The relentless optimization of professional sports franchises

Later this year, the NFL will almost certainly approve the sale of the Washington Commanders to a group led by Josh Harris. The private-equity investor already owns majority stakes in the NBA’s Philadelphia 76ers and the NHL’s New Jersey Devils, and a significant chunk of Crystal Palace in soccer’s English Premier League. To buy Commanders, Harris and 16 partners will pay $6 billionthe biggest sum ever spent on a sports team – unless England’s Manchester United, who are currently receiving offers from at least two potential buyers, go for more in the meantime.

Why should the Commanders, whose home market is less than seven other NFL franchises and who haven’t won a playoff game since 2005, be worth more than any other team in history? And what are the implications of the sale for the rest of the NFL — and for teams and fans across all professional sports? Examine the commanders through the lens of a multi-billion dollar company that will operate much like other multi-billion dollar companies do, and the answers begin to become clear.

For most of the long history of professional sports, teams were basically baubles for rich owners, such as art collections or wine cellars. If anyone thought of them as businesses, it was usually to note how capriciously they were run. When William Clay Ford bought the NFL’s Detroit Lions in 1963, for example, he paid about $6 million. That equates to nearly $60 million today, a pittance for the head of the family that owned the Ford Motor Company. Freed from the constraints of making money as a real business, the lions were a toy.

In the mid-1990s, I saw a New York Giants practice with Bob Tisch, who had bought half of the team from Tim Mara, the grandson of its founder, for 75 million dollars. That seemed like a lot of money to me, but not to Tisch, whose family owned businesses like Loews Hotels and the Lorillard Tobacco Company. “I don’t care if I never make a penny on the investment,” he told me as we stood on the sidelines on a Tuesday afternoon. “I’m just going to pretend I never had the $75 million.”

Since then, the values ​​of sports teams have grown rapidly. In 2004, the NBA’s Phoenix Suns—an investment no one would mistake for a New York-based NFL team—cost real estate developer Robert Sarver 401 million dollars. A decade after that, former Microsoft CEO Steve Ballmer paid 2 billion dollars for the Los Angeles Clippers, who aren’t even the most popular basketball team in their own city.

Ballmer understood that sports franchises, even the historically decrepit Clippers, had evolved into complex businesses that, like Microsoft itself, have many sources of money. For pro teams, these include live entertainment (that is, tickets to the games played on the field night after night), but also intellectual property (rights to televise those games and distribute digital video of them), hospitality (rental of suites where local executives can drink expensive wine while you guzzle with the customers), catering (hot dogs and beer, maybe even prime-rib sandwiches and sushi, all up to airport prices), fashion (those $200 “authentic” jerseys) and real estate (not just arenas and stadiums, but also the surrounding commercial and residential zones that the team can own and operate). It’s “the equivalent of a mutual fund” of revenue streams, Golden State Warriors owner Joe Lacob once told me. But unlike any mutual fund I’ve ever heard of, these mutual funds have passionate followers, which is why those $200 shirts sell so well.

Beyond that, sports franchises in North America are tied to leagues that have monopolies and protect individual owners from financial failure. This means that the investment is without risk. Run the franchises as badly as you want—even lose as often as the Clippers did under Donald Sterling, the owner before Ballmer. It does not matter. You’ll still be making a killing if you ever want to sell. The value of the Detroit Lions is around $3 billion, which happens to be more than the Ford family’s current stake in their automaker.

This explains why Josh Harris was able to gather 16 investors to help him buy the Commanders. Of course, even all these partners weren’t enough to get him to the finish line. He also reportedly plans to borrow $1.1 billion — the league limit —against the value of the franchiseplus an undisclosed additional amount using his other franchises as collateral. The extensive financial structure includes a lot of different entities, individual and institutional, that will seek a return on their investments. So even if Harris wanted to, he couldn’t treat the commanders like a bullet. Rather, he will no doubt manage them as he runs the Sixers and the Devils and the other billion-dollar companies in which he has invested: relying on data collection and analysis and implementing the same marketing and financial management practices that have become standard . across most industries.

Everyone knows—or thinks they know—what happened when sports teams used analytics to optimize the games they played. In baseball, analytics stopped bunting, encouraged on-field turnovers, and brought us steals-for-picks. It also ushered in the Golden State Warriors’ thrilling three-point game, and savvy soccer teams around the world turned on giants by applying insights gleaned from data to actually figure out what was happening on the field.

We are now seeing a similar revolution in the front office. Applying best practices, as promulgated by management consultants, venture capital firms and public company investors, has become a fundamental principle across the various leagues, which explains why the playlist you hear at an NBA game in Charlotte, North Carolina is same as the one in Minneapolis or in Portland, Oregon. The fan experience has, by definition, become homogenized: If every team optimizes their operations in similar ways, going to major league games, regardless of the sport, will start to feel the same.

From the equivalent of corner grocery stores, many of them run in illogical but charming ways, franchises have evolved into the sports equivalent of the chains that dot the American landscape, as unsightly from each other as Apple Stores. A trip to the ballpark doesn’t feel that different from a trip to an amusement park, because both are carefully packaged and marketed every step of the way.

And because owners rely on broadcast and streaming deals to keep paying the interest on the loans they took out to buy their teams, constant engagement with fans is essential. The final minutes of blowouts are typically wasted content for viewers watching games to see which team will win, so major sports have embraced gambling to keep them watching when point spreads and individual player stats are still in doubt. For almost a century after The Black Sox Scandal of 1919, that betting on sports was lousy. Now Charles Barkley is selling us parlays at halftime.

The relentless optimization of franchises as businesses, especially by financial wizards and tech tycoons, risks undermining the special relationship between a team and its supporters. “If everything you do is financial or metric,” London-based author and broadcaster Robert Elms told me in an interview for my new book, “you’re missing the biggest reason people want to support your club. You create customers rather than fans.” The problem with such a transactional relationship, of course, is that if you have enough bad experiences at a restaurant or a car wash, you’ll eventually try somewhere else. Traditionally, teams and their fans have had a deep relationship, something like the love that you can feel for the occasional incorrigible family member If poor play was enough to keep Elms from attending matches for his favorite football team, London’s second-tier Queens Park Rangers, he said: “I would have stopped 25 years ago.”

Not every old-fashioned owner understands the unique relationship or the consequences of losing it. Under Dan Snyder, the Commanders (and their incarnations under previous names) have been mediocre or worse on the field, and abysmal off it. Fan support — once so rabid in the metropolitan area that the team sold out every game for half a century from 1967 — has disappeared in recent years. If only because the new ownership group is not Snyder, the mood among the faithful in Washington seems optimistic. Still, Harris and his partners shouldn’t assume that success in the form of winning more games than Snyder’s team did will rekindle all those old feelings. Six billion dollars was enough to get them Commanders—and give them access to a ton of revenue streams—but they have to earn the love back.

Leave a Comment