Phase II marked the advent of large amounts of direct revenue for teams from the broadcast of games. Perhaps surprisingly, this came well before games were broadcast on television, or even radio! Few people realize that before radios became common household amenities, teams received income from telegraphic transmissions. Western Union offered free telegraph ser- vice to teams in exchange for the right to transmit updates on games to saloons in the 1890s (Haupert, 2007). The popularity of these updates grew to the point where, in 1913, Western Union paid each team $17,000 per year over five years ($419,390 in 2017 dollars) for the right to transmit game descriptions. Of course, in those days, someone on the receiving end
of the telegraph had to recount to those gathered what had happened. There are numerous stories of Western Union hiring readers to embellish what was received to create a degree of excitement from the mechanical descrip- tions that came through to fans as the telegraph’s system of dots and dashes (Morse code). A monotonous process, indeed. Regardless, the key takeaway is that even in 1913, before fans could hear or see instantaneous reports about games, the value of sport to media firms was apparent.
Motion picture entrepreneurs bought the rights to film the 1910 World Series and then distributed those images for $500 in 1910 ($12,500 in 2017 dollars). By 1912 the cost of the rights had grown to $3,500 ($87,500 in 2017 dollars). Baseball’s growing popularity and the demand for sport was ripe to explode into people’s homes as soon as the technology expanded to permit the live transmission of games.
Radio broadcasts of baseball began in 1921 over the air waves of the first commercial radio station, KDKA, in Pittsburgh. As radio’s popularity grew, so did the broadcasting of games. The 1921 World Series was transmitted to Pittsburgh (from New York) and in 1923 the station that would become WNBC broadcast the World Series. Chicago’s baseball fans began enjoy- ing baseball games in 1924, and in 1938 the New York Giants, Brooklyn Dodgers, and New York Yankees agreed their games could be broadcast on the radio. Some owners had feared that radio broadcasts might reduce attendance and that loss might not offset the revenues gained by allowing games to be broadcast. As that fear was eliminated (radio created more baseball fans), the number of broadcasts increased. Every team entered into a contract with local radio stations and MLB itself sold the rights to the World Series with revenues shared by all clubs. Revenues began to esca- late, as did the value of franchises. The real bonanza, however, was on the horizon and, in the post–World War II years, televised games and television sharply increased revenues.
Even though the first telecast of a game took place in 1939 to a small audience in New York (Cincinnati Reds versus Brooklyn Dodgers televised in the New York area by the station that was the forerunner to WNBC), the 1950s marked the beginning of the television era. Later that same year, that same station also televised the first NFL game from Ebbets Field. That game, between the Brooklyn Dodgers and the Philadelphia Eagles, was played before 13,050 fans. Unfortunately, overcast skies reduced the avail- able lighting and parts of the game were literally “blacked out.” At the time of these first telecasts, there were approximately 500 television sets that had been purchased by households in the New York City region.
In 1947, the first World Series was televised, and in 1948, WGN in Chicago began televising White Sox and Cubs games. Again, some worried that the proliferation of televised games would lead to fewer fans buying tickets at the ballpark, but MLB’s attendance increased even as more and more games were available to fans on television. By bringing games to a
broader audience, television may have actually helped to expand the market for baseball. In 1951 the first baseball game was televised in full color, and those with televisions across America could actually watch the final game of the Dodgers–Giants legendary playoff series (Bobby Thompson’s home run won the pennant for the Giants). The color telecast could be seen in a handful of laboratories with access to televisions that could reproduce those images.
In the post–World War II years, with the rising wealth of the middle class and the advancing technology that would lead to lower effective prices, televisions became a staple of life. The rapid spread of this technology in the United States is illustrated in Tables 7.1 and 7.2. Most importantly, in 1950, fewer than one in ten households had a television, but by 1960,
Table 7.1 The Rising Presence of Televisions in the United States, 1939–1959
Year Total Televisions Sold Cumulative Total of
Televisions in Service
1939–1941 7,000 7,000
1942–1949 Not available 3,602,872
1950 6,132,000 9,734,872
1951 5,905,000 15,639,872
1952 6,144,989 21,784,861
1953 6,370,571 28,155,432
1954 7,317,034 35,472,466
1955 7,421,084 42,893,550
1956 6,804,783 49,698,333
1957 6,560,220 56,258,553
1958 5,140,000 61,396,000
1959 5,749,000 67,145,000
Source: www.tvhistory.tv/stats.htm
Table 7.2 Proportion of U.S. Households with Televisions, Selected Years, 1950–1975
Year Households with at Least
One Television Percent of All Households with a Television
1950 3,880,000 9.0
1952 15,300,000 34.2
1954 26,000,000 55.7
1956 34,900,000 71.8
1960 45,750,000 87.1
1965 52,700,000 92.6
1970 59,550,000 95.2
1975 68,500,000 97.0
Source: www.tvhistory.tv/stats.htm
almost nine out of every ten households had at least one television. This rapid surge created a demand for content to be broadcast. With its supply of games, sport offered content that met the needs of emerging televisions sta- tions; soon a strong and permanent relationship would form between teams and stations, and then between leagues and networks. The presence of tel- evisions in almost 90 percent of all U.S. homes by 1960 (and virtually all by 1975), the large supply of content (games) controlled by teams and leagues, and the sustained popularity of sport created the opportunity for extremely profitable partnerships between teams, leagues, and networks. This profit- ability took a giant step forward with an idea presented to all NFL team owners by the league’s young commissioner, Pete Rozelle, in 1961.
The Profitability of Television, the NFL, and Revenue Sharing There are two football games that are usually identified as those that changed the profile and status of the NFL in the United States: the 1958 overtime championship game between the Baltimore Colts and New York Giants, and the 1960 championship game between the Philadelphia Eagles and Green Bay Packers. With the country’s growing attachment to televi- sions, people found the games enticing and well-designed for at-home enter- tainment. There were sufficient timeouts for commercials that generated income and, yet, long periods of sustained play that were relatively easy to telecast and follow. Observing Americans’ growing interest in sport, and eager to promote a unified league where each team would be profitable and competitive regardless of the size of the local market, NFL Commissioner Pete Rozelle proposed a unique idea. He suggested teams surrender their local television rights and permit the league to sell a package of all games to a single network. The teams would then equally share the revenue earned.
If this concept would be approved, it would mean the team in the larg- est market (New York Giants) would receive the same amount of media income from television as the team in the smallest market (Green Bay).
Rozelle argued that if all teams were financially stable, the league could deliver a large number of competitive games every week, which would make each team more money regardless of the size of their local media market.
In essence, Rozelle believed that a truly competitive league where each team could win on any given Sunday would produce more revenue for the league’s large market teams than they would earn from the telecast of games in a league where their teams were dominant. Table 7.3 provides insight into the success generated for the NFL from the Rozelle concept of shared revenues and a single media contract. Indeed, the popularity of the league has led ESPN to offer it an annual payment of approximately $1.9 billion for its package of Monday Night Football telecasts each year from 2014 through 2021. CBS is paying $1 billion per year through 2022, NBC pays
$950 million annually for its nine-year contract, and Fox pays $1.1 billion
Table 7.3 Media Revenue and the NFL, 1960–2017 ($millions) YearCBSNBCABCFOXCableESPNTBSDirecTVTwitterTotal Contract Value 19600.3 – – – – – – – –0.3 19610.3 –– – – – – – –0.3 19624.5 –– – – – – – –4.7 19634.8 –– – – – – – –5.8 196416.1 –– – – – – – –16.2 196516.8 –– – – – – – –16.8 196621.9 –– – – – – – –21.9 196725.7 –– – – – – – –25.7 196825.2 –– – – – – – –25.2 196925.7 –– – – – – – –25.7 197021.017.58.5 – – – – – –47.0 197122.516.08.5 – – – – – –47.0 197221.017.58.5 – – – – – –47.0 197322.516.08.6 – – – – – –47.1 197422.019.613.0 – – – – – –54.6 197525.016.613.0 – – – – – –54.6 197622.019.613.0 – – – – – –54.6 197726.016.611.5 – – – – – –54.1 197851.051.059.7 – – – – – –161.7 197957.045.059.7 – – – – – –161.7 198051.051.059.7 – – – – – –161.7 198157.045.059.7 – – – – – –161.7 198272.063.065.0 – – – – – –200.0 1983108.094.098.0 – – – – – –300.0 1984150.0130.0135.0 – – – – – –415.0 1985150.0140.0160.0 – – – – – –450.0
YearCBSNBCABCFOXCableESPNTBSDirecTVTwitterTotal Contract Value 1986Strike year 1987150.0120.0160.0 –46.0 – – – –476.0 1988156.0143.0135.0 –51.0 – – – –485.0 1989194.0146.0135.0 –56.0 – – – –531.0 1990265.0188.0225.0 – –111.3111.3 – –900.5 1991265.0188.0225.0 – –111.3111.3 – –900.5 1992265.0188.0225.0 – –111.3111.3 – –900.5 1993265.0228.0225.0 – –111.3111.3 – –940.5 1994 –217.0230.0395.0 –131.0124.0 – –1,097.0 1995 –217.0230.0395.0 –131.0124.0 – –1,097.0 1996 –217.0230.0395.0 –131.0124.0 – –1,097.0 1997 –217.0230.0395.0 –131.0124.0 – –1,097.0 1998500.0 –550.0550.0 –600.0 – – –2,200.0 1999500.0 –550.0550.0 –600.0 – – –2,200.0 2000500.0 –550.0550.0 –600.0 – – –2,200.0 2001500.0 –550.0550.0 –600.0 – – –2,200.0 2002500.0 –550.0550.0 –600.0 – – –2,200.0 2003500.0 –550.0550.0 –600.0 – – –2,200.0 2004500.0 –550.0550.0 –600.0 – – –2,200.0 2005500.0 –550.0550.0 –600.0 – – –2,200.0 2006622.5600.0 –712.5 –1,100.0 –700.0 –3,735.0 2007622.5600.0 –712.5 –1,100.0 –700.0 –3,735.0 2008622.5600.0 –712.5 –1,100.0 –700.0 –3,735.0 2009622.5600.0 –712.5 –1,100.0 –700.0 –3,735.0 2010622.5600.0 –712.5 –1,100.0 –700.0 –3,735.0 2011622.5600.0 –712.5 –1,100.0 –1,000.0 –4,035.0 2012 – – – – –1,100.0 –1,000.0 –2,100.0 2013 – – – – –1,100.0 –1,500.0 –2,600.0
Table 7.3 Continued
YearCBSNBCABCFOXCableESPNTBSDirecTVTwitter 20141,000.0950.0 –1,100.0 –1,900.0 –1,500.0 – 20151,000.0950.0 –1,100.0 –1,900.0 –1,500.0 – 20161,225.01175.0 –1,100.0 –1,900.0 –1,500.010.0 20171,000.0950.0 –1,100.0 –1,900.0 –1,500.0 – 20181,000.0950.0 –1,100.0 –1,900.0 –1,500.0 – 20191,000.0950.0 –1,100.0 –1,900.0 –1,500.0 – 20201,000.0950.0 –1,100.0 –1,900.0 –1,500.0 – 20211,000.0950.0 –1,100.0 –1,900.0 –1,500.0 – 20221,000.0950.0 –1,100.0 – – –1,500.0 – 2023 – – – – – – –1,500.0 – Source: https://sites.google.com/site/rodswebpages/ (accessed January 15, 2018).
Table 7.3 Continued
annually (2014–2022). DirecTV’s satellite package costs the company $700 million per year (2006–2010).
At first glance, and realizing that the NFL will have earned nearly $115.2 billion in collective television revenues between 1960 and 2023, it would seem that Rozelle was correct. Pooled media rights and the creation of numerous competitive teams produced more revenue than most, if not all, owners realized was possible. Furthermore, selling media rights collectively creates a monopoly and eliminates competition between individual teams.
Recognizing this revenue growth, however, does not answer the question of the value or benefit for larger-market teams. Would the Giants and Bears, among other larger-market teams, have earned more money if they controlled their media rights in a manner similar to what exists in other leagues? It is impossible to answer that question. The NFL remains com- mitted to sharing its largest source of revenue equally among every team.
The Jacksonville Jaguars, Indianapolis Colts, and Green Bay Packers play in the league’s smallest markets, yet their share of the television contracts is equal to that received by teams in the largest markets. Does this mean that a league that does not divide its largest revenue sources equally between all teams will lead to domination by those franchises in the largest markets?
And if that domination occurs, will both fan interest and media revenues decline? Perhaps surprisingly, the answer might well be “no.”
In England’s Premier League, there is little sharing of media revenues, and each club can spend as much as it wishes on players without incur- ring a penalty or a fine. Across the past 20 years, only once has the league championship not been won by one of five major teams (Manchester City, Manchester United, Arsenal, Chelsea, and Liverpool). One might then observe that the Premier League operates within a philosophy that is the antithesis of NFL’s “on any given Sunday any team can win” philosophy.
Yet, despite a very limited uncertainty parameter (some teams simply never compete for the title), Premier League games remain popular, earning bil- lions of dollars in media revenue each year.
In MLB, there also are substantial differences in media earnings; there is a national package that is divided equally among the clubs, but each team retains the right to sell their games that are not nationally televised in their local markets. As a result, the Boston Red Sox, Chicago Cubs, Chicago White Sox, Los Angeles Dodgers, New York Yankees, New York Mets, and Texas Rangers earn far more than several other clubs.
The small scale of the national media package – compared to local media packages – has been altered by the success of MLB.com. Formed in 2000 (as Major League Baseball Advanced Media or MLBAM with an invest- ment of $1 million a year from each of the 30 owners), it was agreed that the profits derived would be shared equally by all 30 teams. MLB’s total revenue from MLBAM was reported to have reached $800 million in 2015 (Brown, 2016). MLB sold part of MLBAM to the Disney Corporation and
also derives revenue from supporting the distribution of NHL games on the MLBAM platform. This revenue gain has created a level of parity on media revenues for all teams. That said, the larger market teams still earn more than smaller market teams.
Despite these differences, eight different teams have won the World Series in the last ten seasons and attendance levels for the league have remained robust throughout the recession. There is far more competitiveness than one might imagine given the different media markets available to teams.
Chapter 12 provides a detailed discussion of each league’s policies.
In comparing the differences in outcomes with regard to the effects of revenue sharing, the important point is that what fans want, and what attracts them, varies. The NFL’s model of success, based on the sharing of media revenue, has contributed to its popularity, but different models have worked well for other leagues that also have maintained high levels of popularity. Yet, in every instance, media revenue is both vital and robust.
While its direct effect on winning, uncertainty of outcome, and champion- ships varies, its impact on the overall rise in team values and salaries has remained constant. Team owners and players have reaped substantial finan- cial rewards from growing media contracts, and team values have increased as well. This is not an outcome that has shortchanged fans. In the United States, for example, every game played can be seen by any fan as long as they purchase an appropriate media package. This provides ample evidence that consumers, owners, and labor have each benefitted from the televising of games and that leagues have remained popular even when some teams consistently do not appear in the playoffs.2
An example of the benefits accruing to players is provided in Table 7.4, where the change in players’ average salaries from 1989 to 2017 is ana- lyzed. Two factors contributed to rising team revenues that supported the observed increases. New facilities produced more revenues, as did local and national media contracts. For each season, the actual (nominal) average sal- ary is presented, followed by the value of the average salary in 2017 dollars.
The year-to-year percent change and the percent change from each year to the average salary in 2017 is also included. From 1989 to 2017, average salaries increased more than 348 percent, meaning the average player in 2017 earned three times more than the average player in 1989. To be sure, there are many league policies that can change the percentage of revenue that goes to the players. However, this period is well after the advent of free-agency that started in MLB in the 1970s. So, while there are many fac- tors contributing to player salaries, the massive increase in revenues over this time period clearly had a large impact on what players were paid.
To illustrate the benefits that have accrued to owners, the changing value of sport franchises is summarized in Tables 7.5 and 7.6; these figures will also be discussed in Chapter 8, but they are important to briefly con- sider here in terms of understanding the effect of revenue from media and
facilities on franchise values. Again, it is important to remember that media and facility revenues have been increasing across the past two decades and both have contributed to increases in franchise values.
NFL franchises have enjoyed robust growth across the past two decades resulting from the revenues generated by new facilities and rapidly escalat- ing contracts with broadcast networks, a satellite television service, and the development of the NFL network. In some instances, values increased tenfold since 1991. Teams worth approximately $250 million (2017 dol- lars) in 1991 are valued at more than $2.5 billion today. The value of the New England Patriots increased 1,922 percent in the 26 years from 1991 to 2017. While the chart does not isolate facility and media effects, suffice Table 7.4 Average MLB Salaries, 1989–2017
Year Average Salary Average Salary in
$2017 Annual Percent
Change
Percent Change from Year to 2017
1989 512,804 1,002,526 – 348.1%
1990 578,930 1,066,668 6.4% 321.2%
1991 891,188 1,593,178 49.4% 182.0%
1992 1,084,408 1,883,951 18.3% 138.5%
1993 1,120,254 1,894,167 0.5% 137.2%
1994 1,188,679 1,957,501 3.3% 129.5%
1995 1,071,029 1,720,094 −12.1% 161.2%
1996 1,176,967 1,829,449 6.4% 145.6%
1997 1,383,578 2,114,601 15.6% 112.5%
1998 1,441,406 2,168,036 2.5% 107.2%
1999 1,720,050 2,519,510 16.2% 78.3%
2000 1,998,034 2,830,824 12.4% 58.7%
2001 2,264,403 3,159,195 11.6% 42.2%
2002 2,383,235 3,247,787 2.8% 38.3%
2003 2,555,476 3,418,265 5.2% 31.4%
2004 2,486,609 3,221,276 −5.8% 39.5%
2005 2,632,655 3,297,828 2.4% 36.2%
2006 2,866,544 3,501,843 6.2% 28.3%
2007 2,944,556 3,456,092 −1.3% 30.0%
2008 3,154,845 3,699,531 7.0% 21.4%
2009 3,240,206 3,698,968 0.0% 21.5%
2010 3,297,828 3,709,268 0.3% 21.1%
2011 3,333,955 3,642,011 −1.8% 23.4%
2012 3,396,125 3,646,440 0.1% 23.2%
2013 3,920,370 4,147,048 13.7% 8.3%
2014 3,945,430 4,142,221 −0.1% 8.5%
2015 4,188,113 4,365,164 5.4% 2.9%
2016 4,307,487 4,398,335 0.8% 2.1%
2017 4,492,607 4,492,607 2.1% 0.0%
Source: USA Today MLB Team Payrolls (Accessed January 12, 2018).
to note that the management of the real estate within facilities and income from the media combined to dramatically change the business of the NFL at what is likely an unprecedented rate relative to any sport franchise busi- ness. In addition, new facilities and the media have catapulted numerous NFL franchises into billion-dollar companies with each worth more than
$1.5 billion (Table 7.5).
MLB franchises have seen very robust real growth rates as well, although the changes are far less than those enjoyed by NFL franchises (Table 7.6).
Notice the increments in value enjoyed by teams that own (or are part Table 7.5 NFL Team Value Growth ($millions)
Team Value in
$2017 Value in 1991 or
First Year ($2017) Percent Change
Arizona Cardinals 2,150 218 886.2%
Atlanta Falcons 2,475 207 1,095.7%
Baltimore Ravens 2,500 320 681.3%
Buffalo Bills 1,600 229 598.7%
Carolina Panthers 2,300 232 891.4%
Chicago Bears 2,850 263 983.7%
Cincinnati Bengals 1,800 229 686.0%
Cleveland Browns 1,950 266 633.1%
Dallas Cowboys 4,800 329 1,359.0%
Denver Broncos 2,600 208 1,150.0%
Detroit Lions 1,700 212 701.9%
Green Bay Packers 2,550 366 596.7%
Houston Texans 2,800 218 1,184.4%
Indianapolis Colts 2,375 212 1,020.3%
Jacksonville Jaguars 2,075 232 794.4%
Kansas City Chiefs 2,100 224 837.5%
Las Vegas/Oakland Raiders 2,380 359 563.0%
Los Angeles/San Diego Chargers 2,275 208 993.8%
Los Angeles/St. Louis Rams 3,000 491 511.0%
Miami Dolphins 2,575 375 586.7%
Minnesota Vikings 2,400 218 1,000.9%
New England Patriots 3,700 183 1,921.9%
New Orleans Saints 2,000 227 781.1%
New York Giants 3,300 275 1,100.0%
New York Jets 2,750 229 1,100.9%
Philadelphia Eagles 2,650 258 927.1%
Pittsburgh Steelers 2,450 205 1,095.1%
San Francisco 49ers 3,050 275 1,009.1%
Seattle Seahawks 2,425 237 923.2%
Tampa Bay Buccaneers 1,975 209 845.0%
Tennessee Titans 2,050 490 318.4%
Washington Redskins 3,100 229 1,253.7%
Source: Forbes.
owners of) their own networks (New York Yankees, New York Mets, and Boston Red Sox).