Free Markets Don't Exist in the Sports Business...and that's ok

Usually, I am writing about the economic, real estate, or stock market news.  But as a lover of sports, and a guy who came THISCLOSE to owning an NBA franchise, I thoroughly enjoy the business of sports.  The last year has been a lot of fun for the business because two of the four major sports went through major collective bargaining issues and negotiations.  The funny part is, the thing I have heard most from many business friends I know is something to the effect of “free market capitalism doesn’t exist in sports” and “how can these owners who made their money off of doing what they want try to control these players so much?”  Well…there is a reason for that…

Every league does NOT and should NOT operate on free market capitalism on an individual team basis.  Each team is a business BUT they are franchises first and foremost.  That is very important to understand.  Just like a McDonalds franchise, you can’t just open one up wherever you want, right?  Same applies to sports teams.  You have to get approval and have the league approve opening a new franchise in a market THEY believe would benefit and be able to support such a team.  In addition, at McDonalds, can an owner put whatever price he/she chooses on a Big Mac or Happy Meal?  Of course not.  Can they eliminate items from their menu because the owner feels it won’t sell in that area?  Again, of course not.

Same applies in sports. These are franchises which are mini-businesses that support the greater business, the sports league they are in.  The leagues create rules that allow the LEAGUE and individual teams to flourish and do well so that it can sustain business for a long time with the ultimate goal of wealth and cash created for all owners, or as many as possible.

Now, I am about as free-market as it gets, but we have to understand that a contract is made (a literal one and a metaphorical one) when a person decides to buy an existing sports franchise.  They know there are certain rules they have to adhere by and some of those rules may change every so often.  That’s part of the game and the business.

So if you think the owners are going against all the business rules they used to make a ton of money, remember that they are held under certain rules by the NBA, which they agreed to when they bought into the league. 

Comments

[Oliver]

Thats a great point, I hadn't looked at it that way.