players.8 Predictably, news of the Rule drove speculation that many world soccer stars would sign with MLS.9 Indeed, within two months, MLS experienced a watershed moment when, in January 2007, David Beckham signed with the league. Beckham inked a $250 million deal to play for Major League Soccer’s Los Angeles Galaxy.10 The media quickly hailed it the “Beckham Rule,” believing the ability to attract David Beckham to MLS provided the catalyst for the rule change.11

Also predictable, but much less discussed, was the effect the Designated Player Rule had on MLS’s vulnerability to antitrust liability. In 2002, MLS declared victory against its players12 in Fraser v. Major League Soccer, L.L.C., a lawsuit that began in 1997 when the players claimed that the league’s centralized structure violated federal antitrust law.13 In its defense, MLS used the “single entity” enterprise rationale to garner antitrust protection. The league successfully convinced the district court to hold that MLS was a single entity. Therefore, its teams could not illegally conspire under section 1 of the Sherman Antitrust Act.14 Immunity from section 1 as a single entity does not preclude section 2 liability for unlawful monopolization. However, a jury determined that a lack of market definition by the plaintiffs precluded a finding that the league attempted to monopolize under section 2.15 On appeal, the U.S. Circuit Court of Appeals for the First Circuit affirmed the district court’s market definition holding and ruled in favor of MLS. Nevertheless, the First Circuit was ambiguous in its holding regarding the status of MLS as a single entity for section 1 purposes.16 Instead of plainly affirming the district court’s single entity holding, the First Circuit side-stepped the issue by ruling that the players’ claim failed because of the lack of a defined market, a prerequisite for antitrust liability.17

Vulnerability to antitrust lawsuits would pose problems for a league that has yet to make profits during its twelve years.18 Antitrust litigation resulting in a forced restructuring of the league and player salaries would impact the future of professional soccer in this country and have ramifications on other professional sports leagues. All professional sports leagues are subject to scrutiny under antitrust law (the one exception being Major League Baseball). So MLS will be closely watched should the players decide to re-challenge the league’s single entity status. A player victory in court would sound the warning bells to all professional sports leagues considering changing league policies and to any person or entity contemplating a new professional sports league.

This Comment discusses the ramifications of the Designated Player Rule and other recent developments on Major League Soccer’s single entity defense…. Part III provides background information on MLS, describing the formation of the league and the details of its organizational structure. Part III also discusses the Fraser decisions from the district court and the First Circuit. In light of recent developments in Major League Soccer, Part IV of this Comment analyzes the impact of the recent developments and changes to the league as they relate to antitrust liability, paying particular attention to the Designated Player Rule. Part IV discusses whether the Designated Player Rule creates enough divergent interests among the league’s teams to extinguish MLS’s claim that it operates as a single entity enterprise. Next, this Comment discusses the ramifications of MLS losing its single entity status as well as the future of Major League Soccer following the Designated Player Rule. Part V concludes by examining the broader legal implications imposed by a single entity structure and its continued use by future professional sports leagues.

[Ed. Note: Author’s discussion of antitrust principles under the Sherman Act and the single entity defense is omitted.]

….

III.   MAJOR LEAGUE SOCCER BACKGROUND AND LEGAL HISTORY

This Part provides background information on MLS, including the formation of the league and the details of its organizational structure….

A.   Organizational Structure

In exchange for permission to host the 1994 World Cup soccer tournament from the Federation Internationale de Football (FIFA), the United States Soccer Federation (USSF) promised to establish a viable Division I professional soccer league in the U.S.97 The USSF took advantage of the success of the 1994 World Cup and created Major League Soccer the following year.98 The North American Soccer League (NASL), the country’s former pro soccer league, failed in the 1980s due to financial difficulties and a lack of centralized management.99 In an attempt to avoid the past failures caused by excessive spending and decentralized management, a key feature of the newly created MLS was its unique organizational structure.100 Alan Rothenberg, the President of USSF, consulted with antitrust counsel to create a league with a highly concentrated management structure—one that could avoid the antitrust issues the National Football League encountered and the financial costs that the NASL experienced.101 Eventually, Rothenberg and other founders organized the league as a limited liability company owned by a number of independent investors and managed by a committee known as the board of governors.102 Instead of a league composed of independently owned franchises like most other professional sports leagues, MLS established itself as a “single entity,” where the league retained control over all individual teams and players.103

MLS’s structure and operation is governed by its Limited Liability Company Agreement (LLC Agreement).104 Rather than teams owned by individuals, the league’s investors hold the rights to all thirteen [now sixteen] teams.105 MLS’s ownership umbrella covers all intellectual property rights that relate to the league, its teams, tickets, and broadcasting rights.106 Moreover, the league supplies equipment, sets team schedules, negotiates stadium leases and liabilities, and pays the salaries of referees and other league personnel.107

The league itself is owned by independent investors ranging from corporations or partnerships to individuals.108 Some of the investors are passive investors, while others are active investors who help operate the league.109 Under MLS’s LLC Agreement, the active investors form what is known as the Management Committee.110 Of the active investors, some are called “investor-operators” since they play a key role in the management and operation of specific teams.111

Investor-operators enter into an “Operating Agreement” with MLS in which investor-operators own a financial stake in the league, not just in their individual team.112 For example, the Kraft Sports Group, as the investor-operator of the MLS’s New England Revolution, holds an ownership stake in MLS itself and a considerable interest in the Revolution as the “operator” of the team.113 As part of the Operating Agreement, these investors have the “exclusive right and obligation to provide Management Services for [the] Team within its Home Territory.”114 Thus, the league surrenders some control to these investor-operators to allow them to run the teams and personally benefit financially from them.115

The investor-operators:

hire, at their own expense and discretion, local staff (including the general managers and coaches of their respective teams), and are responsible for local office expenses, local promotional costs for home games, and one-half the stadium rent …. In addition, they license local broadcast rights, sell home tickets, and conduct all local marketing on behalf of MLS.116

The agreements concerning these issues are independent from the league and do not require prior league approval.117 In exchange for the investor-operators’ investment and services, MLS pays each of them a “management fee.”118 In 2002… the management fee included 50% of local ticket sales and concessions, the first $1,125,000 of local broadcast revenues, 100% of revenues from overseas tours, 50% of net revenues from the MLS Championship Game, and a share of exhibition game revenues.119 Thus, an investor-operator’s profits and losses will differ depending, at least in part, on the team’s performance.120

Under strict rules established by the league, investor-operators play a limited role in choosing players for their teams.121 For example, while they cannot independently bid for players against MLS, investor-operators may trade players with other MLS teams upon league approval.122 In choosing its players, no single team can exceed the team salary budget that the board of governors establishes, which is currently around $2 million.123 The league’s residual revenues are split equally among all investors, both passive and active.124

[Ed. Note: Author’s discussion of the district court’s opinion in Fraser v. MLS is omitted.]

….

2.   The First Circuit: Avoiding the Issue

On appeal, the First Circuit affirmed the district court jury decision that the plaintiff’s claims failed because they were unable to define a distinct, relevant market.152 …

Even though the court left the single entity issue unanswered, the court’s detailed discussion … went a long way towards rejecting MLS’s single entity status.157 …. First, investor-operators have a “diversity of entrepreneurial interests that goes well beyond the ordinary company” …. For example, the investor-operators independently hire and fire management, preserve a large part of the teams’ revenues, and hold the sale rights for their team that relate to “specific assets and not just shares in the common enterprise.”160 Second, the court noted that the structure more closely resembled a joint venture than a single entity because the investor-operators effectively controlled MLS since they had a majority of the board’s votes and were not just “mere servants.”161 Nonetheless, the court stopped short of denying MLS single entity status.162 Instead, it ruled that MLS’s organizational structure was a “hybrid arrangement, somewhere between a single company … and a cooperative arrangement between existing competitors.”163 …

IV.   EROSION OF THE LEAGUE’S SINGLE ENTITY STATUS

MLS is on the move. Barely a week goes by without new headlines concerning developments in MLS. For the first time in league history, MLS managed to sign a lucrative television package for the 2007 season.166 Additionally, a number of new investors, both domestic and foreign, have made long-term commitments to the league.167 These investors include well-known organizations such as Red Bull Inc. and the English soccer club Chelsea FC. The rise of soccer-specific stadiums has increased the viability for teams to make profits as well as improve the entertainment level of the game.168 Soccer-specific stadiums provide each team a place to call “home” and allow the fans to enjoy the game in an intimate setting. Additionally, the league publicized that it expects to earn a profit in the year 2010.169 And the January 2007 signing of David Beckham to the Los Angeles Galaxy sent shock waves through the entire sporting community.170 But what do these developments have to do with MLS’s single entity status?

As mentioned above … the crucial factors that courts use to determine if a single entity exists: (1) the degree to which a subsidiary has interests separate and apart from the whole and beyond an ordinary company, also called “entrepreneurial interests”; (2) market development and the degree of competition that exists for players, coaches, fan support, ticket sales, etc.; (3) investor autonomy and the degree to which a league pays player salaries; (4) the competitive balance among teams in the league; and (5) the disparity of profits and losses among teams.173

A series of changes in the league have eradicated the league’s unified interests, which are necessary to justify its single entity defense to section 1 liability…. Although other factors may affect MLS’s single entity status, the Designated Player Rule is most likely to erode the league’s single entity nature.174 This Part concludes by examining the consequences of MLS losing its single entity status on the MLS as well as other professional sports leagues.

A.   The Designated Player Rule and Legal Ramifications

According to the Designated Player Rule, each MLS team may sign one “designated” player without regard to each team’s budget cap, currently around $2 million per team.175 The cost of a designated player’s salary above $400,000, which is the amount the league is willing to pay for each player, is the financial responsibility of the club’s investor-operator.176 In other words, the league covers the first $400,000, but the investor-operator pays the remaining amount.177 Therefore, a designated player’s salary should reflect the market and, specifically, how much an investor-operators values a designated player.178 Although clubs receive only one designated player slot, these slots may be traded to gain additional slots.179 However, no team may hold more than two designated players.180

The David Beckham transaction provides a helpful example for understanding the Designated Player Rule.181 The investor-operator of the Los Angeles Galaxy, Anschutz Entertainment Group (AEG), signed Beckham to a deal allegedly worth $250 million.182 Initially, this scared soccer pundits who believed that MLS would be footing the bill for the entire amount, which would threaten to bankrupt the league.183 However, under the Designated Player Rule, MLS only pays the first $400,000, and the rest of the money is the responsibility of AEG as the team’s investor-operator.184 Therefore, most of the risk was assumed by AEG, not the MLS.

1.   “Entrepreneurial Interests” Apart from the Whole

To start off, the Designated Player Rule predominantly serves the entrepreneurial interests of the wealthier, riskier investor-operators of MLS that operate in larger markets. By allowing investor-operators the ability to use unlimited resources to sign players, the Designated Player Rule cuts directly against the theory of the single entity enterprise, that is, that unified subsidiaries act under a common conscience. Small market teams, such as Kansas City and Columbus, may lack the wealth or the appeal to draw star-studded names to their markets. The large market teams, Los Angeles and New York, were the first teams to sign designated players. First, David Beckham signed with the Los Angeles Galaxy for a whopping $250 million. A few weeks later, Claudio Reyna, the most decorated soccer player in United States’ history, signed with the New York Red Bulls.185 Two months passed before another team signed a designated player to a contract.186 This time it was the Chicago Fire that signed Mexican soccer icon Cuauhtemoc Blanco.187 The New York Red Bulls later signed a second designated player, Juan Pablo Angel.188 Small market teams whose investor-operators lack the deep pockets of companies such as Red Bull Inc. and AEG act with less of an entrepreneurial interest in the Designated Player Rule simply because they are unable to pay exorbitant prices for players in the competitive global market. The league’s ability to control costly salaries through its centralized structure was paramount in the district court’s single entity analysis.189 However, the freedom to contract openly with “designated” players directly erodes this foundation.

On the other hand, the Designated Player Rule protects the interests of the league and other investor-operators in addition to protecting the interests of deep-pocketed investor-operators. Therefore, this factor alone does not sufficiently crack the league’s unity of interest and disqualify its single entity status. The entire league, including the small market teams, benefit from increases in the level of talent, media exposure, and revenue that result from signing designated players. Moreover, by bringing global stars to the United States, the league’s overall credibility increases.190 Signing players such as David Beckham and Cuauhtemoc Blanco is a tremendous stride in the areas of talent and media exposure. For example, a week after Beckham’s signing, news reports all over the globe covered the story.191 This exposure can only help the league’s overall image, which is crucial as MLS competes with the NFL, NBA, MLB, and NHL in today’s saturated sports market. Even though the exposure benefits the entire league to a degree, little doubt remains that the Designated Player Rule benefits the wealthier teams more than others.

2.   Market Competition for Players, Coaches, Fan Support, and Ticket Sales

The competition for players can be separated into two different forums: the general marketplace for professional soccer players in the U.S. and the competition for players among teams. In terms of the professional soccer market itself, MLS essentially created an entirely new market for players.192 Alluding to the failed NASL, the First Circuit in Fraser noted that MLS was an “arrangement formed as a risky venture against a background of prior failure.”193 The court ruled that the forming of the league and its structure actually created a market for the competition for players since no Division I soccer league existed.194 Past attempts at a professional soccer league in the U.S. had failed from financial shortcomings.195 The court seemed willing to grant MLS single entity status in part because of the security investors received through the centralized structure and the benefits conveyed to professional soccer players through the formation of the league.

It is not difficult to see why the court ruled this way. After all, MLS created opportunities for players in a Division I environment, and the resulting economic effect was to raise salaries for soccer players above existing levels.196 However, twelve years have passed and MLS has changed dramatically, particularly with the implementation of the Designated Player Rule. MLS is no longer a new league struggling for survival. The Designated Player Rule is evidence that the league is willing to expose itself to market forces and the higher costs associated with a freer market. Thus, with the passage of time and the implementation of the Designated Player Rule, the arguments that MLS created a new market and that the league needs to tightly control its economics through a single entity structure are less convincing.

Additionally, the second factor also measures the level of actual competition for players within the labor market between investor-operators. By permitting investor-operators to compete freely for “designated” players, the Designated Player Rule exposes the weakness in the league’s unity of interest claim. Scholars suggest that professional sports leagues do not operate as single entities in the labor market because individual owners compete for players and therefore have divergent interests.197 This theory can now be applied to MLS. Under the Designated Player Rule, individual investor-operators in MLS may now compete and bid up player salaries to obtain the most desirable designated player. When investor-operators begin competing for players like they are now, the structure resembles conventional professional sports leagues, which consist of individual owners competing for players in a joint venture. In other words, the more teams compete for players, the less their interests align. As interests diverge, it becomes increasingly difficult for MLS to argue that it operates as a single enterprise with a common conscience. Moreover, competition among teams for coaches, ticket sales, media revenues, and team apparel sales further separates the interests among teams and makes a single entity claim more difficult to defend.

3.   Investor Autonomy and the Degree to which the League Pays Player Salaries

Naturally, the single entity structure frees investor-operators from the burden of paying player salaries. The organizational structure of the league is set up in such a way that the league carries this burden. The league’s responsibility for player salaries was a pivotal reason for the Fraser court’s decision that MLS operated as a single entity enterprise.198 The district court opinion underscored how the “surrender of autonomy, together with the attendant benefit of lower and more controlled player payrolls … will help MLS to succeed where others, notably NASL, failed.”199 The court opined how this feature served the interests of the whole league rather than the ulterior interests of individual investor-operators.200 Conversely, the Designated Player Rule directly opposes this feature and encourages autonomous action by investor-operators. The Rule loosens the league’s control over player payrolls and effectively serves the ulterior interests of individual investor-operators. The Rule allows investor-operators to autonomously scour the global market for designated players and offer expensive contracts to selected players. By approving the Rule, the league encourages competition among investor-operators for players like David Beckham. In an open, laissez-faire soccer market, competition for players is the driving force for market equilibrium as supply and demand naturally converge to establish the fair market value for players. However, a large degree of competition among teams within a single entity enterprise contradicts the essence of the single entity theory. The league no longer acts with a “single conscience” as investor-operators actively compete for players.201 Prior to the Rule, the court classified the structure as a “hybrid arrangement, somewhere between a single company … and a cooperative arrangement between existing competitors.”202 After the Rule, the league looks more like the latter, a cooperative arrangement.

4.   The Competitive Balance Among Teams

On its face, the Designated Player Rule is non-discriminatory. Every team holds an equal opportunity to sign players. The Rule allows market forces to dictate where players end up. The competition for designated players is substantially less regulated or laissez-faire. However, assuming that larger market teams will be able to afford the most desirable players, the competitive balance that helps characterize MLS’s single entity nature will decline. As it stands, the L.A. Galaxy, New York Red Bulls, and the Chicago Fire have acquired arguably four of the world’s finest soccer players. These acquisitions effectively disturb the parity among the league’s teams, particularly for teams that are unable to sign such star players.203 So, although it may be non-discriminatory on its face, beneath the surface, the Designated Player Rule fosters discrimination by alienating teams that cannot financially support this caliber of player. As a result, the Rule hinders small market teams’ ability to compete on the field. Therefore, the fourth factor flies in the face of a single entity’s prize attribute: competitive balance among teams.

For example, Hugo Sanchez, Mexico’s national soccer team coach and former MLS player, believes the Designated Player Rule will improve the league’s talent and widen the existing gap between the United States and Mexico.204 He stated that Major League Soccer is “getting better day by day and year by year. Now, with the new policy of bringing big stars, it’s going to get better much quicker.”205 Yet, Sanchez’s expectations apply only to teams that can afford to buy expensive international stars. The remaining clubs must settle with their current rosters or sign less expensive players into their designated player slots. The wealthier clubs will improve at a faster rate, leaving other clubs behind. For instance, after signing its two designated players in 2007, the New York Red Bulls became the first team to start a season with four consecutive shutouts.206

An increase in the level of talent in any professional sports league is positive for the fans, the players, and the league. MLS has been criticized for delivering a dull product, a reflection of the level of talent on the field.207 These critics applaud the Designated Player Rule for the positive effects it will have on MLS’s pool of talent from which it selects players. Nonetheless, the structural changes caused by the Designated Player Rule may create an environment where the larger MLS clubs reap the benefits to the detriment of smaller MLS clubs. If this happens, the league may become plagued with the same problems as the North American Soccer League. In the NASL, the success of the wealthiest club, the New York Cosmos, came at the cost of the other clubs and ultimately led to the league’s demise.208

5.   The Disparity of Profits and Losses Among Teams

The disparity in profits and losses among teams was one argument stated for denying the NFL single entity status in Los Angeles Memorial Coliseum Commission v. National Football League.209 Applying this rationale to MLS, David Beckham’s Designated Player contract with the Los Angeles Galaxy will create a disparity of profits and losses among the teams in MLS because the Galaxy will benefit the most from the popularity of David Beckham. For example, Galaxy clothing apparel alone will be worth millions of dollars.210 Local television revenues also will bring in millions of dollars for Galaxy’s investor-operators. Although MLS policy mandates that some revenues be shared with the league, a significant percentage remains with AEG.211 Teams without household names such as David Beckham will lag behind the Los Angeles, New York, and Chicago teams in terms of revenue. The profit disparity further fuels the claim that the Designated Player Rule creates divergent interests among teams and undermines the league’s single entity status.

B.   Designated Player Rule Limitations

As noted earlier, The Designated Player Rule Addresses MLS’s need to increase the standard of talent that currently exists. The Rule challenges the league’s conventional behavior regarding player salaries by giving up some of the league’s control to the investor-operators. However, the league implemented specific stopgaps and limitations that mitigate the Rule’s impact.212 The league shrewdly recognized the dangers potentially caused by the Rule, such as competitive inequality and exorbitant spending. To help thwart these dangers, the league placed a temporal limitation on the Designated Player Rule so that it automatically expires after three years.213 The three-year experimental period allows MLS to step back and reflect on the changes the Rule causes, and if needed, it allows MLS to tweak the Rule. Next, the Rule only permits two [now three] designated players per team.214 This limitation assuages the fears of the “New York Cosmo effect”215 that the wealthiest team has the best players on its roster. These two limitations lessen the overall impact of the Designated Player Rule. As such, the limitations are a step back in the single entity direction because they reduce the divergent interests generated by the Rule.

C.   Legal Consequences of Losing Single Entity Status: MLS as a Joint Venture

The implementation of the Designated Player Rule is a significant development for Major League Soccer. The Rule reveals the league’s commitment to improve talent on the field and its willingness to take risks in order to increase the league’s popularity. The Rule also is an important development from a legal perspective…. [t]he Designated Player Rule exposes flaws in MLS’s single entity claim by generating divergent interests among the league’s investor-operators. By encouraging teams to compete for designated players, a court will have a difficult time deciding that the investor-operators operate with similar goals and under a common conscience. Consequently, a court likely will determine that MLS and its investor-operators form a joint venture. As a joint venture, the cooperation between MLS and the investor-operators would meet the agreement requirement, and MLS would become vulnerable to antitrust liability under section 1.

….

As a single entity, MLS currently receives immunity from section 1 antitrust liability. However, liability aside, there are additional benefits from MLS’s single entity status that may be in jeopardy if it were to lose this distinction. The principal benefit the league receives from this classification is the ability to keep costs down by suppressing salaries to affordable levels for investor-operators. This salary suppression is accomplished through the centralized structure by which players sign contracts with the league rather than with each independent team. Over the past twelve years, the cost savings associated with this structure has helped the league survive and prevented the problems that plagued the financially troubled NASL. For that reason, MLS has an incentive to keep its single entity status beyond merely preserving its section 1 immunity.

Yet, changes in the league, such as the Designated Player Rule, suggest MLS is heading in a new direction, one that closely resembles a joint venture. If MLS continues to encourage autonomous behavior from the investor-operators, it must also accept the downside risk of section l liability. Nevertheless, the exposure to section 1 liability would be alleviated by the benefits provided by a joint venture. Specifically, teams in a joint venture would be permitted to employ the best players money can buy. The most frequent criticism of MLS is that the quality of soccer on field is second-tier in comparison to its European counterparts.217 The Designated Player Rule is a direct attempt to bridge the gap in talent by enticing the world’s best players to come to the United States. Moreover, recent developments such as the MLS’s television contract, shirt sponsorships, soccer stadiums, and new investor-operators provide new sources of revenue that would help alleviate the cost burdens associated with joint ventures.

Emerging professional sports leagues attempting to organize as a single entity enterprise will surely scrutinize MLS and its ability to maintain its single entity status. Given that MLS has taken advantage of the benefits provided by its single entity status for twelve years, other entrepreneurs looking to launch professional sports leagues will likely follow MLS’s lead: start as a single entity in order to keep costs down, then slowly move to a decentralized structure as the quantity of investors increase and the league solidifies its foundation. The single entity model could be utilized as a temporary structure for developing a professional sports league but is unlikely to continue as the league grows and moves beyond the “hybrid” spectrum.

Likewise, current professional sports leagues will examine how a court classifies MLS in future antitrust litigation. When the players decide to challenge the league’s single entity distinction and, as argued above, likely win their claim, it may have a chilling effect on other leagues’ ability to change league rules. In particular, leagues will be less likely to modify existing rules in fear of suffering the consequences imposed by antitrust litigation….

V.   CONCLUSION

As new leagues and businesses follow the MLS’s single entity framework, it will become increasingly necessary for a court to set the parameters for single entity status. It is imperative that a court directly and unambiguously decide the legality of the hybrid arrangement….

The survival and growth of Major League Soccer is crucial for the continued growth of soccer in this country. To ensure its survival, the league has taken calculated risks that aid in the creation of new soccer fans and help attract existing soccer fans to MLS games. The Designated Player Rule may be the type of risk that is essential to elevate the talent in the league. Amid this change, MLS should be conscious of the legal ramifications…. [T]hese changes strongly suggest MLS is less of a single entity and more of a joint venture. MLS must bear in mind how the First Circuit’s Fraser opinion strongly hints at a future reevaluation and that MLS is walking on thin ice with its hybrid arrangement. Further, the league cannot forget that historically few courts have awarded single entity status to professional sports leagues. In addition to the Designated Player Rule, the creation of soccer-specific stadiums and the new television package are indications that the league is drifting away from the characteristics associated with single entities. As such, the league should be conscious of each new decision or rule modification because it may compromise MLS’s protection from antitrust immunity under section 1.

Notes

1.  Fraser v. Major League Soccer, L.L.C., 284 F.3d 47, 54 (1st Cir. 2002). Single entity status is a term describing entities that cannot illegally conspire in violation of antitrust laws because parties are deemed one entity rather than multiple entities acting together. Joseph P. Bauer & William H. Page, Kintner Federal Antitrust Law 92 (2d ed. 2002).

2.  Jon Weinbach, U.S. Soccer League Finally Hopes to Score, Wall St. J., Mar. 23, 2007, at B1.

3.  “We can hit these numbers” will be remembered as the words that revolutionized professional soccer in the United States. Grant Wahl, Anatomy of a Blockbuster: The Story Behind the Beckham Deal and the Economics, Sports Illustrated, Jan. 17, 2007, http://sportsillustrated.cnn.com/2007/writers/grant_wahl/01/17/beckham.qa/index.html. These words, spoken by Tim Leiweke of Anschutz Entertainment Group (AEG), symbolize the impact the AEG executives believed David Beckham would have on MLS development. Press Release, Major League Soccer, Global Icon David Beckham Signs with the Los Angeles Galaxy in Landmark Deal: World’s No. 1 Soccer Star to Make Galaxy Debut in Summer 2007 (Jan. 11, 2007), available at http://www.mlsnet.com/news/mls_news.jsp?ymd=20070111&content_id=81619&vkey=pr_mls&fext=.jsp. These “numbers” referred to the $250 million spent to lure David Beckham to Major League Soccer’s L.A. Galaxy from world renowned soccer club Real Madrid. Id. With the deal completed, David Beckham, the most recognized athlete on the planet, was coming to America. Id. The English professional soccer player’s name was searched on Google more than any other sporting personality in 2003 and 2004. See Google, 2003 Year-End Google Zeitgeist (2003), available at http://www.google.com/press/zeitgeist2003.html; Google, 2004 Year-End Google Zeitgeist (2004), available at http://www.google.com/press/zeitgeist2004.html. Also in 2004, TIME Magazine listed David Beckham in its 100 most influential global icons. Press Release, TIME Magazine, TIME Names the World’s Most Influential People (Apr. 18, 2004), available at http://www.timewarner.com/corp/newsroom/pr/0,20812,670354,00.html. Thus, the news that he had signed with MLS came down like thunder in the media and throughout the global community. Within two days of the announcement, Major League Soccer’s L.A. Galaxy had sold 5,000 additional season tickets. Wahl, supra. The Beckham announcement “has generated more interest in Major League Soccer than any other event in league history,” said MLS commissioner Don Garber. Associated Press, Promise of Beckham Helps MLS Ticket Sales Skyrocket, ESPNsoccernet, Jan. 16, 2007, http://soccernet.espn.go.com/news/story?id=400229&cc=5901.

4.  See Hoover’s Profile, Major League Soccer, L.L.C., http://www.answers.com/major%20league%20soccer (last visited Dec. 4, 2007) (highlighting the league’s history).

5.  Press Release, Major League Soccer, MLS Implements Designated Player Rule and Other Competition Initiatives (Nov. 11, 2006), available at http://web.mlsnet.com/news/mls_events_news.jsp?ymd=20061111&content_id=78396&vkey=mlscup2006&fext=.jsp.

6.  The salary budget, also known as a salary cap, is “the maximum amount of money that can be spent on salaries for a sports team or other group.” Webster’s New Millennium Dictionary of English (pre-view ed., vol. 0.9.7, 2006), available at http://dictionary.reference.com/browse/salary%20cap.

7.  Press Release, Major League Soccer, supra note 5.

8.  Associated Press, MLS OKs ‘Beckham Rule’ to Attract Superstar Players, ESPNsoccernet, Nov. 11, 2006, http://soccernet.espn.go.com/news/story?id=391320&cc=5901.

9.  Id.

10.  Press Release, Major League Soccer, Global Icon David Beckham Signs with the Los Angeles Galaxy in Landmark Deal: World’s No. 1 Soccer Star to Make Galaxy Debut in Summer 2007 (Jan. 11, 2007), available at http://www.mlsnet.com/news/mls_news.jsp?ymd=20070111&content_id=81619&vkey=pr_mls&fext=.jsp.

11.  Steve Davis, Ownership Diversity Drove the Beckham Rule, ESPNsoccernet, Nov. 14, 2006, http://soccernet.espn.go.com/columns/story?id=391763&root=mls&&cc=5901.

12.  More specifically, MLS declared victory against Ian Fraser, Steve Trittschuh, Sean Bowers, Mark Semioli, Rhett Harty, David Scott Vaudreuil, Mark Dodd, and Mark Dougherty. See Fraser v. Major League Soccer, L.L.C., 97 F. Supp. 2d 130 (D. Mass. 2000), aff’d, 284 F.3d 47 (1st Cir. 2002).

13.  Fraser v. Major League Soccer, L.L.C., 284 F.3d 47 (1st Cir. 2002).

14.  Id. at 54–55.

15.  Id. at 55.

16.  Id. at 60–61.

17.  Id.

18.  Tim Lemke, MLS: Franchises to Profit by 2010, Wash. Times, May 11, 2006.

….

97.  Fraser v. Major League Soccer, L.L.C., 284 F.3d 47, 54 (1st Cir. 2002).

98.  Id.

99.  Id. at 52.

100.  Fraser v. Major League Soccer, L.L.C., 97 F. Supp. 2d 130, 132 (D. Mass. 2000), aff’d, 284 F.3d 47 (1st Cir. 2002).

101.  Id.

102.  Fraser, 284 F.3d at 53, 70.

103.  Id. at 70.

104.  Fraser, 97 F. Supp. at 132.

105.  Fraser, 284 F.3d at 53.

106.  Id.

107.  Id.

108.  Id.

109.  Id.

110.  Id. at 53–54.

111.  Id.

112.  Major League Soccer, General Overview, http://www.mlsnet.com/ about (last visited Jan. 5, 2008).

113.  Id.

114.  Fraser, 284 F.3d at 53.

115.  Id. at 54.

116.  Id.

117.  Id.

118.  Id.

119.  Id.

120.  Id. Currently, there are nine investor-operators, two of which hold operating rights for multiple teams. Major League Soccer, General Overview, supra note 112. The principal investor-operator is Phil Anschutz & the Anschutz Entertainment Group (AEG) which operates the Chicago Fire, Houston Dynamo, D.C. United, and the Los Angeles Galaxy. Id. [Ed. Note: AEG now operates the L.A. Galaxy and half of the Houston Dynamo. There are 14 investor-operators.]

121.  Fraser, 284 F.3d 47 at 54.

122.  Id.

123.  Id.

124.  Id.

….

152.  Fraser v. Major League Soccer, L.L.C., 284 F.3d 47, 60-61 (1st Cir. 2002). Along these lines, the circuit court described how an amendment on the appeal by the players to allege a broader market than just United States Division I would likely have been futile given the insufficient time period remaining after summary judgment was entered. Id. The court opined how allowing the plaintiffs to allege a new market theory would require new discovery and expert analysis and would substantially “[alter] the contours of the case.” Id. at 60.

153.  Id. at 59.

….

157.  Id. at 57.

158.  Id.

159.  Id.

160.  Id.

161.  Id. This factor was particularly important to the court because the operator-investors are potential competitors with MLS and each other. Id. MLS serves a dual purpose: to control its own assets and revenues and to “arguably” create horizontal coordination by limiting competition among investor-operators. Id.

162.  Id. at 59.

163.  Id. at 58.

….

166.  Mike Reynolds, MLS Sets TV Deals, Multichannel News, Aug. 7, 2006, http://www.multichannel.com/article/CA6360146.html.

167.  On March 9, 2006 Red Bulls Inc. acquired the New York Metrostars. See New York Red Bulls, Timeline, http://redbull.newyork.mlsnet.com/t107/about/timeline.jsp (last visited Jan. 5, 2008). The club’s name was changed to the New York Red Bulls. Id. Also, Adidas made a nine-figure investment in MLS. Wahl, supra note 3.

168.  Lemke, supra note 18.

169.  Id.

170.  Press Release, Major League Soccer, supra note 3.

….

173.  Factors (1) and (2) are from the Fraser, Sullivan, and Los Angeles Memorial Coliseum opinions. Factors (3) and (4) are also from the Fraser decisions. Factor (5) is from Los Angeles Memorial Coliseum. See supra Parts II, III

174.  As MLS moves forward, it is worth mentioning that there are other changes the MLS must consider beyond the Designated Player Rule that concern its single entity status. Much like the Designated Player Rule, these changes may not be in the interest of all the investor-operators.

First, MLS’s new soccer stadium initiative of constructing stadiums with a capacity between 20,000 and 30,000 fans conflicts with investor-operators who prefer larger stadiums that can be shared with other sports teams. Major League Soccer, General Overview, supra note 112 (“These facilities usually hold between 20,000 and 30,000 people and share design concepts with some of the finest soccer venues in Europe. In 2007, seven of the [l]eague’s 13 teams will compete in stadiums built specifically for professional soccer. In addition, Red Bull Park will debut in 2008.”). See also Thomas D. Stuck, Comment, Facility Issues in Major League Soccer: What Do Soccer Stadiums Have To Do with Antitrust Liability?, 14 Marq. Sports L. Rev. 551 (2004). For instance, the Kraft Sports Group prefers its 68,000 seat stadium that can be shared by both the New England Patriots and the Revolution. See New England Patriots, Stadium Fact Chart, http://www.patriots.com/stadium/index.cfm?ac=factchart (last visited Jan. 5, 2008).

Second, MLS’s new long-term television contract with ESPN and other networks, estimated to be worth $15 million annually, may benefit larger markets more than the smaller market teams. See Ben Grossman, Major League Soccer on ABC/ESPN, Broadcasting & Cable, Aug. 4, 2006, http://www.broadcastingcable.com/article/CA6359744.xhtml. See also Jason Halpin, TV Deal Highlights State of the League Address, MLSnet.com, Aug. 4, 2006, http://web.mlsnet.com/news/mls_news.jsp?ymd=20060804&content_id=68212&vkey=news_mls&fext=.jsp (noting that the ABC/ESPN deal is worth around $7–8 million per year, the Fox Soccer Channel deal is worth $5 million per year, and the HDNet deal is worth $2–3 million per year).

Third, an increase in the number of investor-operators from three to twelve [now fourteen] and the diversification among investor-operators challenges MLS’s claim that it acts with a common conscience. See Wahl, supra note 3. After all, it is much easier for three investor-operators than twelve to maintain unified interests. In addition to the numeric increase, the investor-operators have also diversified in composition as a number of them are international investors or corporations.

175.  Jason Halpin, New MLS Competition Initiatives Unveiled, MLSnet.com, Nov. 11, 2006, http://web.mlsnet.com/news/mls_news.jsp?ymd=20061111&content_id=78445&vkey=news_mls&fext=.jsp.

176.  Press Release, Major League Soccer, supra note 5.

177.  Id.

178.  Id.

179.  Id.

180.  Id. (“The salaries of players above the maximum salary budget have been the financial responsibility of the collective group of MLS investors. Players such as Landon Donovan (Los Angeles), Carlos Ruiz (FC Dallas) and Eddie Johnson (Kansas City) will be ‘grandfathered’ for one year after which they, too, will assume Designated Player status…. The Designated Player Rule is a three-year initiative that will conclude after the 2009 MLS season when its future will be reviewed.”).

181.  Tim Leiweke, the president of AEG, began courting David Beckham to MLS back in 2005 when he met with Beckham to discuss the opening of a soccer academy in Los Angeles to be called David Beckham’s Soccer Academy. Wahl, supra note 3. At the time, David Beckham was under contract with Real Madrid. Id. Beckham’s contract continued for two additional years at which point, during the fall of 2006, Beckham began negotiating a contract extension with Real Madrid. Id. After contract negotiations between Beckham and Real Madrid failed in January 2007, Tim Leiweke and AEG seized the opportunity to sign Beckham to an MLS contract. Id.

182.  Recent publications suggest that the base salary is more in the $5 to $10 million range with the remaining money coming from endorsements and other performance and advertising contingencies. See id.

183.  Id.

184.  Id.

185.  Jonathan Nierman, Reyna Coming Home to Join Bulls, MLSnet.com, Jan. 24, 2007, http://www.mlsnet.com/news/mls_news.jsp?ymd=20070124&content_id=82387&vkey=news_mls&fext=.jsp.

186.  David Brown, Fire Excited by Blanco Arrival, MLSnet.com, Apr. 3, 2007, http://chicago.fire.mlsnet.com/news/team_news.jsp?ymd=20070403&content_id=87240&vkey=news_chf&fext=.jsp&team=t100.

187.  Id.

188.  Jonathan Nierman, Red Bulls Call on Striker Angel, MLSnet.com, Apr. 17, 2007, http://web.mlsnet.com/news/mls_news.jsp?ymd=20070417&content_id=89240&vkey=news_mls&fext=.jsp.

189.  Fraser v. Major League Soccer, L.L.C., 97 F. Supp. 2d 130, 137 (D. Mass. 2000), aff’d, 284 F.3d 47 (1st Cir. 2002).

190.  See Wahl, supra note 3 (“Leiweke showed Anschutz the offer he wanted to make to Beckham. According to Leiweke, Anschutz initially hadn’t liked the idea for the designated-player rule. ‘Phil doesn’t believe at the end of the day that you build great long-term championship franchises around buying the biggest superstar,’ Leiweke says. ‘But when we finally got it passed in November, he turned to me and said, ‘You’re right, this is a good idea. We need to do this for the league, because if we’re ever going to expand our rating and our audience and get credibility in our country we’re going to need a star to break through.’”).

191.  See, e.g., Richard Bright, MLS Rule Fuels More Beckham Rumours, Daily Telegraph (London), Nov. 13, 2006, at Sport 4; Stephen Ellis, US Soccer’s Big Bet on Beckham Follows Own Goals, Weekend Australian, Jan. 20, 2007; Jack Bell, Takeoff for MLS, With Beckham in the Wings, N.Y. Times, Apr. 4, 2007; Morgan Campbell, Vend It Like Beckham, Soccer Superstar’s Arrival in MLS Already Selling the Game and Season Tickets in North America, Toronto Star, Jan. 12, 2007.

192.  Fraser v. Major League Soccer, L.L.C., 284 F.3d 47, 59 (1st Cir. 2002).

193.  Id.

194.  Id.

195.  Id.

196.  Before MLS, the only option for soccer players was in the United Soccer League, formerly called the A-League.

197.  Nathaniel Grow, Note, There’s No “I” in “League”: Professional Sports Leagues and the Single Entity Defense, 105 Mich. L. Rev. 183, 187 (2006). Grow argues that the circuit courts have failed to distinguish between lawsuits involving non-labor disputes and those involving labor disputes between players and team owners. According to Grow, there is a unity of interest that exists among teams in the league when it comes to non-labor disputes. Id. at 188. By separating the non-labor from the labor disputes, Grow astutely recognizes the economic interdependence of teams that exists in a non-labor context. Id. Specifically, he asserts the traditional argument that professional sports teams combine to produce a single product, the league. Id. at 191. He emphasizes the only true competition between teams is on the field, whereas, for the most part teams do not compete for media attention, fans, and tickets sales. Id. at 192. In contrast to non-labor disputes, Grow asserts that professional sports leagues are not single entities for purposes of labor disputes between players and team owners. Id. at 206. At its core, sports leagues do not have a unity of interest among teams because all teams have an interest in obtaining the best players. Id. Having the best players on the team, Grow continues, leads to winning which in turn leads to increased ticket sales and greater profits overall. Id. Therefore, the interests of teams diverge in the labor context, effectively blocking a single entity exception. Id. Additionally, the article states how single entity status for leagues in labor disputes potentially injures the players because of the possibility of collusion amongst owners and the resulting artificially suppressed player salaries. Id. at 207.

198.  Fraser v. Major League Soccer, L.L.C., 97 F. Supp. 2d 130, 137 (D. Mass. 2000), aff’d, 284 F.3d 47 (1st Cir. 2002).

199.  Id.; Lisa Dillman, MLS Says Signing Is Strategic; Owners and Experts See Beckham’s $250-Million Deal as a Controlled Cost, Different From a Former League’s Failed Spending, L.A. Times, Jan. 13, 2007 (“‘In the NASL days, because there were no control mechanisms, the spending was not rational,’ MLS deputy commissioner Ivan Gazidis said …. ‘It was not strategic. It was not well-considered. That’s not the case now.”’).

200.  Fraser, 97 F. Supp. 2d at 137.

201.  Interestingly, the increased competition in this case leads to increased antitrust vulnerability. The Designated Player Rule’s effect is to increase competition. However, the increased competition may cause MLS to lose its single entity status and become subject to section 1 liability.

202.  Fraser v. Major League Soccer, L.L.C., 284 F.3d 47, 58 (1st Cir. 2002).

203.  Reyna was selected as a top sixteen player in the 2002 World Cup. Associated Press, Reyna Earns All-Star Selection, Soccernet.com, June 28, 2002, http://soccernet.espn.go.com/wc/story?id=219492&lang=us. David Beckham has made 99 appearances for the England National Team. Wenger: Becks Still Had It in Training, Soccernet.com, Feb. 1, 2008, http://soccernet.espn.go.com/news/story?id=504131&cc=5901. Beckham captained the England National Team at the 2006 World Cup in Germany. Beckham Quits As Captain after England’s World Cup Exit, USAToday.com, July 2, 2006, http://www.usatoday.com/sports/soccer/worldcup/2006-07-02-beckham-quits-captain_x.htm.

204.  Grahame L. Jones, Leap of Faith: Hugo Sanchez, Who Was an Acrobatic, Scoring Star for Real Madrid, Sees Quality on Mexico’s Team, L.A. Times, Mar. 28, 2007, at D8.

205.  Id. As Mexico’s national team coach and the United States nemesis in the CONCACAF soccer region, Sanchez is worried about the improvement to MLS that will result from the Designated Player Rule. Id. The United States has dominated Mexico as of late. See U.S. Men Continue Unbeaten Run at Home Against Mexico with Exciting 2-2 Draw in Houston, USSOCCER.com, Feb. 6, 2008, http://www.ussoccer.com/articles/viewArticle.jsp_5308416.xhtml. Historically, Mexico has dominated the CONCACAF region. Only in the past eight years has the United States caught and eclipsed Mexico as the region’s dominant soccer country. Id. As such, Sanchez’s comments exemplify the anxiety and frustration with the United States’ continued improvement. According to Sanchez, the Designated Player Rule will widen the gap between the countries. See Jones, supra note 204, at D8.

206.  Steve Hunt, Run Continues as Red Bulls Top FCD, MLSnet.com, Apr. 26, 2007, http://redbull.newyork.mlsnet.com/news/team_news.jsp?ymd=20070426&content_id=90714&vkey=news_rbn&fext=.jsp&team=t107.

207.  Ian Plenderleith, The Road to Positive Soccer, USSoccerPlayers, Mar. 27, 2007, http://www.ussoccerplayers.com/exclusives/mls/index.html?article_id=212.

208.  Fraser v. Major League Soccer, L.L.C., 284 F.3d 47, 52 (1st Cir. 2002); Dillman, supra note 199 (“If the NASL is viewed as a cautionary tale, the Cosmos was the poster child of the league’s rise and fall, a dream team assemblage of Pele, Franz Beckenbauer and Giorgio Chinaglia. In fact, a documentary about the Cosmos’ fast times and hard fall, ‘Once in a Lifetime,’ was released last year and appeared in movie theaters.”).

209.  726 F.2d 1381, 1389-90 (9th Cir. 1984).

210.  Jen Chang, Debunking the Myths Behind Beckham’s Contract, ESPNsoccernet, Jan. 12, 2007, http://soccernet.espn.go.com/columns/story?id=399597&root=mls&cc=5901 (“It’s rumored that Adidas will be paying an additional $5 million to $6 million a year just to sponsor the Galaxy’s jersey, ironic since they already manufacture them. If that doesn’t tell the story of Beckham’s endorsement appeal, nothing else will—and presumably Beckham will get a cut of that fee.”).

211.  Fraser, 284 F.3d at 52.

212.  Press Release, Major League Soccer, supra note 5; Dillman, supra note 199 (“The playing side of his contract is extremely rational and makes business sense. This was a smart, strategic, well-thought-through move. It’s not wild, out-of-control spending. Or owners trying to be the big man on the block.”).

213.  Id.

214.  Id.

215.  See supra note 208 and accompanying text (explaining the “Cosmos Effect”).

….

217.  Plenderleith, supra note 207.

218.  Fraser v. Major League Soccer, L.L.C., 284 F.3d 47, 58 (1st Cir. 2002).

WOMEN’S SOCCER

COULD THE NEW WOMEN’S PROFESSIONAL SOCCER LEAGUE SURVIVE IN AMERICA? HOW ADOPTING A TRADITIONAL LEGAL STRUCTURE MAY SAVE MORE THAN JUST A GAME

Marc Edelman and Elizabeth Masterson

INTRODUCTION

On July 10, 1999, over ninety thousand screaming fans watched from the Rose Bowl stands as Brandi Chastain hammered a left-footed penalty kick past the reach of China’s goaltender Gao Hong to win the World Cup for the U.S. Women’s Soccer Team.1 A euphoric Chastain then celebrated by falling to her knees, stripping down to her sports bra, and clenching her fists into the air.2 The image was featured on the covers of Time, Newsweek and Sports Illustrated magazines.3 It was a symbol of “girl power,” achievement, and the synergy of feminism with athleticism.4 Immediately, women’s soccer had captivated the hearts of many Americans.5

On the heels of Team USA’s Women’s World Cup victory, Discovery Communications CEO John Hendricks announced plans to launch the Women’s United Soccer Association (“WUSA”)—the first American women’s soccer league of its kind.6 Much like the Women’s National Basketball Association (“WNBA”), the WUSA originally adopted a centrally planned legal structure, featuring shareholder ownership in the league overall, rather than ownership in individual clubs.7

However, despite strong initial fan interest, the WUSA soon began to struggle.8 Fan attendance declined significantly during the 2002 and 2003 seasons.9 Then, on September 16, 2003, the league unceremoniously suspended operations.10

The WUSA’s demise signaled a loss of athletic opportunities for women11—a troubling outcome for a society that has for so long discriminated against women’s athletics.12 With the late integration of women into professional sports, the recent role of the professional female athlete has proven especially important in terms of providing young women with positive role models.13 Indeed, studies show that female student-athletes graduate from college at a higher rate than any other student group in American higher education.14

In 2007, a subgroup of WUSA investors, known as the Women’s Soccer Initiative, Inc. (“WSII”),15 announced plans to launch a new women’s professional league.16 [Ed. Note: The league is now known as Women’s Professional Soccer, or WPS.] WSII investors believe that a women’s professional soccer league could succeed if investors implement a more traditional team-based legal structure.17 Many others remain skeptical.18

This article analyzes whether a new women’s professional soccer league, operating under a more traditional legal structure, is more likely to succeed than its centrally planned predecessor. Part I of this article explores the history of women’s soccer, including the game’s transition from a recreational activity into a professional sport. Part II explains the different legal structures that are available to American sports leagues. Part III explains why implementing a traditional legal structure maximizes the new women’s professional soccer league’s likelihood of success.

….

C.   Launch of a Women’s Professional Soccer League

The exciting 1999 Women’s World Cup finals set the stage for investors to launch America’s first women’s professional soccer league. Using momentum from the 1999 U.S. World Cup victory, an investor group led by Discovery Communications CEO John Hendricks officially launched the WUSA in February 2000.52 Initially, Hendricks’s investor group placed teams in eight cities: Atlanta, Boston, New York, Philadelphia, Orlando-Tampa, San Diego, San Francisco, and Washington, D.C.53 If the league succeeded, Hendricks planned to add more teams.54

Although the WUSA placed all of its teams in the United States, the league hired players from around the world.55 The New York Power, for example, signed two players from Norway.56 The Atlanta Beat, meanwhile, used its first overall draft pick to select Chinese superstar Sun Wen.57

During the league’s first season, the WUSA averaged 8,547 fans per game58—far above the league’s originally projected attendance.59 Among the WUSA teams, the Washington Freedom performed especially well, averaging an astounding 18,242 fans per game during its first four home games.60

By 2003, however, both WUSA attendance and television ratings had declined.61 For the 2003 season, the WUSA’s average game attendance had fallen to below 6,700 fans per game.62 This drop was most dramatic in two of the league’s largest markets, Boston and New York.63 In New York, the 2003 average game attendance fell below 4,300.64

The WUSA’s financial struggles hit investors’ pockets hard. During the league’s first three seasons, WUSA investors lost close to $90 million: $46 million in year one, $24 million in year two, and $19 million in year three.65 Before the 2003 season began, WUSA investors decreased players’ annual pay from an average of $46,000 to a $37,000 average.66 Even after this pay cut, the league still was unable to balance its budget.67

In a final effort to save the WUSA, investors after the 2003 season announced plans to restructure the league into a more traditional legal structure that would include individual club ownership rather than centrally planned ownership.68 League President Lynn Morgan believed this proposed restructuring would help to lure new investors.69 However, just one month later, before the WUSA could implement any changes, the WUSA entirely suspended operations.70

D.   Women’s Soccer Initiative, Inc.

After the WUSA suspended operations, the over 150 women’s professional soccer players waited, hoping that a new league would soon form.71 The following year, players on the highly popular Washington Freedom formed a team in the amateur W-League.72 Other former WUSA players joined existing teams in the W-League, the Women’s Premier Soccer League (“WPSL”), and various overseas leagues.73

In November 2004, some of the original WUSA investors launched WSII.74 Led by Yahoo, Inc. executive and former Stanford University women’s soccer player Tonya Antonucci, WSII began to explore opportunities to revive women’s professional soccer.75 In September 2007, WSII announced plans to launch a new women’s professional league that would begin play in the spring of 2009.76 Antonucci, who had chaired the reorganization committee, was named as the league’s first commissioner.77

The new professional women’s soccer league intends to replace the WUSA’s centrally-held league structure with a more traditional club ownership structure.78 According to Antonucci, “franchise ownership would encourage entrepreneurial investment and do away with an overly large, overly controlling league office that would inhibit teams’ ability to move quickly and set the strategies necessary for their markets.”79

II.   THE FOUR DIFFERENT LEGAL STRUCTURES OF AMERICAN PROFESSIONAL SPORTS LEAGUES

Although it is unknown whether the WUSA would have succeeded if it implemented a different legal structure, there are powerful arguments suggesting that the WUSA’s original structural choice was a mistake.80

In America, a new professional sports league can choose between four different legal structures: (a) the club-based private property structure (as appeared in very early professional baseball); (b) the single-entity centrally planned structure (as envisioned but never implemented by the founders of the American men’s professional soccer league, Major League Soccer (“MLS”)); (c) the mixed-mode centrally planned structure (as actually implemented by MLS); and (d) the mixed-mode private property structure (as implemented by each of the four premier men’s sports leagues—Major League Baseball (“MLB”), the National Basketball Association (“NBA”), the National Football League (“NFL”), and the National Hockey League (“NHL”)).81

A.   Club-Based Private Property Structure

The earliest-known property rights structure in American professional sports is the club-based private property structure.82 Under this structure, sports clubs are privately owned, privately operated, and minimally cooperative with one another.83 In other words, each club is wholly autonomous.84

Today, the club-based private property structure is almost obsolete.85 Although American professional baseball began under this structure, most baseball clubs eventually shifted toward a more cooperative business model.86 A major blow to the club-based private property structure came in 1876 when Chicago baseball promoter William Hulbert launched what most regard as a superior system: National League Baseball.87 Although the National League did not initially reallocate many property rights to the league level, its creation marked the beginning of a gradual shift away from the entirely autonomous sports club.88

B.   Single-Entity Centrally Planned Structure

On the opposite end of the spectrum, other sports leagues have implemented a single-entity centrally planned structure, in which league investors share all property rights in common.89 The single-entity structure consists of a limited liability company that houses all of the league’s teams.90 Investors own an undivided interest in this company.91 Investors thus are responsible for financing and operating the entire league.92 They also act as the league’s board of directors.93

First envisioned by MLS founder Alan Rothenberg, the single-entity structure was intended to create a “single-entity league” for purposes of avoiding antitrust liability under Section 1 of the Sherman Act.94 To avoid liability under this section for what would otherwise be anticompetitive conduct, the league’s structure needed to establish a “unity of interest” among all investors.95 In attempting to obtain “unity of interest,” the league structure included important economic differences from more traditional sports structures.96

Beyond antitrust considerations, one of the most important features of the single-entity structure is that all property rights reside at the league level.97 As a result, investors “avoid the pitfalls that can be associated with a maverick owner doing what he sees fit for his particular club.”98 These pitfalls may include filing a lawsuit which attempts to block league-wide pooling or reallocation of sponsorship rights,99 television rights,100 or even Internet rights.101

C.   Mixed-Mode Centrally Planned Structure

A third potential legal structure is the mixed-mode centrally planned structure.102 In form, the mixed-mode centrally planned league looks much like the single-entity league, with investors conducting all functions at the league level.103 How-ever, in substance, each investor in a mixed-mode centrally planned league also operates the business functions of a single team.104

Under the mixed-mode centrally planned structure, each investor-operator owns a share of the league overall. However, investors do not share all league revenues equally.105 For example, MLS, which operates as a mixed-mode centrally planned league,106 redistributes league revenues with each team’s investor-operator receiving a management fee consisting of a percentage of the local revenues of the franchise which that investor operates.107

According to the First Circuit Court of Appeals, even though the mixed-mode centrally planned league, in form, looks like the single-entity centrally planned league, it does not qualify for the single-entity defense to Section 1 of the Sherman Act because, in substance, investors lack “unity of interest.”108 As a result, while the mixed-mode centrally planned league enjoys some of the economic benefits of the single-entity league, it does not enjoy any of the legal advantages.

D.   Mixed-Mode Private Property Structure (the Traditional Model)

The fourth legal structure that appears in American professional sports is the mixed-mode private-property structure.109 The mixed-mode private property structure is the most common league structure, and it is the structure implemented by each of America’s four premier professional sports leagues: MLB, the NBA, the NFL, and the NHL.110 Because this structure appears most commonly, some academics simply call it the “traditional model.”111

The mixed-mode private property structure consists of individual club owners who each possess independent property rights, but who agree contractually to share some of these rights with each other.112 For example, in a mixed-mode private property league, club owners may vote to share licensing rights, national television broadcast rights, and Internet intellectual property rights.113

Indeed, the interests of individual club owners under the mixed-mode private property structure are never perfectly aligned.114 Club owners in larger markets typically want to keep more property rights, while owners in the smaller markets typically want to collectivize these rights.115 As a result, the mixed-mode private property structure may lead to lawsuits between individual club owners and the league overall, such as the one recently filed over the ownership of Internet IP rights between the New York Rangers and the NHL.116 Nevertheless, despite these occasional asymmetric incentives, the mixed-mode private property structure provides an opportunity for club owners to enjoy a balance between business cooperation and business competition.117

III.   WHY THE NEW WOMEN’S PROFESSIONAL SOCCER LEAGUE SHOULD ADOPT A MIXED-MODE PRIVATE PROPERTY STRUCTURE

Although during the past decade most sports executives favored adopting centrally planned structures, the new women’s professional soccer league actually has the greatest likelihood for success if it adopts a traditional, mixed-mode private property structure.118 As explained by Jeffrey Kessler, Co-Chairman of the Sports Litigation Department at Dewey & LeBoeuf, “the [centrally planned league structure] is a wonderful example of how the legal system and lawyers can mess up a business structure in this country.”119 Indeed, when balancing the benefits of a traditional league structure with those of a single-entity structure, the traditional model, in most instances, seems to work better.

A.   Benefits of the Traditional League Structure

The mixed-mode private property structure enjoys four important benefits over centrally planned league structures: (1) better ability to attract investors; (2) greater success at promoting innovation; (3) improved ability to “think globally but act locally;” and (4) greater success at convincing fans that game results are natural.

1.   Attracting Investors

First, deep-pocketed investors are more likely to invest in traditional sports leagues than in centrally planned leagues. This is because investors, under the traditional structure, are fully able to control individual club operations and compete for league championships.120 By contrast, under centrally planned league structures, investors do not have the ability to fully control any team, nor the opportunity to compete to the same extent for championship glory.121 According to Wharton School of Business Legal Studies Professor Kenneth Shropshire, “[m]ost problematic for the [centrally planned] structure is figuring out how to tell the large-ego set of owners that this league is going to be a little bit different, and that as a [centrally planned league], one of the owners … will not have the opportunity to be out front [raising a championship trophy].”122

Because the centrally planned league lacks certain elements of both control and rewards, it is at a substantial disadvantage when attempting to raise funds.123 In addition, the lack of these two features helps to explain why investors in centrally planned leagues are generally more willing to abandon their investment than owners in traditionally structured leagues.124

2.   Promoting Innovation

The traditionally structured league is also better positioned to promote innovation.125 Innovation is typically superior in traditionally structured leagues because independent club owners are able to implement their own diverse business plans, rather than implementing a single plan approved by the league.126 This greater flexibility often improves business performance by allowing individual club owners to try different business tactics.127

Although not every individualized business plan succeeds, most club owners eventually adopt other clubs’ best practices.128 For example, after a few MLB clubs experimented successfully with variable priced ticketing, many other clubs that would not have initially favored this strategy adopted it.129 According to Milwaukee Brewers owner Mark Attanasio, whose club was one of the laggards to adopt variable ticket pricing, “[w]e don’t need to reinvent the wheel. If somebody else is doing something, the fans seem to like it and we can make some money, we’ll do it.”130 This is the beauty of individual club decision-making.

3.   Thinking Globally, Acting Locally

The traditionally structured league also encourages club owners to “think globally, but act locally.”131 Under the traditional league structure, each club owner controls his own local sponsorship market and hires employees to address needs within the local community.132 This, in turn, promotes friendlier business relations.133 By comparison, the centrally planned league is less adept at meeting local community needs because business planning occurs exclusively at the national, league-wide level.134 At that level, targeted marketing is simply infeasible.

4.   Producing Natural Results

Finally, some experts even believe that fans prefer to watch games played in traditionally structured leagues.135 This is because some fans perceive these games as having more natural results.136 According to Jeffrey Kessler, “[t]he absence of control over players and rosters is something that is a detriment, not a positive, because you create an image that there is one giant fantasy [sports] game that someone plays in the league office in which players get ripped from their fans by a central authority and reallocated around the country.”137 Although this argument may be somewhat overstated, Kessler fairly points to the collapse of the Continental Basketball Association almost immediately upon adopting a centrally planned structure as evidence of fans’ distrust of this type of league.138

B.   Purported Benefits of the Centrally Planned Structure

Indeed, the centrally planned structure may have certain legal and economic benefits over the traditional model; however, these benefits are almost always overstated.

1.   Purported Legal Benefits of the Centrally Planned League

From a legal perspective, the centrally planned league’s most frequently claimed benefit is a total exemption from liability under Section 1 of the Sherman Act.139 This exemption, if obtained, would allow owners to unilaterally set ticket prices, pool broadcasting and licensing rights, and allocate player contracts among teams.140

Recent case law, however, calls into question this purported legal benefit for three reasons: (1) not all centrally planned leagues actually are single-entities for purposes of antitrust laws; (2) according to one court, even certain traditionally structured leagues may qualify within IP markets as single entities; and (3) even if a startup sports league does not qualify for the single-entity defense, it still might qualify for other defenses against antitrust liability.141

a.   Not All Centrally Planned Leagues Qualify as Single Entities

Although early founders of centrally planned leagues had assumed the single-entity defense insulated all centrally planned structures from liability under Section 1 of the Sherman Act, recent case law indicates that the single-entity defense only applies to true single-entity leagues, and not to mixed-mode centrally planned leagues.142 This is because clubs in mixed-mode centrally planned leagues lack “unity of interest.”143

Importantly, in Fraser v. Major League Soccer, the First Circuit Court of Appeals explained that even though a single-entity league can never be found to conspire with itself, owners in a mixed-mode centrally planned league such as MLS are still capable of illegally conspiring with one another.144 This is because, even though a mixed-mode centrally planned league does not seem to have separate ownership in form, the league’s investor-operators act in the “role as team managers, [and] not as ordinary stockholders.”145 Further, investor-operators “retain a large portion of the revenues from the activities of their teams; and each has limited sale rights in its own team that relate to specific assets and not just shares in the common enterprise.”146

….

[Ed. Note: Authors’ discussion of how traditionally structured leagues may qualify within IP markets as single entities and how a start-up sports league might qualify for other defenses against antitrust liability is omitted.]

2.   Purported Economic Benefits of the Centrally Planned League

The economic advantages of adopting a centrally planned structure are similarly overstated. Although advocates of adopting a single-entity structure are quick to point out the structure’s ability to reduce shareholder risk and lower operating expenses,157 these advantages are unlikely to outweigh the structure’s disadvantages, as evidenced by the number of sports leagues that in recent years have abandoned the centrally planned structure.158

The most well-documented sports league to abandon a centrally planned structure is the WNBA, which made its transition away from the centrally planned structure based on both labor unrest and the difficulty obtaining local sponsorships.159 According to the Chief Operating Officer of one WNBA team, the traditional structure is one in which “teams should have a better chance to survive.”160 In addition, according to one WNBA owner, the traditional structure is preferable because “teams will be accountable where they weren’t totally in the past and that accountability will result in better decisions and better results.”161

Another more recent example of a sports league that has transitioned away from the centrally planned structure is the Major Indoor Soccer League (“MISL”), which, until recently, was cited as a major success story of central league planning.162 On May 31, 2008, MISL investors decided to suspend all operations, citing the need to move to a different legal structure that would better allow investors to contain costs.163 According to attorney Jeff Rotwitt, who was one of the MISL’s investors, the MISL decision to cease operations was triggered by investors’ preferences to move away from a “foolhardy option.”164

CONCLUSION

The ultimate fate of the new women’s professional soccer league is contingent upon more than just the sport’s onthe-field product. The league’s fate also depends upon the founders’ choice of legal structure. Although the WUSA originally launched as a centrally planned league, that legal structure has failed to attract sufficient investors, sponsors, and fans. Therefore, the new women’s professional soccer league should seek an alternative structure. From a societal perspective, reviving professional women’s soccer is an important goal because it increases athletic opportunities for women and creates a renewed supply of role models for American girls. A professional women’s soccer league also demonstrates the physical strength and ability of women throughout society. The role of the female athlete has evolved mightily since eighteenth century Scotland when women competed in soccer only as a way to meet potential husbands. Today, when strong and qualified women excel on the soccer field, females of all ages seek to emulate their work ethic, passion, and healthy lifestyle. Men also begin to perceive women as being strong, capable, and qualified.

With American society benefiting from having a vibrant women’s professional soccer league, it would be a shame if the proposed league fails because “lawyers … mess up [the] business structure.”165 Although some believe that there is simply no market in America for women’s professional sports,166 the success of the Women’s World Cup and Women’s Tennis Association events indicate that women’s professional sports can succeed under proper legal structures.167 Given the continued success of men’s professional sports leagues that apply the mixed-mode private property structure, it makes sense for founders of the new women’s professional soccer league to adopt a similar approach. By choosing a more traditional legal structure, league founders give the new women’s professional soccer league a bona fide chance to survive.

Notes

1.  See Shira Springer, Shot of Brandi Provides Boost: Winning Penalty Kick Completes Journey for Veteran Chastain, BOSTON GLOBE, July 11, 1999, at E12; George Kimball, Soccer World Cup; Inspirational Akers Leads Way for Thankful Teammates, BOSTON HERALD, July 11, 1999, at B03; Philip Hersh, World Cup Final Quite an Inspired Feat, CHI. TRIB., July 11, 1999, at 1; Barry Wilner, A Shot of Brandi: Chastain’s Penalty Kick Wins It, CHI. TRIB., July 11, 1999, at 1.

2.  See Kimball, supra note 1, at B03; Tim Dahlberg, She Scores! U.S. Wins Cup in Storybook Finish, LEXINGTON HERALD-LEADER, July 11, 1999, at A-1.

3.  See Brandi Chastain, WIKIPEDIA, available at http://en.wikipedia.org/wiki/Brandi_Chastain. (last visited Apr. 9, 2009).

4.  See Donna Leinward, Heroin’s Resurgence Closes Drug’s Traditional Gender Gap, USA TODAY, May 9, 2000, at 1A (girl power); Celebrating Female Athletes, HARTFORD COURANT, Sept. 21, 2001, at A14 (achievement); Rick Reilly, Bare in Mind, SPORTS ILLUSTRATED, Sept. 4, 2000, at 112 (synergy of feminism and athleticism).

5.  See, e.g., Wilner, supra note 1, at 1.

6.  See, e.g., George Vescey, Sports of the Times; A Kickoff Brings Joy and Thanks and Roars, N.Y. TIMES, Apr. 15, 2001, at 8-1; Editorial, A League of Their Own, N.Y. TIMES, May 1, 2001, at A22; WUSA’s Brief History (10th Anniversary Special), SPORTS BUS. J., Apr. 28, 2003, at 30; Bill King, What’s Up with Women’s Sports? SPORTS BUS. J., Apr. 25, 2005, at 18 (“The WUSA launched on the strength of circumstances so perfect, it had to be kismet. It had Mia Hamm, a transcendent star who only wanted to create more stars. It had the grandest of stages, a 1999 World Cup that drew 90,125 fans—including the sitting U.S. president, Bill Clinton—and captured a television audience of more than 40 million. Then it had a reprise, a silver medal in the 2000 Olympics, just to remind everyone of 1999.”).

7.  See Lacie Kaiser, The Flight from Single-Entity Sports Leagues, 2 DEPAUL J. SPORTS L. & CONTEMP. PROBS. 1, 1 (2004) (“Sports leagues such as the Women’s National Basketball Association (WNBA), Women’s United Soccer League (WUSA) and Major League Soccer (MLS) organized themselves as single entities when they first came into existence.”); Marc Edelman, Why the “Single Entity” Defense Can Never Apply to NFL Clubs: A Primer on Property-Rights Theory in Professional Sports, 18 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. 891, 900-903 (2008) [Ed Note: hereinafter “Edelman, Single Entity”] (describing the centrally owned league model or “common property system”); John Lombardo, A New Play for the AFL?, SPORTS BUS. J., Feb. 25, 2008, at 1.

8.  Jere Longman, Women’s Soccer League Folds on World Cup’s Eve, N.Y. TIMES, Sept. 16, 2003, at A1.

9.  See id.

10.  Id.

11.  See generally Traci A. Guiliano et. al., Gender and the Selection of Public Athletic Role Models, 30 J. SPORT BEHAV. 161 (June 1, 2007), available at 2007 WLNR 10339494 (discussing the importance of women’s athletics on society overall in terms of producing positive role models). (Tulsa, Oklahoma), Oct. 31, 2000, at B6.

12.  Marc Edelman & C. Keith Harrison, Analyzing the WNBA’s Mandatory Age/Education Policy from a Legal, Cultural and Ethical Perspective: Women, Men, and the Professional Sports Landscape, 3 NW. J.L. & SOC. POLICY 1, 2 (2008); see also Mary Crawford & Rhonda Unger, Women & Gender: A Feminist Psychology 44-46 (3d ed. 2000).

13.  See Edelman & Harrison, supra note 12, at 2-3; see also Editorial, A League of Their Own, N.Y. TIMES, May 1, 2001, at A22 (“If successful, the league could join the WNBA as a much-needed source of inspiration for millions of girls across the country. Female professional athletes as role models, particularly in team sports, have been in short supply over the years.”).

14.  Edelman & Harrison, supra note 12, at 3.

15.  See Jack Bell, Another Go at a Women’s League, But not Going at It Alone, N.Y. TIMES, Apr. 25, 2007, at D2 (describing Women’s Soccer Initiative, Inc.); Lombardo, supra note 7, at 1.

16.  See Terry Lefton, New Women’s Soccer League will Look to MLS, SPORTS BUS. J., Mar. 5, 2007, at 5; Lombardo, supra note 7, at 1.

17.  See id. (“[T]he WUSA folded in 2003 after losing nearly $100 million as a single-entity league. The newly launched Women’s Professional Soccer League will return in 2009 with a traditional league structure with local owners.”).

18.  See, e.g., Evan Weiner, Women’s Soccer League Faces Tough Obstacles, THE NEW YORK SUN, Sept. 12, 2007, available at http://www.nysun.com/sports/womens-soccer-league-faces-tough-obstacles/62455 (last visited Apr. 9, 2009).

….

52.  See Lena Williams, A Plan Is Unveiled for a Women’s League, N.Y. TIMES, Feb. 16, 2000, at D5. [hereinafter Plan Unveiled] (“The other investors are Amos B. Hostettler Jr., former chairman of Continental Cablevision, Brian L. Roberts, president of Comcast Corporation, James Kennedy, chairman of Cox Enterprises, Joseph J. Collins, chairman of Time Warner Cable, Amy Banse, vice president of programming investments for Comcast and Fred M. Dressler, senior vice president of programming for Time Warner Cable.”).

53.  Plus: Soccer–Women’s United Soccer Association; DiCicco Is Named As Commissioner, N.Y. TIMES, Apr. 27, 2000, at D7.

54.  See Jayda Evans, Cup Quest: Chastain, Team Make Qualifying Stop in Seattle, SEATTLE TIMES, Oct. 27, 2002, at D7 (“Seattle, Portland and Los Angeles are being looked at as possible WUSA expansion cities. Currently, the eight-team professional soccer league has only two teams on the West Coast: the San Diego Spirit and Chastain’s San Jose CyberRays.”); Williams, supra note 52, at D5 (“The new league will have a minimum of 8 teams and may expand to as many as 12.”).

55.  See Evans, supra note 54, at D7 (all teams located in the United States); Norwegians Taken in WUSA Foreign Draft, TULSA WORLD (Tulsa, Oklahoma), Oct. 31, 2000, at B6 (discussing worldwide talent); see generally Amy Shipley, U.S. Women Want Soccer to Go Pro; Others Question a League’s Viability, WASH. POST, July 8, 1999, at D1 (“Certainly, a women’s pro soccer league in the United States would attract talented players from around the world. Perhaps largely because of their experiences during this tournament, many international stars view the United States as women’s soccer nirvana.”).

56.  See Norwegians Taken in WUSA Foreign Draft, TULSA WORLD (Tulsa, Oklahoma), Oct. 31, 2000, at B6.

57.  Wendy Parker, Soccer: Beat Picks Sun, China’s Top Player, ATLANTA JOURNAL & CONSTITUTION, Dec. 11, 2000, at E11.

58.  See John Haydon, WUSA Pleased with Early Progress, THE WASH. TIMES, June 23, 2001, at C6 [hereinafter WUSA Pleased] (denoting actual year one attendance average of 8,547 fans per game).

59.  Williams, Plan Unveiled, supra note 52, at D5 (denoting expected year one attendance average of 6,500 fans per game).

60.  WUSA Pleased, supra note 58, at C6.

61.  See Jennifer Lee, WUSA’s Third Season Posts Mixed Results, SPORTS BUS. J., Aug. 18, 2003, at 9.

62.  See Longman, supra note 8, at A-1; Jennifer Lee, Coming Months Crucial for WUSA Rebirth, SPORTS BUS. J., Apr. 19, 2004, at 19.

63.  Lee, supra note 62, at 9.

64.  Id.

65.  Longman, supra note 8, at D-5.

66.  Christopher Lawlor, Teams Losing Money, But WUSA Wants to Expand, USA TODAY, August 12, 2003, at 3-C.

67.  Longman, supra note 8, at A-1.

68.  Lawlor, supra note 66, at 3-C.

69.  Id.

70.  See Women’s Soccer League Collapses, CHI. TRIB., Sept. 16, 2003, at 20; Jim Barrero & David Wharton, The Nation: Women’s Soccer League Folds After 3 Seasons, L.A. TIMES, Sept. 16, 2003, at 1.

71.  See Michelle Kaufman, U.S. Team Has Multiple Goals, MIAMI HERALD, Sept. 21, 2003, at D-4 (“Players are hoping the Cup will spark interest among deep-pocketed corporations. I hope the World Cup perhaps can bring more sponsors so they can restart the league,” Sweden coach Marika Domanski-Lyfors said of the league’s closing. “Girls need opportunities to be pro players, and this is a country that can provide that.”).

72.  The W-League is a highly competitive amateur soccer league that consists of forty-one teams in four conferences both in the United States and Canada. See About USL and Franchise Information, OFFICIAL USL WEBSITE, http://www.uslsoccer.com/aboutusl/franchise/index_E.html; see also The League: About Us, OFFICIAL WPSL WEBSITE, http://www.wpsl.info/about. Currently, international and former professional stars compete in the league, as well as elite college players. See id.

73.  See Soccerway Women Soccer, http://www.women.soccerway.com; see also Women’s World Football Rankings, http://www.womensworldfootball.com.

74.  An Introduction to Women’s Soccer Initiative Inc., http://wsii.typepad.com/wsii/about.html.

75.  Id.

76.  Women’s Professional Soccer to Launch in 2009, PR NEWSWIRE, Sept. 4, 2007, http://www.active.com/soccer/Articles/Women_s_Professional_Soccer_League_to_Launch_in_2009.htm.

77.  Id.

78.  See John Lombardo, A New Play for the AFL?, SPORTS BUS. J., Feb. 25, 2008, at 1.

79.  See Tripp Mickle & Terry Lefton, Several Leagues Later, Debate on Single-Entity Model Still Lively, SPORTS BUS. J., Aug. 4, 2008, at 8.

80.  See supra notes 70-72 and accompanying text; see also Kaiser, supra note 7, at 12 (“In 2001, the [WUSA] structured under the single-entity model, played its first season. However, the league was receiving insufficient revenue from core areas of the business and failed to attract the sponsorship support needed to achieve its goal to break even by its fifth season.”) (internal quotations and citations omitted); see generally Michael J. Cozzillio et. al, SPORTS LAW: CASES AND MATERIALS 26 (1997) [hereinafter SPORTS LAW: CASES AND MATERIALS] (discussing how most of the centrally planned sports leagues launched over the past 15-20 years have been a mistake).

81.  See Edelman, Single Entity, supra note 7, at 897-904 (combining the two centrally planned models as the “common property system”). Indeed, in Europe a fifth and highly popular league structure involves an “open league” with promotion and relegation. See Cain & Haddock, supra note 35, at 1119. However, it is highly unlikely that an American investment group would ever choose the promotion/relegation model given the greater economic power, and less competition, that teams in a closed league maintain. See Marc Edelman, How to Curb Professional Sports’ Bargaining Power vis-à-vis the American City, 2 VA. SPORTS & ENT. L.J. 280, 303-05 (2003) (explaining how an open professional sports league would be one way to reduce the bargaining power of professional sports in America); Marc Edelman, Sports and the City: How to Curb Professional Sports Teams’ Demands for Free Public Stadiums, 6 RUTGERS J. OF L. & PUB. POLY. 35, 62-63 (2008); Cain & Haddock, supra note 35, at 1119 (“When teams agree to form a league, it would seem advantageous for them to opt for the closed cartel now common in North America.”). Therefore, “open league” structures are not considered further in this paper.

82.  Edelman, Single Entity, supra note 7, at 897.

83.  See Edelman, Single Entity, supra note 7, at 897; see also Panel III: Restructuring Professional Sports Leagues, 12 FORDHAM INTELL. PROP., MEDIA & ENT. L.J. 413, 419 (2002) [hereinafter Panel III] (quoting Kenneth Shropshire).

84.  See Panel III, supra note 83, at 419 (quoting Kenneth Shropshire) (“Many of you know that originally sports in America, especially the team sports, started off as individual clubs. You have stories of George Halas sitting around with the rest of the football team, passing the hat around after games to collect funds to divide amongst the team.”).

85.  This is because, as explained by the U.S. Supreme Court, the marketing of sporting events would be “completely ineffective if there were no rules on which the competitors agreed to create and define the competition to be marketed.” NCAA v. Board of Regents, 468 U.S. 85, 101 (1984).

86.  Edelman, Single Entity, supra note 7, at 898; see generally Cain & Haddock, supra note 34, at 1121 (noting that the club-based private property model “failed miserably to develop an orderly process for teams to contest a championship and balance their books, so the Chicago Tribune urged restructuring.”).

87.  Edelman, Single Entity, supra note 7, at 898-99; see generally Marc Edelman, Can Antitrust Law Save the Minnesota Twins: Why Commissioner Selig’s Contraction Plan was Never a Sure Deal, 10 SPORTS L.J. 45, 47 (2003) (discussing the transition of Major League Baseball from organization at the club level to the league level).

88.  Edelman, Single Entity, supra note 7, at 899.

89.  Id. at 900.

90.  Id.

91.  SPORTS LAW: CASES AND MATERIALS, supra note 80, at 19.

92.  Edelman, Single Entity, supra note 7, at 900.

93.  Id.

94.  Section 1 of the Sherman Act states, in pertinent part, that “[e]very contract, combination … or conspiracy, in the restraint of trade or commerce … is declared to be illegal.” Sherman Act, 26 Stat. 209 (1890), (codified as amended at 15 U.S.C. §§ 1–7 (2000)). However, the Supreme Court has interpreted § 1 of the Sherman Act to hold illegal only those agreements that unreasonably restrain trade. Standard Oil v. United States, 221 U.S. 1, 51 (1911). Classification as a “single entity” means immunity under § 1 of the Sherman Act because it is impossible for just one entity to collude with itself. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771 (1984). For this reason, the first single-entity leagues structured themselves in a manner hoping to avoid § 1. See Panel III, supra note 83, at 435 (quoting Jeffrey Kessler) (“So why did the MLS owners choose to form a single entity? They did it so that they could claim an exemption from section 1 of the Sherman Act and not have to compete with each other for their players.”).

95.  See Copperweld Corp., 467 U.S. at 771; see also Fraser v. Major League Soccer, 284 F.3d 47, 53 (1st Cir. 2002).

96.  Edelman, Single Entity, supra note 7, at 900 (citing Copperweld Corp., 467 U.S. at 752); Panel III, supra note 83, at 435 (quoting Jeffrey Kessler); Stephen F. Ross & Stefan Szymasnski, The Law & Economics of Optimal Sports League Design, 41 TANAKA BUS. SCH. DISCUSSION PAPERS (2005) (“Indeed, one of the principal doctrinal insights to be gleaned from the economic analysis set forth in this Article is that club-run leagues differ significantly from single-entity leagues in the way they are operated”).

97.  Panel III, supra note 83, at 427-28 (quoting Tandy O’Donoghue).

98.  Id.; see also SPORTS LAW: CASES AND MATERIALS, supra note 80, at 23 (“Again, the central league motivation to control maverick owners who develop a penchant for cutting their own deals is self-evident.”).

99.  See N.F.L. Settles with Cowboys, N.Y. TIMES, Dec. 14, 1996 at 1-32 (explaining that the NFL filed suit against Dallas Cowboys owner Jerry Jones challenging the signing of Texas Stadium sponsors such as Nike and Pepsi).

100.  See Sports Ltd. Pship v. NBA, 95 F.3d 593, 595, 599-600 (7th Cir. 1996) (noting that shortly after the Chicago Bulls basketball club began to broadcast its local games on WGN, a super station with broadcast signals extending throughout the entire United States, six years of litigation ensued between the Bulls and the rest of the NBA clubs over the legitimacy of the Bulls’ broadcasting practices).

101.  See Madison Square Garden, L.P. v. NHL, No. 07 Civ. 8455 (LAP), 2007 WL 3254421, slip op. at *1 (S.D.N.Y. Nov. 2, 2007), affd 2008 WL 746524 (2d. Cir. Mar. 19, 2008). Recently, the problem of a maverick owner seeking to litigate against a league appeared in the NHL, where the New York Rangers’ ownership group filed an antitrust lawsuit against the rest of the league, arguing that the league’s plan to collectively share Internet IP rights violated antitrust law. See id.; Complaint for Injunctive Relief at ¶ 6, Madison Square Garden, L.P. v. NHL, No. 07 Civ. 8455, 2007 WL 3373461 (S.D.N.Y. 2007). The other NHL clubs have since sought to punish the Rangers by suspending their owners, requiring their owners to sell the team, or even terminating the clubs’ league membership. See In a Letter, NHL Threatens to Kick MSG out of League, ESPN, available at http://sports.espn.go.com/nhl/news/story?id=3452292 (last visited on Apr. 9, 2009). This kind of antagonistic situation would never occur in a single-entity league because, from the very beginning, all property rights are shared equally. Edelman, Single Entity, supra note 7, at 922–24.

102.  See Edelman, Single Entity, supra note 7, at 901-905 (explaining how the single-entity centrally planned structure morphed into a mixed-mode structure).

103.  See id. at 902.

104.  See id.

105.  See Panel III, supra note 83, at 430 (quoting Tandy O’Donoghue) (discussing the greater degree of risk-spreading in centrally planned leagues).

106.  See Edelman, Single Entity, supra note 7, at 902 (because of the difficulty initially in finding investors, MLS eventually abandoned its pure common-property structure and turned to a mixed-mode model).

107.  Fraser, 284 F.3d at 54 (“In return for the services of the operator/investors, MLS pays each of them a ‘management fee’ that corresponds (in large part) to the performance of their respective team. The management fee equals the sum of one-half of local ticket receipts and concessions; the first $1,125,000 of local broadcast revenues, increasing annually by a percentage rate, plus a 30% share (declining to 10% by 2006) of any amount above the base amount; all revenues from overseas tours; a share of one-half the net revenues from the MLS Championship Game and a share of revenues from other exhibition games.”).

108.  Id. at 58-59 (“To sum up, the present case is not Copperweld but presents a more doubtful situation; MLS and its operator/investors comprise a hybrid arrangement, somewhere between a single company (with or without wholly owned subsidiaries) and a cooperative arrangement between existing competitors …. The case for expanding Copperweld is debatable and, more so, the case for applying the single entity label to MLS.”).

109.  Edelman, Single Entity, supra note 7, at 903–05.

110.  See id. at 903-04; SPORTS LAW: CASES AND MATERIALS, supra note 80, at 19.

111.  Id.

112.  Edelman, Single Entity, supra note 7, at 904.

113.  Id. at 903-904.

114.  See id. at 911-924 (discussing the lack of unity of interest among individual club owners).

115.  Id. at 904-905.

116.  See Madison Square Garden, 2007 WL 3254421, slip op., at *1; see also Sports Ltd. P’ship., 95 F.3d at 600 (noting a similar argument over television broadcast rights in the NBA during the late 1990s).

117.  See Edelman, Single Entity, supra note 7, at 903.

118.  SPORTS LAW: CASES AND MATERIALS, supra note 80, at 26 (“When new leagues are formed, their organizers hope to learn and benefit from the mistakes and experiences of existing and defunct leagues.”); Panel III, supra note 83, at 435 (quoting Jeffrey Kessler) (“Most of the start-up leagues that have tried a single-entity structure have failed.”); id. at 444 (quoting Jamin Dershowitz) (“I agree with Jeff that the single-entity structure is not a magic bullet in any way, shape, or form.”).

119.  Panel III, supra note 84, at 433 (quoting Jeffrey Kessler); see also Jeffrey Kessler Profile, http://www.deweyleboeuf.com/jeffrey_kessler.

120.  See, e.g., SPORTS LAW: CASES AND MATERIALS, supra note 80, at 22; Andrew Zimbalist, What Went Wrong with WUSA? SPORTS BUS. J., Oct. 13, 2003, at 26; Panel III, supra note 84, at 424 (quoting Kenneth Shropshire); id. at 426 (quoting Kenneth Shropshire) (“We have seen some restructuring, particularly with MLS. ‘Can we really get funds in by giving owners no kind of Steinbrenner-esque face time?’ But they have addressed this and been trying to make it work better.”); see generally id. at 434 (quoting Jeffrey Kessler) (“The bottom line is that there is a good reason why, up until now, all of the successful sports leagues in this country—and around the world, by the way (this is an international result)—have adopted a model of individual ownership of teams. The reason is that the professional team sports business is basically a local business. You get a local personality who runs it. You want an entrepreneur who will develop it.”).

121.  Panel III, supra note 83, at 429 (quoting Tandy O’Donoghue) (“When you are making an effort to appeal to people with a lot of money, and the potentially big egos that go along with that, but you are not willing to offer them that sort of ‘individual owner’ role in things, you are going to have some difficulty.”); see also John Wolohan, Double Setback for Single Entity Leagues, SPORTS BUS. J., Sept. 8, 2003, at 18.

122.  Panel III, supra note 84, at 424 (quoting Kenneth Shropshire).

123.  See Wolohan, supra note 121, at 18 (“[Y]ou cannot overlook the human ego in explaining why leagues are moving to individual team owners.”).

124.  See Zimbalist, supra note 120, at 26 (explaining that WUSA investors lacked sufficient patience and pulled their investment after just three seasons, even though historically new professional sports leagues have taken substantially longer to turn a profit).

125.  See Kaiser, supra note 7, at 11-12.

126.  Id. (“Citing possible labor unrest and dropping two money-losing franchises, the WNBA decided to allow teams to manage themselves thereby giving them the opportunity to seek more local sponsorship deals … a NBA and WNBA owner believed that ‘the teams will be accountable where they weren’t totally in the past and that accountability will result in better decision and better results.’ ”).

127.  See Kaiser, supra note 7, at 15 (explaining WNBA reasoning for transition away from centrally planned business model); SPORTS LAW: CASES AND MATERIALS, supra note 80, at 22.

128.  SPORTS LAW: CASES AND MATERIALS, supra note 80, at 23.

129.  See Russell Adams, Brewers Borrowing Best of What’s Around, SPORTS BUS. J., June 27, 2005, at 7.

130.  Id.

131.  The idea of “think globally, act locally” is the business mantra that focuses on a large consumer market, with a narrowly tailored approach to meet different local constituencies. See, e.g., John Darling et. al., Enhancing Contemporary Entrepreneurship: A Focus on Management Leadership, 19 EUROPEAN BUS REV. 14 available at 2006 WLNR 22436409 (“Successful transformational entrepreneurial leaders who establish and maintain a high degree of respect from their associates … think globally and act locally.”); Thailand, Ford, Adopts Fast Forward Strategy, THAI PRESS REP., Aug. 24, 2006, available at 2006 WLNR 14607634 (According to the President of Ford Thailand “[b]eing a global company we can take advantage of resources from all over. Our motto is ‘Think globally, act locally.’ ”).

132.  Kaiser, supra note 7, at 15.

133.  Id.

134.  Id.

135.  See Panel III, supra note 83, at 433.

136.  SPORTS LAW: CASES AND MATERIALS, supra note 80, at 22; see also Cain & Haddock, supra note 34, at 1130 (“The literature has discussed the benefits of parity extensively—any league’s success depends on staging games with uncertain outcomes.”); Andrew Zimbalist, May the Best Team Win: Baseball Economics and Public Policy 37 (Brookings Institute 2004) (“Conventional wisdom has it that a successful sports league must have a healthy dose of competitive balance or parity across its teams. Without such balance, there will not be necessary uncertainty of outcome in individual games and in seasons to maintain fan interest.”).

137.  Panel III, supra note 83, at 433 (quoting Jeffrey Kessler).

138.  Id. at 435.

139.  See SPORTS LAW: CASES AND MATERIALS, supra note 80, at 27.

140.  See Marc Edelman, Single Entity Status Must Pass Legal Test, SPORTS BUS. J., Apr. 28, 2008, at 24.

141.  See Edelman, Single Entity, supra note 7, at 900 (“Mr. Rothenberg envisioned MLS to serve as a ‘single entity’ league for purposes of an antitrust advantage. At least in the business sector, this model seemed to meet the Sherman Act’s test for ‘complete unity of interest.’ ”); Fraser, 284 F.3d at 58-59 (1st Cir. 2002).

142.  See Fraser, 284 F.3d at 59.

143.  Id.; see generally SPORTS LAW: CASES AND MATERIALS, supra note 80, at 25 (explaining that in the context of the mixed-mode centrally planned leagues ‘single entity’ response to challenges under Section 1 has received positive reception from a few judges and several law professors, but the precedential decisions have uniformly rejected the defense.”).

144.  Fraser, 284 F.3d at 58-59 (“To sum up, the present case is not Copperweld but presents a more doubtful situation; MLS and its operator/investors comprise a hybrid arrangement, somewhere between a single company (with or without wholly owned subsidiaries) and a cooperative arrangement between existing competitors…. The case for expanding Copperweld is debatable and, more so, the case for applying the single-entity label to MLS.”).

145.  Id. at 56.

146.  Id. at 57.

….

157.  See Tripp Mickle, Several Leagues Later, Debate on Single-Entity Model Still Lively, SPORTS BUS. J., Aug. 4, 2008, at 8 (citing Bob Caporale among others); see also SPORTS LAW: CASES AND MATERIALS, supra note 80, at 27 (“Beyond the advantages of substantially reduced antitrust exposure and liability, the [common-property] league should yield cost savings associated with reduced competition…. There also may be … cost savings as a result of [the common-property league] being responsible for the business operations of all the teams in the league.”); Wolohan, supra note 122, at 18 (discussing cost containment).

158.  See, e.g., Wolohan, supra note 121, at 18 (mentioning WUSA’s and WNBA’s transition away from the single-entity structure); Kaiser, supra note 7, at 11 (mentioning the ABL as a single-entity league that went out of business, and the WNBA and WUSA as leagues that have sought to abandon the structure).

159.  Id. (citing Sarah Talaly, WNBA Takes on New Look, SUN-SENTINEL, May 4, 2003, at 10C).

160.  Id. at 12.

161.  Id.

162.  See, e.g., Edelman, Single Entity, supra note 7, at 903 (“The MISL has proven more successful than the XFL, having just recently signed a multiyear television deal with the Fox Soccer Channel. Only time will tell if the MISL keeps its single-entity structure.”).

163.  See Major Indoor Soccer League Website, http://www.misl.net (“The Management Committee of the Major Indoor Soccer League today announced the MISL ceased operations effective May 31, 2008. The MISL Management Committee has begun formal transition planning and restructuring as they consider moves, which they believe will help lower costs and attract additional owner/operators. A decision on the future structure of the League will be forthcoming in the next couple of weeks.”).

164.  Terry Lefton & Tripp Mickle, Dormant MISL Struggles with Next Move, SPORTS BUS. J., Aug. 4, 2008, at 8.

165.  Panel III, supra note 83, at 433 (quoting Jeffrey Kessler).

166.  See, e.g., Evan Weiner, Women’s Soccer League Faces Tough Obstacles, THE NEW YORK SUN, Sept. 12, 2007, available at http://www.nysun.com/sports/womens-soccer-league-faces-tough-obstacles/62455/ (last visited Apr. 9, 2009) (“American sports customers are just not interested in women’s professional sports for some reason. Corporations don’t buy huge blocks of club seats and luxury boxes for professional women’s sports and fans don’t watch it on TV in big numbers.”); King, supra note 6, at 18 (explaining that data available from Scarborough Research indicates that it is more difficult to develop loyalty in women’s professional sports because as fans women do not demonstrate avidity by watching games on television).

167.  Guiliano, supra note 11 (noting that the 1999 U.S. World Cup was the most watched soccer match in U.S. television history; also noting that in 2001, the U.S. Women’s Open singles final between Venus and Serena Williams, which was broadcast in prime time on CBS, even outdrew NBC’s broadcast of the historically popular Notre Dame-Nebraska football game); Steve T. Gorches, Call It the PBA Effect, MERRILLVILLE POST-TRIBUNE, Sept. 12, 2007, at E-4, available at 2007 WLNR 18039570 (noting that women’s tennis is actually more popular than men’s tennis); Elliot Harris, Quick Hits with Elliot Harris, CHIC. TRIB., Nov. 16, 2006, at 114 (noting popularity of women’s tennis).

About the Authors

Marc Edelman, Esq. ([email protected]), is an Assistant Professor at Barry Law School and a former Visiting Assistant Professor at Rutgers School of Law-Camden. Mr. Edelman earned his B.S. in Economics from the Wharton School (University of Pennsylvania) and his J.D./M.A. (law/sports management) from the University of Michigan. Mr. Edelman retains all copyrights for this article and the article that appears in Chapter 7 beginning on page 238.

Elizabeth Masterson is a former women’s soccer player in the United States’ W-League and the Head Soccer Coach at Elmira College. Ms. Masterson earned her B.A. from St. Lawrence University and her M.S. (sports management) from Manhattanville College.

WOMEN’S BASKETBALL

ANALYZING THE WNBA’S MANDATORY AGE/EDUCATION POLICY FROM A LEGAL, CULTURAL, AND ETHICAL PERSPECTIVE: WOMEN, MEN, AND THE PROFESSIONAL SPORTS LANDSCAPE

Marc Edelman and C. Keith Harrison

….

I.   SOCIOLOGICAL LANDSCAPE OF WOMEN’S BASKETBALL IN AMERICA

The limited opportunity for women to perform as professional athletes in a male dominated culture is well documented in terms of the resources devoted to, popularity of, and historical discrimination against women’s athletics.11 Until recently, professional athletics were primarily for men.12 With the late integration of women into professional sports, the role of the female athlete has developed differently. Organizations such as the NCAA have played a major role in promoting the ideology of the well-rounded, traditionally educated female athlete.13 This ideology contrasts somewhat with the notion of the ruggedly individualistic male athlete.

The relationship between women in sports and their impact on young girls indicates that image is everything.14 Since the emergence of women’s collegiate and professional sports, young girls have begun to participate in athletics at all-time high rates.15 While Title IX has been a major factor in cultivating women’s athletics over the last thirty years, the age/education policy of the WNBA may contribute to a whole new culture of scholarly women that happen to play basketball.16 For instance, female student-athletes graduate from college at a higher rate than any other student in American higher education.17

….

II.   THE HISTORY OF PROFESSIONAL WOMEN’S BASKETBALL

Founded in 1996, the WNBA consists of fourteen [Ed. Note: now twelve] teams, is more mature in terms of age than the NBA, and has an ethnic makeup of approximately sixty percent African-American and forty percent Caucasian players.24 Based on WNBA statistics, over ninety percent of the players have earned a bachelor’s degree from a four-year institution and twenty percent have earned graduate degrees. This culture of education, which in essence requires WNBA players to earn college degrees, is in stark contrast to the WNBA players’ peers in the NBA, National Football League (NFL), Major League Baseball (MLB), and the National Hockey League (NHL).

A.   The Early Struggles of Women’s Professional Basketball in America

In its early years, American women’s professional basketball was filled with various short-lived ventures. After generations of men’s professional basketball leagues operating without a female counterpart, two women’s professional basketball leagues burst onto the scene in the late 1970s: the Ladies Professional Basketball Association (LPBA) and the Women’s Professional Basketball League (WBL).25 Both leagues were defunct by 1981.26

Both the LPBA and the WBL struggled from the very beginning because of their high salaries, low sponsorship revenues, and team owners without significant investment income.27 Unlike the NBA, neither female professional basketball league had the benefit of a television contract.28 Without regular television revenues, neither league was able to turn a profit.29

By 1981, both the LPBA and WBL had folded, leaving the United States without professional women’s basketball.30 In fact, women’s basketball did not return to America for nine years. On March 15, 1990, the Women’s Sports Association Professional Basketball League (WSAPBL) presented itself as the first of several small, regional women’s basketball leagues to emerge in America.31 The WSAPBL attempted to control expenses by limiting its host cities to the greater California area.32 After some initial success, other regional women’s leagues followed, such as the Women’s World Basketball Association (WWBA) in the Midwest,33 and the Liberty Basketball Association (LBA) on the East Coast.34

Like many small, startup, professional sports leagues, the new, regional women’s leagues attempted to draw fan interest by tinkering with the game’s traditional rules. For example, the LBA lowered the basket by one foot so women could more easily slam-dunk.35 Despite such ingenuity, the LBA disbanded within one season due to a recession.36 The other regional women’s basketball leagues also ceased to exist soon thereafter.

B.   From Zero Leagues to Two—the Emergence of the ABL and the WNBA

With the failure of regional, women’s basketball leagues, sports entrepreneurs in the 1990s decided to re-launch a national women’s professional basketball league. As early as the Summer Olympics in 1992, NBA Commissioner David Stern began to consider the possibility of the NBA funding a national, upstart women’s basketball league.37 Even before Stern could propose a business plan, however, California entrepreneur Steve Hams and eleven other investors announced the formation of their own women’s basketball league: the American Basketball League (ABL).38

Initially an eight-team league, the ABL business plan included teams playing a forty-game season between the months of October and February, overlapping with the first half of the NBA season.39 The original host cities included Atlanta, Columbus, Denver, Hartford/Springfield, Portland, Richmond, Seattle, and San Jose, where the league headquarters was located.40 According to this business plan, all ABL teams at least initially would be owned and operated by the ABL as a single entity, and the league would only draft players that had graduated from college.41

In November 1995, Hams announced that the ABL had signed nine of the eleven players on the women’s United States Olympic team, each to two-year professional contracts with non-compete clauses—a move intended to fortify the league’s position as the premier home of women’s professional basketball.42 According to Hams, the league planned to pay each of the U.S. Olympic team players $125,000 a year, maintain a league average salary of $70,000 a year, and institute a league minimum salary of $40,000—all decisions intended to thwart the emergence of a competitor league.43 Additionally, the ABL secured sponsorship agreements with four major companies: Reebok, First USA Bank, Lady Foot Locker, and basketball manufacturer Baden.44

Yet, despite Hams’s best efforts to make the ABL the exclusive women’s basketball league, on April 24, 1996—almost seven months before the first ABL game—the NBA announced that it, too, was launching a women’s professional basketball league (the WNBA), which would begin play in the summer of 1997.45

Unlike the ABL, the WNBA planned to compete during a ten-week season in the summer, which did not overlap with the NBA season.46 Also, the WNBA model enjoyed the immediate advantage of being backed by the NBA—a well-fortified American business with powerful management.47 On June 28, 1996—a full year before the first WNBA season was to begin—the WNBA entered into a five-year prime-time television contract with the National Broadcasting Company (NBC).48 In addition, before playing a single game, the WNBA entered into substantial television pacts with ESPN and the Lifetime Network.49 Meanwhile, ABL television coverage was limited to just twelve Sunday night games on SportsChannel.50

The ABL was the first league to begin play, and the early results were positive. In one league-opening game, 5,513 fans witnessed the Colorado Xplosion defeat the Seattle Reign.51 That same night, 8,767 fans packed the Hartford Civic Center to see the New England Blizzard defeat the Richmond Rage.52 Throughout the inaugural season, one of the brightest ABL stars was Jackie Joyner-Kersee, the beloved American 1988 Olympic champion in the horizontal jump.53 Even though 1996 Olympic basketball standouts Sheryl Swoopes and Rebecca Lobo ultimately rejected the ABL,54 the ABL still hosted most of the 1996 women’s basketball Olympians.55 In the inaugural ABL championships, Valerie Still, a thirty-five-year-old who just four years earlier had been teaching high school, finished the game with 14 points and 13 rebounds to lead the Columbus Quest to a 77–64 victory over the Virginia Rage before a sellout crowd of 6,313.56

The WNBA meanwhile opened its inaugural season on June 21, 1997, with the fanfare of an NBA marketing blitz. The league placed teams in New York, Charlotte, Cleveland, Houston, Los Angeles, Phoenix, Sacramento, and Salt Lake City.57 Former NBA Vice President Val Ackerman was promoted to the position of the league’s first commissioner.58 Nike, Coca-Cola, and American Express all signed on as premier league sponsors.59 In the WNBA model, player salaries were kept below the average ABL salary rate, and the WNBA initially implemented a league-wide salary cap on all players’ contracts at $50,000.60

With heavy fanfare, 14,284 spectators turned out to the Los Angeles Forum to watch the first WNBA game between the Los Angeles Sparks and the New York Liberty.61 The WNBA also enjoyed opening crowds of 11,455 in Cleveland and 8,915 in Salt Lake City.62 By season’s end, the wildly televised and marketed WNBA drastically exceeded all expectations in fan interest, attracting nearly 9,000 fans per game.63 From the abyss emerged the Houston Comets’s Cynthia Cooper as the league’s top-performing player, averaging a league-best 22.2 points per game.64 The Houston Comets won the league’s first championship, 65-51 over the Liberty,65 and at least in the beginning, it seemed that two professional basketball leagues could co-exist in America: the traditional ABL in the winter, and the hyped, dynamic WNBA in the summer.

C.   Survival of the Fittest: How the WNBA Garnered a Monopoly over American Women’s Basketball

The two-league women’s basketball format in America, which appeared so promising in 1997, however, was not to be. The WNBA had no interest in cooperating with the ABL, and after a few years of fierce competition between the ABL and the WNBA, the deeper-pocketed WBNA emerged as the sole survivor.66 The first sign of conflict between the ABL and the WNBA was in September 1997, when the ABL’s Most Valuable Player, Nikki McCray, jumped ship to the WNBA.67 Although McCray accepted a pay cut from $150,000 in the ABL to $50,000 in the WNBA (the league maximum), McCray felt that playing in the WNBA would be more profitable in the long run because of the WNBA’s premier exposure.68

Without national broadcast television, the ABL tried to boost its presence by proposing various joint marketing initiatives with the WNBA, including a proposal for an interleague, all-star game.69 However, the WNBA rejected all ABL overtures, instead opting to compete directly against the ABL for the women’s basketball market.70 As a result, the ABL was placed in the undesirable position of needing to offer players significantly higher salaries to prevent them from defecting to their more prominent competitor.71

Even as the ABL attendance totals increased twenty percent in its second year and the league announced expansion plans into new cities such as Chicago,72 the ABL was heading into a “no win” situation.73 Spring 1998 was especially telling for the ABL, as seven of the eight collegiate All-American women’s basketball players signed with the WNBA.74 In an interview with the San Francisco Examiner, Gary Cavelli, CEO and co-founder of the ABL acknowledged, “I think we won Rounds 1 and 2, and they’re winning the third round. We’re definitely behind at this point.”75

While WNBA attendance climbed above 10,000 fans-per-game in its second season and ownership moved toward expanding the league,76 the ABL spent its 1998 summer dissolving its failed Long Beach, California franchise and trying to cope with superstar Dawn Staley’s defection to the WNBA.77 The ABL did catch one huge break in the 1998–99 season, as the NBA players went on strike for the first half of their season and national broadcast television temporarily picked up ABL games as replacement programming.78 Nevertheless, once the NBA players returned to action, ABL broadcasts ceased, and on Tuesday, December 22, 1998, the ABL folded and filed for bankruptcy.79

D.   Transition Game: Changes in the WNBA Structure upon ABL Bankruptcy

Once the WNBA became the only women’s game in town, the league began to pursue an expansion strategy, but it was never able to significantly increase its fan base. After averaging an all-time high of 10,869 fans per game in the 1998 season, WNBA attendance began to decline steadily, falling below an average of 10,000 fans per game for the first time in 2000, and then falling below the 9,000 mark in 2003.80 By 2006, WNBA average per-game attendance fell all the way to 7,490 fans per game.81 [Ed. Note: In 2009, average attendance was 8,039.]

With WNBA attendance and revenues declining, players began to take steps to protect their interests in a declining pie. On November 6, 1998, shortly before the ABL filed for bankruptcy, the WNBA women’s basketball players made the first step to change their labor relationship with the WNBA by forming the Women’s National Basketball Players Association (WNBPA)—the first labor union ever comprised entirely of professional female athletes.82 Shortly thereafter, on April 30, 1999, the WNBPA ratified its first league collective bargaining agreement (CBA) with the union.83 According to the WNBPA website: “The inaugural CBA encompassed significant advances for WNBA players, and represents for all women, an important step toward pay equity and general equality.”84 The CBA established a near seventy-five percent minimum salary increase for WNBA rookies and a one hundred percent minimum salary increase for WNBA veterans beyond the minimums that the WNBA had previously unilaterally imposed.85 The CBA also provided “year-round health coverage, a retirement plan, guaranteed contracts and a collective share of licensing income.”86 Yet, as compared to the status obtained in collective bargaining by men’s professional sports unions, the WNBPA was relatively powerless. The WNBPA was unable to bargain as aggressively as most men’s sports unions because the WNBA teams regularly threatened to either shut down the league or lock out the players if the WNBPA did not agree to certain terms proposed by the league.87 With the maximum WNBA player salary at the time standing at just $50,000, most WNBA players had not saved enough money to sustain a long lockout.88

The first CBA between the parties was ratified on April 30, 1999, and expired on September 15, 2002.89 On April 25, 2003, the WNBA and WNBPA agreed to a second collective bargaining agreement.90 [Ed. Note: The parties agreed to a third collective bargaining agreement in 2008 that continues through the 2013 season.] … According to the WNBPA, advancements in the second CBA include the creation of a free agency system for WNBA players and the return of player group licensing rights to WNBA players.91 However, the pay for WNBA players, as well as the revenue generated by the WNBA, remained miniscule as compared to that of men’s professional basketball players.

Then, in 2003, the WNBA decided to transform its business from a structure including central ownership in the league overall to a structure including independent team ownership as exists in the four premier men’s leagues.92 The impetus for this transition was an important decision handed down by the First Circuit Court of Appeals in Fraser v. Major League Soccer, which indicated that the centralized Major League Soccer structure—in many ways similar to the original structure of the WNBA—did not necessarily shield the league from antitrust liability.93 As a result of the WNBA’s structural change to an independent ownership model, WNBA teams began to independently manage their own operations and pursue their own players and sponsorship deals.94 Nevertheless, this structural change did not affect the coordinated decision-making of the WNBA, which now occurred through the collective bargaining process.

In recent years, many of the top women’s basketball players, unhappy with their salary prospects in the WNBA, have started spending their off-seasons playing overseas.95 A number of American-born players have even indicated their desire to play exclusively overseas.96 For example, Tina Thompson, a four-time WNBA champion with the Houston Comets, recently indicated she may forego the WNBA altogether because she believes she can triple her WNBA maximum salary by playing exclusively in Moscow, Russia.97

E.   The WNBA Education Policy

From their incipient stages, both the WNBA and ABL enforced independent league regulations to prevent their teams from drafting players that still had NCAA college eligibility.98 When the ABL ceased its operations in 1998, however, prospective women’s basketball players lost the leverage of having two separate leagues vying for player services.99 Without two leagues, the only bargaining chip of a player that did not meet the age/education policy was a threat to play permanently overseas. For some players with young families well-settled in the United States, that was not a viable option.

Once the ABL ceased to exist and the WNBA players unionized, the WNBA took affirmative steps to protect its age/education policy from antitrust scrutiny by adding references to the league’s age/education policy into the CBA….

Notes

….

11.  Andrew Zimbalist, Unpaid Professionals: Commercialism & Conflict in Big-Time College Sports 54 (1999).

12.  Jean O’Reilly & Susan K. Cahn, Women and Sports in the United States: A Documentary Reader xi (2007).

13.  Id. at xii.

14.  Harrison, supra note 10, at 11.

15.  O’Reilly & Cahn, supra note 12, at xii.

16.  Harrison, supra note 10, at 11.

17.  See National Collegiate Athletic Association Home Page, http://www.ncaa.org (last visited Jan. 15, 2008).

….

24.  See generally Richard E. Lapchick & Kevin J. Matthews, Racial and Gender Report Card (2001); see also WNBA Home Page, http://www.wnba.com (last visited Jan. 15, 2008).

25.  See Donna Carter, Women’s Pro Basketball League Planned, L.A. TIMES, Jan. 26, 1990, at C14. The WBL debuted on December 9, 1978, but disbanded in 1981, whereas the LPBA was launched in 1980 and failed within a few months. See Anna Maria Basquez, Showtime for Shelley, ROCKY MOUNTAIN NEWS (Denver, CO), July 16, 1996, at 3D.

26.  See Basquez, supra note 25, at 3D.

27.  See Carter, supra note 25, at C14. See also Idea for NBA: Female League, ORLANDO SENTINEL, Dec. 26, 1992, at B7.

28.  See Bill Jauss, Geraty Digs Up Old Game - Women’s League May Sprout Again, CHI. TRIB., Jan. 17, 1992, at Sports 8.

29.  See id.

30.  See Carter, supra note 25, at 14.

31.  See id.

32.  See id.

33.  See, e.g., John Bannon, Pro’s League for Women’s Basketball Tries Again, USA TODAY, July 2, 1991, at 2C.

34.  For a more detailed analysis of the LBA, see Jeff Williams, New Women’s Pro League, NEWSDAY, Dec. 18, 1990, at 131; see also Ailene Voisin, New LBA Hopes to Become NBA for Women, ATLANTA J. & CONST., Jan. 20, 1991, at H3; Debbie Becker, New League Hopes Big Things Come from Smaller Packaging, USA TODAY, Feb. 18, 1991, at 5C. Initially, the LBA showed signs of success, drawing 10,753 fans to their inaugural game in Auburn Hills, MI. See New League Streamlined for Success, CHI. TRIB., Feb. 22, 1991, at Sports 4; see also New Women’s Pro Basketball League Rolling, ST. LOUIS POST-DISPATCH, Feb. 24, 1991, at 9F.

35.  See Ailene Voisin, Women’s Pro League Plans Comeback, ATLANTA J. & CONST., Apr. 2, 1993, at E13.

36.  See id.

37.  See David Aldridge, NBA’s Stern Defends Dream Team’s Quarters, WASH. POST, Aug. 5, 1992, at F8.

38.  See Earl Gustkey, Women Have Two New Incentives this Season, L.A. TIMES, Nov. 25, 1995, at C9; see also Dick Rockne, Women’s Pro Hoops in Seattle? Proposed League Would Feature Some Members of National Team, SEATTLE TIMES, Nov. 29, 1995, at D2; Rob Oller, Proposed League Still Trying to Take Flight, COLUMBUS DISPATCH, Apr. 26, 1996, at 10D; American Basketball League, DAILY NEWS (New York, N.Y.), Oct. 6, 1996, at 1C.

39.  See American Basketball League, supra note 38; see also Dick Rockne, Women’s Pro League Takes Shot in Seattle, SEATTLE TIMES, Feb. 21, 1996, at C1.

40.  See Hartford/Springfield in Women’s League, HARTFORD COURANT, Feb. 21, 1996, at C2.

41.  See Joey Johnstone, Playing for Pay, TAMPA TRIB., Apr. 1, 1996, at Sports 6; Elizabethe Holland, WNBA Triumphs in Round 3 Against ABL, ST. LOUIS POST-DISPATCH, May 2, 1998, at Sports 23.

42.  See Gustkey, supra note 38. These players included: Jennifer Azzi, Katy Steding, Lisa Leslie, Sheryl Swoopes, Dawn Staley, Teresa Edwards, Ruthie Bolton, Nikki McCray and Carla McGhee. See Tom Flaherty, Two Other Women’s Leagues to Start this Year, MILWAUKEE J. SENTINEL, May 2, 1996, at Sports 9C; see also Liz Robbins, NBC to Televise the Women’s NBA, CLEVELAND PLAIN DEALER, June 28, 1996, at 2D.

43.  See Gustkey, supra note 38.

44.  See Celeste E. Whittaker, American Basketball League Facing Uphill Battle, ATLANTA J. & CONST., Oct. 16, 1996, at D3.

45.  See Earl Gustkey, NBA to Direct a Women’s League, L.A. TIMES, Apr. 25, 1996, at C5.

46.  Id.; see also Flaherty, supra note 42.

47.  See generally Gustkey, supra note 45.

48.  See Robbins, supra note 42. The contract included a promise to broadcast the WNBA on Saturday afternoons. See Brian Landman, One May Be Better than Two, ST. PETERSBURG TIMES, July 9, 1996, at 1C.

49.  See Joanne Korth, Basketball League Channels Energy into TV Deals, ST. PETERSBURG TIMES, July 21, 1996, at 2C.

50.  See Tom Flaherty, Basketball Spotlight Will Shine on the ABL, MILWAUKEE J. SENTINEL, Oct. 15, 1996, at Sports 12.

51.  See Glenn Nelson, Reign Stumbles in First ABL Step, SEATTLE TIMES, Oct. 19, 1996, at B1.

52.  See Blizzard Opens ABL with Win, HOUS. CHRON., Oct. 19, 1996, at 15B.

53.  See Jere Longman, Jumping to Hoops: Olympian Joyner-Kersee Dribbles Back to Sport of Her Youth for ABL, DALLAS MORNING NEWS, Oct. 20, 1996, at 17B.

54.  Swoopes initially played for the ABL, but began playing for the WNBA in 1997. See William C. Rhoden, Women’s N.B.A. Takes First Big Step, N.Y. TIMES, Oct. 24, 1996, at B20.

55.  See W.H. Stickney Jr., Swoopes, Lobo Sign with WNBA, HOUS. CHRON., Oct. 24, 1996, at 7B; see also Stephanie Storm, Women’s League Growing Fast, ORLANDO SENTINEL, Dec. 15, 1996, at C12.

56.  See Kathy Orton, Quest Is Over For Columbus, WASH. POST, March 12, 1997, at C1.

57.  See Mark Asher, WNBA Takes Its Leap Forward, WASH. POST, Oct. 31, 1996, at C3.

58.  See id.

59.  See generally Valerie Lister, On the Heels of ABL’s First Season, Women’s NBA Gets Ready to Roll, USA TODAY, Mar. 13, 1997, at 15C; see also Marketing v. Heart: WNBA, ABL in a Death Watch, ORLANDO SENTINEL, Aug. 8, 1997, at C10.

60.  See Amy Shipley, With Shrewd Planning, WNBA Ends First Season Leagues Ahead, WASH. POST, Aug. 31, 1997, at A23.

61.  See Vic Ziegel, WNBA States its Case with Well-Attended Debut, ORLANDO SENTINEL, June 22, 1997, at C4.

62.  See id.

63.  See generally David Moore, WNBA Establishes Itself as Fan Favorite in Rookie Season, DALLAS MORNING NEWS, Aug. 4, 1997, at 12B.

64.  See W.H. Stickney Jr., Cooper’s Season One to Remember, HOUS. CHRON., Aug. 16, 1997, at B8.

65.  See id.

66.  See Terry Frei, New Leagues Don’t Follow ABL Lead, DENVER POST, July 2, 2000, at C4.

67.  See Valerie Lister, ABL Says No Bidding War Despite McCray’s Jump, USA TODAY, Sept. 17, 1997, at 10C.

68.  Id. (noting that McCray would earn additional income from a personal services contract).

69.  See Stephanie Storm, Top Official Proposes ABL-WNBA All-Star Game, ORLANDO SENTINEL, Jan. 18, 1998, at C10.

70.  See ABL-WNBA All-Star Challenge Dunked, SEATTLE TIMES, Feb. 3, 1998, at C2.

71.  See Jeff Z. Klein, Foot Soldiers: The Launch of the WUSA Opens a New Front in Women’s Pro Sports, VILLAGE VOICE, Apr. 24, 2001, at 47 (stating that “the ABL collapsed, largely because of competition from the heavily promoted, heavily bankrolled WNBA”); see generally Amy Shipley & Karl Hente, Women’s Pro Hoops Leagues Battle for Position, ST. LOUIS POST-DISPATCH, May 18, 1997, at 7F (discussing the competition between the ABL and WNBA for players).

72.  See generally Athelia Knight, In Its Second Season, ABL Is Above Average: Interest in Sport Helps Attendance Increase in League, WASH. POST, Jan. 2, 1998, at C7; see also Phil Rosenthal, Can Jackson Be Sold on ABL vs. WNBA?, CHI. SUN-TIMES, Apr. 8, 1998, at Sports 105; Earl Gustkey, Women’s Basketball: Rumors of Jordan Ownership Keeps the ABL Buzzing, L.A. TIMES, June 30, 1998, at C8 (discussing a rumor that legendary NBA player Michael Jordan had considered buying a stake in the ABL’s Chicago expansion team).

73.  See generally John Deshazier, ABL Hasn’t Scored Enough Points to Win Ratings Game, TIMES-PICAYUNE (New Orleans, La.), Feb. 28, 1998, at D1.

74.  See Holland, supra note 41; UConn’s Sales to WNBA, DAILY NEWS (New York, N.Y.), Apr. 29, 1998, at 71.

75.  Holland, supra note 41 (quoting Cavelli’s interview with the San Francisco Examiner).

76.  See Darrell Williams, WNBA Keeps Building on a Good Thing, TIMES-PICAYUNE (New Orleans, La.), Aug. 2, 1998, at C2; see generally Tim Povtak, Disney Makes it Official: Orlando Joins WNBA, ORLANDO SENTINEL, Aug. 14, 1998, at C1.

77.  See Susan Slusser, ABL Season to Start 2 Weeks Later, S.F. CHRON., Sept. 3, 1998, at D7.

78.  See, e.g. Athelia Knight, NBA’s Loss Is Gain for ABL: Women’s League Hits National TV, WASH. POST, Nov. 26, 1998, at B14.

79.  See Melissa Isaacson, Lights Go Out on the ABL: To No One’s Surprise, Boys Club Wins Again, CHI. TRIB., Dec. 23, 1998, at Sports 1.

80.  See Kim Callahan, Season By Season WNBA Attendance 1 (2007), http://womensbasketballonline.com/wnba/attendance/sbsatten.pdf (last visited Jan. 12, 2008).

81.  Id.

82.  See WNBA Players Association, About the WNBPA, http://www.wnbpa.com/about_wnbpa.php (last visited Jan. 15, 2008).

83.  Id.

84.  Id.

85.  See id.

86.  Id.

87.  See, e.g. Bart Hubbuch, WNBA Labor Deal, Draft Put on Hold, DALLAS MORNING NEWS, Apr. 23, 1999, at 5B (stating that the WNBA postponed its 1999 draft indefinitely and threatened a lockout unless the players’ union consented to the proposed collective bargaining agreement).

88.  This is in contrast to professional athletes in the four premier men’s sports leagues that, based on their higher salaries, often have more personal reserves. Moreover, in the four premier men’s sports leagues, the players’ union often keeps a reserve fund to make payments to players in the event of a strike or lockout. For example, one of the reasons why the Major League Baseball Players Association was able to sustain such a long work stoppage in 1994 was because it had reserved $200 million in funds to distribute to players in the event of a work stoppage. See, e.g., Baseball’s Last Gasp is Today, PALM BEACH POST, Sept. 14, 1994, at Sports 1C (stating that the union planned to begin making payments to players from its $200 million strike fund).

89.  See WNBA Players Association, supra note 82.

90.  Id.

91.  Id.

92.  See Mel Greenberg, New-Look WNBA to Open 7th Season: 2 Teams Fold, 3 See Change in Ownership, CHI. TRIB., May 21, 2003, at Sports 9.

93.  See Fraser v. Major League Soccer, LLC, 284 F.3d 47, 58-61 (1st Cir. 2002); see also Marc Edelman, Fan Ownership Can Give UFL a Leg Up on Building Brand Loyalty, STREET & SMITH’S SPORTS BUS. J., Aug. 27–Sept. 7, 2007, at 28 (stating “there are probably lingering perceptions of an antitrust advantage to having 50 percent common ownership amongst teams, even though the decision by the First Circuit Court of Appeals in the 2002 case Fraser v. Major League Soccer indicated that any such antitrust advantage is dubious.”); Lacie L. Kaiser, The Flight from Single-Entity Structured Sports Leagues, 2 DEPAUL J. SPORTS L. & CONTEMP. PROBS. 1, 9–11 (2004).

94.  See generally Kaiser, supra note 93, at 11–13.

95.  See Oscar Dixon, More Players profit from Testing Waters: Overseas Competition Gives League Reason for Concern, USA TODAY, Aug. 21. 2007, at 10C.

96.  Id.

97.  Id.

98.  See Elizabethe Holland, Holdsclaw will Stay in College Basketball, ST. LOUIS POST-DISPATCH, Mar. 30, 1998, at C6.

99.  The emergence of a rival professional sports league often impacts whether the dominant league attempts to maintain age/education policies. For example, the NFL reduced its age/education policy from four to three years after Hall of Fame running back Herschel Walker opted to sign with the New Jersey Generals team in the rival United States Football League after his sophomore year rather than wait the required third and fourth seasons before entering the NFL. See, e.g., PAUL WEILER & GARY ROBERTS, SPORTS AND THE LAW 201 (3d ed. 2004). Initially, the NFL selectively implemented its rule by granting a limited number of special exceptions to allow superstar collegiate players, including Barry Sanders, to enter the league early. See Charean Williams, Got ’Em – Longhorns Never Seem to Get Burnt by the NFL Draft, FORT WORTH STAR-TELEGRAM, Apr. 18, 2005, at 1D. Then, in 1990, the NFL rewrote its longstanding eligibility rule to allow NFL entry to all players after their junior year of college or three years after high school. Id.

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XFL

THE INAUGURAL (AND ONLY) SEASON OF THE XTREME FOOTBALL LEAGUE: A CASE STUDY IN SPORTS ENTERTAINMENT

Keith Willoughby and Chad Mancini

INTRODUCTION

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In 2001, a new professional sports league, the Xtreme Football League (XFL), began play. League developers devoted conscientious effort to avoiding the pitfalls of previous football league failures. In 1974, the World Football League (WFL) was established. It lasted until midway through the 1975 season before ceasing operations. A major factor in the league’s demise involved financial difficulties. Created in 1983, the United States Football League (USFL) eventually folded after three seasons. Exorbitant salaries paid to attract collegiate stars, an overly restrictive television contract, and the decision to undertake direct competition with the NFL contributed to the USFL’s downfall. Despite the attempt to avoid earlier league mistakes, the XFL failed. This case study analyzes the specific events and particular environment that helped to form the league. We address the developments that occurred during the league’s short (12-week) run. We conclude with a discussion of some possible reasons why this new venture proved so disastrous.

THE PRE-GAME: A NEW LEAGUE IS BORN

On February 3, 2000 (a full year prior to the league’s first game), plans for the XFL were announced publicly at the World Wrestling Federation (WWF) entertainment complex in New York City’s Times Square. Basil DeVito, Jr., league president, proclaimed this sport would be “pro football like you’ve never experienced it before.” (XFL All Access (2001)). Indeed, the notion of combining the entertainment and marketing savvy of the WWF with professional football seemed intriguing. Under the leadership of Vince McMahon, the WWF was a global entertainment leader. It produced quarterly revenues of around $100 million, with an estimated weekly global viewership of 500 million (www.wwf.com).

Less than two months after the league’s initial inception, the WWF and the National Broadcasting Company (NBC) announced a strategic partnership to jointly own and operate the league. Regarding this new opportunity, Dick Ebersol, Chairman of NBC Sports, suggested that “we think of ourselves as the ‘Xtra Fun League.” (XFL All Access (2001)). Certainly, NBC’s foray into this sports broadcasting venture was not surprising. It had lost its coveted NFL package after the 1997 season. Moreover, it had recently failed to put together a summer football league with the Turner Broadcasting System. Eventually broadcasting negotiations were completed, and three of the XFL’s four weekly games were to be televised: a Saturday evening game on NBC, with Sunday contests featured on up-start cable networks UPN and TNN. To enhance the image of the league’s broadcasts, the XFL hired Mike Weisman, a seven-time Super Bowl television executive producer, as its broadcast consultant (McAdams (2000)).

With partnerships formed and television rights obtained, the next step involved determining locations for the league’s eight franchises. On June 13, 2000, Chicago was introduced as the league’s initial city. League officials were careful to balance the placement of teams. Some were located in cities or areas already home to NFL squads (Chicago, San Francisco and the New York/New Jersey area). Others were positioned in regions without NFL representation (Orlando, Memphis, Las Vegas and Birmingham). The remaining XFL team was situated in Los Angeles, a city without a current NFL team, although it had previously hosted two NFL franchises. In an effort to symbolize the anticipated ferocity and extreme nature of this sport, league officials purposely selected demonstrative team nicknames. These included, among others, Hitmen (New York/New Jersey), Rage (Orlando), Maniax (Memphis) and Enforcers (Chicago).

Any sports league requires credible front-office personnel. For the XFL, such individuals would be needed to bolster the league’s reputation and to provide some measure of face validity. In keeping with the expected hard-nosed, “in-your-face” mentality of the XFL, the league made two noteworthy appointments. Dick Butkus, arguably the epitome of football toughness, was hired as Director of Football Competition. He had played nine hard-hitting seasons as middle linebacker with the NFL’s Chicago Bears. Drew Pearson, an important player during the Dallas Cowboys’ reign as “America’s Team”, was signed as the inaugural member of the XFL’s advisory committee.

Personnel are required to run the league, television stations to broadcast the events, but in the end, players are needed to do the actual running, catching and tackling. Initially, the XFL wanted to conduct pre-season training camps with roughly 70 players per teams (thus, the 8-team league would need 560 players). The original plan was to scour the ranks of mid-level collegiate teams, Arena Football League franchises and semi-professional squads to provide a pool of potential talent. As it turned out, the league was overwhelmed with the submitted number of player applications. Over 50,000 individuals posted their resumes on the league’s web site. Roughly 4,000 players sent videotapes of their performances to the league’s head offices. Consequently, the XFL had little trouble stocking its rosters.

After months of planning, the new league was set to commence. Various signs pointed to quick and continued future success. A promotional boost was even delivered by Hollywood. On November 13, 2000 (less than 3 months prior to the league’s opening match-up), a futuristic movie entitled “The 6th Day” opened on theater screens nationwide. This film featured mega-star Arnold Schwarzenegger and his battles to expose a global human cloning conspiracy. The movie’s beginning sequence depicted the XFL championship game involving superstar quarterback Johnny Phoenix, the world’s first $300 million professional athlete!

LET THE GAMES BEGIN

The XFL made great strides to separate itself from its professional football competitor, the NFL. To capture its aggressive and cutting-edge flair for players, fans and coaches, the XFL introduced some rule modifications. It did away with video instant replays, a true source of consternation in the NFL. In the XFL, the official’s ruling was final—there were no challenges to a referee’s call such as one may witness in the NFL. Further, there was no “fair catch” rule protecting the punt returner. This forced the player to receive the ball after it has been kicked. Along with this rule, once the ball has gone more than 25 yards when kicked, either team is allowed to recover it. This marked a definite switch from NFL rules.

Other rules changes sought to bolster offensive production. Teams were not permitted to kick extra points after a touchdown is scored. To receive the extra point, the team scoring the touchdown must either run or pass the ball into the end zone. Moreover, receivers were only required to get one foot in bounds when making a reception instead of the “two feet down” rule that exists in the NFL. Finally, after a play involving any type of clock stoppage, the team with the ball is given only 25 seconds to run the next play.

Perhaps the most intriguing development in XFL rules involved the action at the beginning of a game. In the NFL, a referee flips a coin and a captain from one of the teams calls “heads” or “tails”. If the player guesses correctly (thereby “winning the toss”), his team has the option of kicking or receiving the ball, defending a particular end of the field or deferring this choice to the second half. If the player guesses incorrectly, a player on the other team must select between the above options. XFL officials, perhaps sensing that such a process was passe, adopted an alternative method. At the sound of a whistle, a player from each team would race 25 yards towards a football. The first player to retrieve the ball would be given (as above) the choices of kicking/receiving the ball, defending a specific end of the field, or deferring the option to the second half. This modification served to cement the aggressive mentality of the sport.

In an additional effort to distance its product from the NFL, and to make its brand of entertainment more palatable to the “average guy”, the XFL established a unique set of salary regulations. The NFL is replete with players earning multi-million dollar contracts; indeed, the league minimum is over $400,000 per year. The XFL wanted nothing of this “prima donna” flamboyance. To wit, XFL players were all paid a base salary depending on their position. All quarterbacks were paid $5,000 each week, kickers received $3,500 a week, and all others earned a $4,000 weekly salary. To enhance the notion that “winning isn’t everything—it’s the only thing”, players on each game’s winning squad earned monetary bonuses of $2,500 per player. In the playoffs, the weekly payoff increased to $7,500 for each of the winning team’s players. The league championship squad split a $1,000,000 pot amongst its players (roughly $20,000 per player).

The XFL’s first games were played on Saturday, February 3, 2001. The specific timing of the season’s launch was by no means accidental. It was the consensus of McMahon, DeVito and Ebersol that such a date would provide maximum audience exposure to their brand of football. The NFL’s Super Bowl championship is generally held on the final Sunday in January. Up until that time, the American football junkie has been exposed to almost six months of professional and collegiate play. Kicking off XFL action one week after the completion of the NFL season suggests that an upstart league could fill the void of the fan suddenly devoid of their favorite sport.

McMahon’s marketing strategy was to obtain advertising support from several big name businesses. In fact, 1-800-CALL-ATT, Burger King, Honda, M&M/Mars and Quaker State/Pennzoil were some of the first companies to advertise during XFL games. XFL officials claimed that simply from these sponsors, half of their TV inventory had already been sold (Lefton [5]). A further element of McMahon’s strategy was to develop commercials that showcased the “smash-mouth” nature of his sport. Many of those commercials depicted the game of football involving war-like scenarios, with dirty and bruised players running through mine fields or avoiding cannon fire in potential training camp drills.

When the first league games kicked off in Las Vegas and Orlando, the television audiences were treated to a technological experience unlike anything previously encountered in sports entertainment. Undeniably, a major competitive advantage for the XFL concerned the extent of fan involvement during the televised contests. Extra cameras and microphones were used to bring the fan onto the field, into the locker room, and (perhaps) into the heads of the players and coaches. The use of this uninhibited technology permitted observers to get a glimpse of pregame pep talks or halftime speeches, something that NFL broadcasts fail to deliver. Further, it was not uncommon to see a camera operator (equipped with a helmet and padding!) on the field behind the huddle. The XFL even developed the “X-Cam”, an innovative camera technique, to get a new angle of the game. This camera hung above the field on a pulley system and was able to directly follow game action.

Aggressive rule adjustments, marketing strategies and technological gadgetry produced a national hype for the league’s first games. In fact, both of the opening contests were played in front of sold-out crowds. The attendance in Orlando was the largest home-opening crowd of any Orlando professional sports team (Drehs (2001)).

Initial television ratings appeared to support the view that America was prime for this smash-mouth brand of football. NBC was thrilled with their 10.2 Nielsen rating for their Saturday, February 3rd game. (One rating point corresponds to roughly 1,022,000 U.S. households, or 1% of the estimated number of U.S. TV homes). As it turned out, this was more than twice the television ratings expected by NBC officials. For purposes of comparison, the average Saturday night rating for NBC in 2000 was 4.2. Even its National Basketball Association (NBA) Saturday night coverage garnered only a 4.0 rating.

Although NBC and XFL personnel were euphoric over the Saturday night ratings, a further examination of the data revealed a disturbing trend. Television viewership showed a steady decline during each half hour interval. Undoubtedly, the American audience was tuning in to catch an initial glimpse of the action, to see what all this fuss was about. They wanted to witness for themselves the promotional spectacle that was the XFL. Once the novelty factor wore off (and for some viewers, it did not take very long), television ratings nose-dived.

In fact, the weekly ratings underscored the difficulties the XFL was beginning to face across the nation. The ratings for the two games on Sunday, February 4, 2001 did fall to more “ordinary” levels, with UPN’s contest between Los Angeles and San Francisco scoring a rating of 4.2. After the initial hype of week 1, NBC’s week 2 television ratings fell by almost 50%. Moreover, the league enraged millions of Americans when NBC’s week 2 contest between Chicago and Los Angeles went into double overtime, thereby pushing back the start of “Saturday Night Live” with pop-sensation Jennifer Lopez as guest host. This development motivated the XFL to tinker with its rules by instituting a running clock, ensuring that games would end faster.

During week 3, XFL broadcasts were the 89th ranked television show in the country. To add insult to injury, Honda (one of the league’s original sponsors) withdrew its TV ads at the end of this week. In fact, by week 4, the league was providing free air-time for advertisers.

The ratings continued to plummet. The league earned an infamous distinction in week 7 by garnering a 1.6 rating. This was believed to be the lowest prime-time night among NBC, CBS or ABC in Nielsen Media Research history. Ratings in week 8 actually improved, although the 1.8 rating placed the broadcasts 94th overall among shows that week.

The XFL playoff games showed marginal ratings improvement, but nothing like the levels league officials hoped to earn. The first week of playoffs scored a 2.0 rating, while the “Million Dollar Game” on April 22, 2001 achieved a 2.5. In the end, NBC’s average XFL rating was 3.3 (although this was bolstered by the huge ratings during the first week of league action). Perhaps more telling than the television ratings was the league attendance, especially at the championship game. A total of 24,153 fans attended this game in the cavernous Los Angeles Coliseum (capacity: 90,000).

THE POST-GAME: WHAT WENT WRONG?

The XFL ceased operations on May 10, 2001, less than three weeks after its championship game. Reportedly, the WWF lost $35 million in this venture, with NBC losing a similar amount. League president DeVito succinctly surmised, “We didn’t do everything well out of the gate” (www.espn.com, May, 2001). An analysis of the specific reasons contributing to XFL failure seems to be in order. The XFL failure will be compared to other failed football endeavors in the U.S, and contrasted with other football leagues that have had some measure of success in the United States.

In an effort to be successful, the XFL wanted to avoid the pitfalls of a previous failure, the United States Football League (USFL). The USFL lasted for three complete seasons (1983–1985). Jim Byrne (1987), a former USFL communications director, indicated at least three reasons why the league ceased operations. It had an overly restrictive television contract with the American Broadcasting Company (ABC). Secondly, it paid exorbitant salaries to lure collegiate stars to the new league. Steve Young, Herschel Walker, Doug Flutie and Jim Kelly—each of whom would eventually earn NFL accolades—began their professional careers in the USFL. Finally, prior to the anticipated 1986 season, the USFL announced that it would play its games in the fall (rather than the spring–summer scheduling as was previously done). This move brought some of its franchises into direct competition with NFL teams in their respective cities. Eventually, the USFL filed an antitrust lawsuit against the NFL and, although the new league won the case, it was only awarded $1 in damages!

The XFL observed these challenges and developed a strategy that sought to dodge these difficulties. Unlike the USFL, the XFL had a reasonably good television package with NBC, UPN and TNN. The fact that NBC helped to operate part of the league seemed beneficial. In addition, the XFL avoided lucrative contracts with its relatively modest salary structure. Finally, the XFL purposely opted to play its games during the NFL “down-time”, thus steering clear of direct competition with the NFL. The fact that both the USFL and XFL had diametrically opposed strategies, yet each failed, suggests that television packages, salary structures and league timing have little to do with eventual success.

Another failed football venture was the World Football League (WFL). Formed on August 2, 1973, this league played a full season (1974) before folding on October 22, 1975 (part way through its second campaign). Financial difficulties were cited as a major contributing factor in the league’s downfall.

The Canadian Football League (CFL) has operated since the late 19th century with some measure of success in Canada. However, beginning in 1993, the league attempted to expand its operations into the U.S. San Antonio, Memphis, Birmingham and Baltimore were some of the cities that featured CFL teams. Ultimately, this move proved disastrous, leading American-based franchises to fold after the 1995 season. These teams had difficulties competing for the sports entertainment dollar with head-to-head competition from collegiate football and the NFL.

….

The analysis of failed and successful professional sports leagues seems to support the conclusion that the over-riding factor for success appears to be one of on-field attractiveness. If this is the extant …, then fans will embrace the sport. Inasmuch as it is lacking (witness the USFL and XFL), then such ventures wither…. [A]lternative brands may succeed in carving a niche in the sports entertainment industry. Indeed, the final product (in this case, football entertainment) must be viewed as having some semblance of attractiveness.

One additional contributing factor for the XFL’s demise was the League officials attempt to “straddle the fence” between two groups of sports and entertainment enthusiasts. The league wavered between football and wrestling, instead of deciding to pursue either a strictly football strategy, or create a league that was more centered on a WWF environment with football as the backdrop. Neal Pilson, former CBS Sports President, felt that the XFL had no promise whatsoever (see Fendrich (2001)). Pilson mentioned “if they had pitched it closer to football, they would have lost the wrestling audience. If they had made a burlesque out of football to conform to the expectations of the wrestling audience, they probably would have lost NBC.” By straddling this fence, the XFL created a division in its fan base and left both groups confused and unsatisfied, leaving them no opportunity to give loyal support to the league. Litke (2001) suggested “the XFL was doomed from the start. People were bound to tune in for only so long to see special effects and scantily clad cheerleaders, especially since there are cable channels devoted entirely to those subjects. At some point, there has to be a game.” Perhaps this is what McMahon, Ebersol and DeVito failed to realize all along.

In conclusion, some of the lessons learned from the XFL fiasco can be applied to other new sport ventures. Indeed, those attempting to build a new sport entity (whether it be a league, event or property) may appreciate some of these “do’s” and “do not’s” associated with establishing a new endeavor. In order to be successful, a new venture must have some type of name recognition, whether that involves coaches, athletes or front-office personnel. The XFL’s decision to appoint Dick Butkus as its Director of Football Competition did provide the league with some measure of initial credibility. Moreover, any new undertaking must recognize that, in the seemingly crowded world of sports entities, one must articulate—then successfully reach—a specific niche.

The “do not’s” involve the attempt to straddle two disparate groups of consumers. As the XFL discovered, adopting such a strategy leads to a product failing to meet any group’s needs. Further, sports marketers ought to avoid sensationalized claims of league or event success in the face of competition from an established giant. The XFL’s assertion that it would be “pro football like you’ve never experienced it before”, notwithstanding the sheer appeal and magnitude of the NFL, may have struck some football fans as ludicrous. Finally, any new league developers should avoid the inclination to tinker with a particular sport’s pre-established set of rules and procedures. The “race for the ball”, instead of a simple coin flip at the beginning of a game, may have seemed too bizarre to be real football for the die-hard fan.

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References

Byrne, J. (1987), The $1 league: The rise and fall of the USFL, New York: Simon and Schuster.

Drehs, W. (2001). Target audience revels in XFL’s debut. Retrieved February 15, 2001 from ESPN web site, www.espn.com.

Fendrich, H. (2001). ‘You can call it the ex-FL’. Associated Press story, May 11.

Lambert, C. (2001). The Dow of professional sports. Harvard Magazine, 104(1), 38-45.

Lefton, T. (2000). Spot marks the X. Brandweek, 41(33), 4.

Litke, J. (2001). ‘It’s the game, stupid.’ Associated Press story, April 25.

Lowry, T. (2003). The NFL machine. Business Week, January 27.

McAdams, D.D. (2000). Leveraging “raw” power. Broadcasting and Cable, 130(6), 4.

Noll, R.G., & Zimbalist, A. (1997). Sports, jobs, and taxes. The Brookings Review, 15(3), 35–39.

XFL All Access (2001). New York/New Jersey vs. Birmingham game program.

MINOR LEAGUE BASEBALL

CALLED UP TO THE BIG LEAGUES: AN EXAMINATION OF THE FACTORS AFFECTING THE LOCATION OF MINOR LEAGUE BASEBALL TEAMS

Michael Davis

Between the 2004 and 2005 seasons, the Austin and El Paso franchises in baseball’s AA level Texas League moved to Corpus Christi and Springfield, Missouri, respectively. To determine whether such moves make sense, we need to examine a number of different issues. The purpose of this study is to determine the factors that lead to the presence and level of a professional baseball team at a particular location. The results will contribute to the knowledge of which factors affect the demand for professional baseball and will suggest which locations are either under-represented or over-represented in terms of their local baseball teams. Furthermore, the results will suggest which cities should be next in line for a professional baseball team at a particular level if a team relocates or there is expansion.

The organization of the minor leagues presents a clear hierarchy we can exploit to analyze the important factors in locating teams. The minor leagues are set up with the following structure: AAA, AA, High-A, Low-A, Short Season A, and Rookie leagues in descending order. The quality of play will typically be better at AAA than at AA, better in AA than A, and so forth down the list. Also, the season is longer for the higher leagues, with the majors running at least a month longer than all of the minor leagues, and Short Season A and Rookie leagues playing two months less than the other minor leagues. The better quality and greater quantity of baseball at the higher levels suggest that we can assume that the major league teams will be in the best locations, and the AAA teams in the next best locations.

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We find that a city’s population, personal income, and time from the nearest major league city all have a positive impact on whether there is a team in the location. While the results for population and time are expected, the results for per capita personal income are not. Combined with past studies suggesting that personal income does not affect attendance at minor league baseball games, the results support a view that there is a labor–leisure trade off for the wealthy.

Wealthier citizens may not be able to take off any more time for recreational activities like watching baseball but expect a higher quality product when they do attend. The presence or absence of alternative sports options appears to have no impact.

INSTITUTIONAL STRUCTURE

The number of teams in particular locations has always been restricted by the agreements between Major League Baseball and minor league baseball. The current locations of teams are influenced by these changing rule structures. Until the 1990s the rule seemed to be that teams had a 15-mile buffer in which they could restrict competition. In the 1990s the rule was extended to a 35-mile buffer area. By 2003 the rules differed between the major and minor league teams. The major league teams were assigned counties from which they could exclude either major or minor league teams. In addition, they had a 15-mile boundary beyond the county borders. According to Jim Ferguson, Director of Media Relations for minor league baseball, the minor league team rules are that a team cannot move into a county that borders another county with a minor league baseball team (CantonRep.com, 2003). These restrictive rules have effectively prevented most of the metropolitan areas that have teams from having additional teams move into them. There are exceptions. Baade and Sanderson (1997) note that the Kane County Cougars located in the far suburbs of Chicago in the 1990s. More recently the Frisco Roughriders moved into the northern edge of the Dallas metropolitan area.

The restrictive practices of the major and affiliated minor leagues, however, have given an opportunity for upstart independent minor league teams to move into under-represented areas. A number of independent minor leagues have come into existence since 1993, the first independent baseball leagues since 1954. Although the independent leagues include teams located in smaller markets not inhabited by any other teams, they consist primarily of teams in markets with major league teams that have used rules to keep out affiliated minor league teams (Cooper, 2004). In 2003, 29 of 179 (16%) affiliated minor league teams were located in metropolitan areas with a major league team, while 21 of 54 (39%) independent league teams were located in similar markets.

In an attempt to find better stadium deals and markets, the affiliated minor leagues have franchises moving almost every year. The number of moves varies from year to year, however. Between 2002 and 2003, seven franchises in the affiliated minor leagues moved; between 2003 and 2004, only three franchises moved. Also many of the franchises are quite stable, having existed in the same location for a long period of time, and Kraus (2003) stated that there has been greater stability in team locations since 1990 than there had been previously.

It is often the case that a city will see a team leave for a different location and then have a team at a different level move into it within a few years. Occasionally the moves will take place in the same year. In 2005, the AA team in Greenville, SC, moved to Jackson, MS. The same year a Low-A team moved from Columbia to Greenville.

The level of stability is much lower in the independent minor leagues than in the affiliated minor leagues. In 2003 there were seven independent minor leagues that began the season. Between 2002 and 2003, one independent league folded (Western Baseball League), one league split into two (the Northern League into the Northern and Northeastern Leagues), one league came into being but did not finish the season (Arizona-Mexico League), and there were four expansion teams as well as six franchise moves or replacement teams for folded teams. Between 2003 and 2004, another league folded (Southeastern), three other teams folded (one of whom was replaced by a traveling team) and one franchise moved. In addition, two teams switched leagues, with Springfield/Ozark moving to the Frontier League from the Central League and Pensacola taking its place in the Central League, moving from the defunct Southeastern League.

LITERATURE REVIEW

Past studies use attendance data for individual teams to investigate the demand for minor league baseball. Siegfried and Eisenberg (1980) estimated the impact of a city’s market size, per capita income, ticket prices, and demographic factors on attendance. They find that population and ticket prices are the two main factors affecting the attendance at minor league baseball games. They also find that higher level teams (AAA and AA) have greater attendance than lower level teams (A and Rookie). Branvold, Pan, and Gabert (1997) showed that market size and the success of the team are both important factors, but factors that affect attendance differently depending on the level of the team. Our methodology differs from those studies in that we use the presence of a team, not the attendance, as the dependent variable.

A few studies used data sets similar to the one used in this study. However, most of the analyses assessed the impact minor league teams have on the communities, rather than examining what leads a community to have a team. Baade and Sanderson (1997) found that the presence of a minor league baseball team did little to improve the economic conditions of the area. Colclough, Daellenbach, and Sherony (1994) found only minimal benefits to La Crosse, WI, in building a stadium for a Class A baseball team. From a survey of local governments that hosted minor league baseball teams, Johnson (1990) found that the leaders of those communities had an unrealistically large perception of the value of the teams to their communities. Contrary to these other findings, Kraus (2003) concluded that there are significant economic and non-economic benefits to a city of hosting a minor league baseball team.

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FACTORS INFLUENCING THE LOCATIONS OF BASEBALL TEAMS

In describing the benefits to the Frisco Roughriders’ new city following their move from Shreveport, the Frisco Rough riders’ President stated, “The franchise is now located in one of the fastest growing cities in America and the fan base from the surrounding counties is phenomenal. The team is great, the fans are happy and the ballpark is gorgeous” (Baseball America, 2004). The quote suggests many of the factors that would influence the decision of a baseball team to locate in a particular location: population, population growth, and quality of the ballpark (see Table 1 and Table 2).

The decision to own and locate a team in a particular city is a supply decision; however, the costs will be similar across most cities in the country. There will be some effect of travel costs for cities not located near many other cities, but for the most part there will not be many differences in supply from city to city. The largest cost to an owner of a AAA team will be the opportunity cost of not locating the team in a different city. These opportunity costs will be affected by the differences in demand in different cities. We will examine the differences in factors across cities that affect the demand for baseball.

Siegfried and Eisenberg (1980) and Branvold et al. (1997) suggested factors to include in the model, the most obvious of which is population. A larger population should lead to greater demand for baseball and thus a higher level team in that location. In some cases the metropolitan area may be large enough for multiple teams, but in this study we simply look at the highest level team in a particular location. Another factor that might affect the demand for baseball is the income of the people in the area. Higher income could mean greater disposable income to spend on recreation and therefore greater interest in baseball.

The presence of teams in other sports is a third factor that might affect the presence of baseball teams. However, the presence of professional hockey, football, or basketball teams would likely be determined endogenously with the presence of a baseball team in the city. For example, it is not clear whether Milwaukee does not have a National Hockey League (NHL) team because it already has a Major League Baseball (MLB) team or that it has a MLB team because it does not have an NHL team. Despite these concerns over endogenicity, we include variables testing whether the presence of football, basketball, or hockey teams affects the presence of a baseball team. The hockey variable indicates the presence of a team in any of the following leagues: NHL, AHL, ECHL, WCHL, CHL, UHL, or ACHL. Any team in the NFL or in one of the three indoor football leagues, AFL, AF2, or NIFL, is indicated by the football variable. Lastly the basketball variable indicates the presence of a team in the NBA, CBA, or NBDL.

Table 1   Metropolitan Areas with Multiple Teams Including at Least One Major League Team

Metropolitan Area

Total Teams

Breakdown

New York

14

2 Major, 2 AA, 1 Low-A, 4 Short-Season A, 5 Independent

Chicago

  8

2 Major, 1 Low-A, 5 Independent

Los Angeles

  7

2 Major, 5 High-A

Boston

  5

1 Major, 1 Short Season A, 3 Independent

Washington

  5

1 Major, 1 AA, 2 High-A, 1 Short Season A

Tampa

  4

1 Major, 3 High-A

Cleveland

  3

1 Major, 1 AA, 1 Low-A

Dallas

  3

1 Major, 1 AA, 1 Independent

Miami

  3

1 Major, 2 High-A

San Jose

  3

2 Major, 1 High-A

Seattle

  3

1 Major, 1 AAA, 1 Short-Season A

St. Louis

  3

1 Major, 2 Independent

Cincinnati

  2

1 Major, 1 Independent

Kansas City

  2

1 Major, 1 Independent

Minneapolis

  2

1 Major, 1 Independent

Philadelphia

  2

1 Major, 1 Independent

Pittsburgh

  2

1 Major, 1 Independent

Source: International Journal of Sport Finance. Used with permission from Fitness Information Technology.

One factor that would likely be exogenous to the presence of baseball teams, however, is the presence in the location of a major college sports program. We therefore include in this analysis a dummy variable for whether there is a Bowl Championship Series (BCS) college in the location. The BCS represents the universities with the biggest and best college football programs. It is also likely a good proxy for the universities with the biggest overall college sports programs (see Table 3). We hypothesize that this variable or the professional sports variables should have negative coefficients because they represent alternative sports opportunities for fans (see Table 4).

Lastly, the location of the Combined Statistical Area (CSA) relative to other CSAs could be important. The CSAs are combinations of metropolitan areas for cities near one another. For this analysis a simple definition of distance is used. It is assumed that the major league team locations are determined first and are therefore exogenous. For each CSA the time it takes to travel by automobile to the closest major league stadium is used as an explanatory variable. Because there is a realistic limit to how far most people will routinely travel to a sporting event, the time variable is capped at 300 minutes (5 hours). A significant positive coefficient would imply that the fans of a particular team support the major league team nearby and do not need a team of their own. Alternatively we might see a negative coefficient on this variable. All minor league teams have links with major league franchises. If a team is near the city with the major league team of which it is a farm team, the fans of the major league team might be willing to visit the minor league team for a chance to see the future prospects of their team. It would also give them a chance to root for a team of the same name as their favorite team but at a cheaper price. One last consideration, as mentioned by Kraus (2003), is that teams such as those in the Eastern League are located where they are in part because nearby major league teams can conveniently call up a replacement from the minors if a starter gets hurt. The benefits of proximity to the major league teams would be limited to AAA and AA teams, as those would have players with sufficient ability to fill in at the major league level.

….

[Ed. Note: Author’s discussion of Data and Methodology are omitted.]

….

Table 2   Metropolitan Areas with Multiple Teams but No Major League Teams

Metropolitan Area

Total Teams

Breakdown

Johnson City, TN

4

4 Rookie

Greensboro

3

1 High-A, 1 Low-A, 1 Rookie

Bluefield, WV

2

2 Rookie

Charlotte

2

1 AAA, 1 Low-A

Columbus

2

1 AAA, 1 Independent

Raleigh

2

1 AAA, 1 AA

Rochester

2

1 AAA, 1 Short-Season A

Salt Lake City

2

1 AAA, 1 Rookie

Syracuse

2

1 AAA, 1 Short-Season A

Source: International Journal of Sport Finance. Used with permission from Fitness Information Technology.

Table 3   Means for Each Baseball Level

image

Source: International Journal of Sport Finance. Used with permission from Fitness Information Technology.

Note: Only highest level team within each CSA is included.

Time to ML Team is truncated so that the maximum allowed is 300 minutes (5 hours).

Table 4   GOLM Estimation Results

image

Source: International Journal of Sport Finance. Used with permission from Fitness Information Technology.

*Significant at 5% level.

(1) Estimation using generalized ordered logit model of level of team on constant, log of population, log of per capita personal income, and time to nearest major league city.

(2) Estimation using generalized ordered logit model of level of team on constant, log of population, log of per capita personal income, presence of BCS university, presence of a hockey team, and time to nearest major league city.

Both estimations include all CSA/MSAs and micropolitan areas except those with major league teams.

RESULTS

….

Population is positive and significant as expected. Per capita personal income is positive and significant, suggesting that wealth increases demand. Note that this finding differs from the results of Siegfried and Eisenberg (1980), who found that per capita income did not have a significant positive effect on attendance. The difference in the results could be explained by the difference in methodologies. Because they must sacrifice more income for leisure, wealthier residents might not be interested in attending a greater number of games but have a preference for superior quality games.

The coefficients for time from nearest major league team are positive and significant, but the effect is not the same across all the levels. In particular, as the level goes from Short-Season A/Rookie to Low A, the effect of time is negligible. The results suggest that being farther away from a major league location increases the level of the baseball team, as competition from the major league team is less (see Table 5).

….

Table 5   Predicted Probabilities of Outcomes

image

Source: International Journal of Sport Finance. Used with permission from Fitness Information Technology.

Notes: Based on results of estimation from column 2 of Table 4.

All other variables are at means unless otherwise noted.

Population and per capita income estimated and evaluated in log values but displayed in levels.

The first conclusion that can be drawn from the data is the overwhelming importance of population. Metropolitan areas with fewer than 100,000 people rarely have teams, while those with more than 750,000 rarely do not. The second conclusion is that the other factors can affect the presence of teams but are of secondary importance….

The presence of a hockey team in a location seems to suggest a higher likelihood for a minor league baseball team. This result is counterintuitive. One explanation is that the presence of a hockey team shows a city’s willingness to construct facilities for sports teams, and thus the city is more likely to construct facilities for a baseball team. The other possibility is that there are idiosyncrasies in the locations of hockey leagues. At a higher population level (750,000) the presence of a hockey team reduces the probability of having a team at Rookie/Short-Season A and High-A and increases the probability of having a team in the independent, Low-A, AA, and AAA levels.

Tables 6 and 7 are based on the probabilities suggested from the model results in Table 4, column 2. Table 6 ranks the cities by the probability that they should (by the model) have a team at that level or higher but do not. Table 7 reports the top 10 ranking for cities that do have teams by the lowest probability of having a team at that level or higher. From these tables it appears that either the leagues and team owners are missing a good opportunity or there are factors not accounted for that are determining the locations. Some of these factors are considered below.

The results also suggest that the outliers for the lower level leagues are more severe than for the higher leagues. For example, the top two omissions from the AAA level, San Antonio and Orlando, are the only missing cities that the model suggests should be in the top 15. However, all of the top 10 omissions in High-A would rank in the top 12 most likely locations for teams at that level.

One explanation for there being more omissions in the lower levels is that the geographical locations of the leagues are not included in the model. The two major leagues are both national, having teams throughout the country. The two AAA leagues are not individually national but between them cover the entire country. On the other hand, the three AA leagues (Texas, Southern, and Eastern Leagues) cover only about half the country among them. The same is true of the lower level leagues as well. Grand Rapids and Dayton are deserving of at least AA teams, but geographically the Low-A Midwest League would make more sense for those locations than a higher league that is not as close…. One Rookie and one Short-Season A league are located in the western part of the country, where the distances between cities are large and there are few major league teams. The Low-A league with the most teams (Midwestern League) is located in an area with many major league teams.

The study uses 2003 data because that is the most recent available for the population and income statistics. Some of the misallocations identified here have already been corrected by the teams. For instance, Austin now has a AAA team in the Pacific Coast League and Jackson, MS has a team in the AA Southern League. Of course not all of the moves that have taken place would be optimal according to this model, as a AA team in the Texas League, which was ranked 71st in the AA rankings, moved to Springfield, MO, in 2005.

Table 6   Top 10 Cities with Highest Probabilities to Have Team at Particular Level that Do Not Have Team at that Level or Higher

image

Source: International Journal of Sport Finance. Used with permission from Fitness Information Technology.

Note: Number in parentheses represents rank for particular level or above excluding teams that have a team at higher rank. The Any Team is rank among all locations. Example: Excluding cities with major league teams, Greensboro had the 20th highest probability of having a team at the AAA level, but Greensboro does not have a AAA team. Of the 19 cities in front of Greensboro, 15 of them had AAA teams. Excluding cities with major and AAA teams, Greensboro had the third highest probability of having either a AAA or AA team.

Table 7   Top 10 Cities with Lowest Probabilities to Have Team at Particular Level that Do Have a Team at that Level

image

Source: International Journal of Sport Finance. Used with permission from Fitness Information Technology.

Note: Number in parentheses represents rank for particular level or above excluding teams that have a team at higher rank. The Any Team is rank among all locations. Example: Des Moines has a AAA team; however, according to the model it had only the 44th highest probability of having a AAA team, and there were four cities with lower probabilities that have AAA teams.

The remaining exceptions identified as misallocations could be explained by variables that are impossible to include in the model. Individual tastes in sports could vary from one location to another. Even specific factors that are measurable, such as the extreme distance of Honolulu from the mainland or Greensboro’s having three teams instead of one, could explain those cities’ rankings. Another possibility could be the willingness or reluctance of a municipality to subsidize stadium construction. The case studies of Johnson (1993), Wessel (1993), and Turner (1993) examined the factors that led to the relocation of minor league franchises, with a key issue in each being that one location gave a better stadium deal than did the other location. Lastly there may be some idiosyncratic decisions made by an individual team owner that cause a team to choose one location over another.

CONCLUSION

We find that population and personal income positively affect the level of minor league baseball in a metropolitan area. Although the population effect is obvious, the personal income finding is more surprising. The driving time to the nearest major league team has a positive effect on the presence of a minor league team, but the presence of a BCS university has no effect. The presence of a major or minor league hockey team generally increases the likelihood of having a team but reduces the probability of having one at some of the levels.

Cities interested in attracting a minor league baseball team should realize from this study that even though the quality of a new ballpark is important, the underlying qualities of the city and surrounding communities are quite important for the locating of minor league baseball teams. In particular, if the population does not appear to be sufficient to support a team of a particular level, it is unlikely that the team will remain there in the long run. The tables listing the outliers that are indicated by the model do not define the only likely locations for long term success at each level, but they are suggestive.

From these results one direction for future study would be to examine the dynamics of team movements over the entire data set of team locations for the past 30 years. For instance, Johnson (1993) asserted that in the early 1990s fundamental changes to the economics of baseball affected the ability of small markets to support minor league baseball teams. Also, a more detailed examination of the location of the leagues themselves, based on population and historical developments, would be an additional possibility for future research.

References

….

Baade, R. A., & Sanderson, A. R. (1997). Minor league teams and communities. In R. G. Noll & A. S. Zimbalist (Eds.), Sports, Jobs & Taxes (pp. 452–493). Washington, D.C.: Brookings Institution Press.

….

Baseball America. (2004). Baseball America Almanac 2004: Baseball America, Inc.

….

Branvold, S. E., Pan, D. W., & Gabert, T. E. (1997). Effects of winning percentage and market size on attendance in Minor League Baseball. Sport Marketing Quarterly, 6(4), 35–42.

….

CantonRep.com (2003). Canton trying to land baseball team. Retrieved July 15, 2006, from http://www.cantonrep.com/index.php?ID=95290&r=0&Categor=11.

….

Colclough, W. G., Daellenbach, L. A., & Sherony, K. R. (1994). Estimating the economic impact of a minor league baseball stadium. Managerial and Decision Economics, 15(5), 497–502.

Cooper, J. J. (2004). 2004 Independent League Preview. Retrieved July 15, 2006, from http://www.baseballAmerica.com/today/leagues/independent/040504preview04.html.

….

Johnson, A. T. (1990). Professional baseball at the minor league level: Considerations for cities large and small. State & Local Government Review, 22, 90–96.

Johnson, A. T. (1993). Minor league baseball and local economic development. Urbana: University of Illinois Press.

Kraus, R. S. (2003). Minor league baseball community building through hometown sports. New York: The Haworth Press.

….

Siegfried, J. J., & Eisenberg, J. D. (1980). The demand for minor league baseball. Atlantic Economic Journal, 8(2), 59–69.

Turner, R. (1993). Fort Lauderdale, Florida. In A. T. Johnson (Ed.), Minor league baseball and local economic development (pp. 164–171). Urbana: University of Illinois Press.

Wessel, H. (1993). Old Orchard Beach, Maine. In A. T. Johnson (Ed.), Minor league baseball and local economic development (pp. 144–153). Urbana: University of Illinois Press.

….

Discussion Questions

1.  What are the advantages and disadvantages of a single-entity league structure?

2.  Does a single-entity structure make sense for an established league? Why or why not? Does it make sense for a start-up league? Why or why not?

3.  With the proliferation of cable/internet outlets, was it a smart decision for the Arena Football League to give up so much potential upside in order to get a network TV deal?

4.  What obstacles do you see to the growth of the sport of soccer in the United States?

5.  What can major league professional sports learn from the minor leagues and start-up leagues?

6.  How are the outside forms of competition for major league teams similar to and different from those faced by minor league teams? Explain.

7.  How do revenue sources of minor league teams differ from those of major league teams?

8.  What ideas can you think of that would have helped failed or struggling leagues such as the AFL, XFL, WUSA, and WNBA?

9.  Do you see media entities in the future taking increased equity stakes in the events they televise?

10.  Given the risks inherent in new leagues, is it smart for MLS players to challenge the league’s single-entity status now? If not, what benchmarks would show sufficient viability to make you believe MLS could survive without its single-entity status?

11.  Would a successful challenge to MLS’ single-entity status handcuff future leagues from gradually loosening their single-entity rules?

12.  If a challenge to the MLS’ single-entity status were successful, could MLS abandon the Beckham Rule and return to being a single entity? Would it even want to do so?

13.  What is the counterargument to Bezbatchenko’s position that MLS is still league directed?

14.  For niche sports (which may not have traditional superstars), are the benefits of single-entity status worth sacrificing innovation, investor attraction, natural results, and other benefits that come from a mixed-mode traditional league structure?

15.  What was the most important factor in ensuring the WNBA’s survival and the ABL’s collapse?

16.  Which of the five factors for success did the XFL have, going into the inaugural season? What was it missing?

17.  Compare and contrast the WNBA/ABL and the XFL.

18.  Is there a self-imposed ceiling created by a league or sport that defines itself in opposition to the mainstream?

19.  Is there a future in sports that are hyper-targeted; that is, those that do not provide a broad following but are successful because they bring ever more specific demographics to advertisers?

20.  What is the value of having a link to a major league team? Is it a necessary condition to success, or are there arguments for staying part of an independent league?

21.  Why would a BCS university athletic program located in the same town have no effect with regard to competition for a minor-league baseball franchise?

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