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Podcast: The Future of Pro Sports Business

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The professional sports market in the U.S. was worth about $60 billion in 2014, and according to Forbes, it’s expected to reach $73 billion by 2019. We sat down with Mark Conrad, Ph.D., associate professor of business and director of the Sports Business Concentration at the Gabelli School of Business, to get a sense of where leagues such as the NFL, Major League Baseball, and the NCAA are headed.

Listen here:

And in this bonus track, we ask Conrad: Which is the best sports league, and which is the worst?

Full transcript below

Mark Conrad: Sports is an entertainment business. An entertainment business is a talent-driven business. Ask just about any sports executive to sum up the sports business, and they say that.

Patrick Verel: The professional sports market in the United States was worth about $60 billion in 2014. And according to Forbes, it’s expected to reach $73 billion by 2019. Chump change it most certainly is not. I’m Patrick Verel. And today, my guest is Mark Conrad, Director of the Sports Business Concentration at Fordham’s Gabelli School of Business.

This is the first year that Chief Wahoo was absent from the Cleveland Indians uniform. But fans will still be able to buy merchandise with his image at the team’s gift shop. What do you think? Smart move or just delaying the inevitable?

Mark Conrad: Well, it is delaying the inevitable in a certain sense because you’ve seen a gradual transition away from that symbol that was seen on the uniforms in other kinds of stadium type functions. And certainly in the media, you’ve not seen it as you used to see it either, which is a fortunate thing because Native American groups have demonstrated for years against that symbol and the depiction that the symbol seems to infer about Native Americans. And according to them, it was quite offensive. So I think this was a nice or a diplomatic way to segue away from the use of that particular logo. And I suspect in the next few years, it’ll be eliminated entirely. So right now, it can only be sold and bought in merchandise in the Cleveland area. Major League Baseball is not going to handle any merchandise nationwide with that particular symbol.

Patrick Verel: As of this recording, the NCAA’s March Madness is in full swing. And every year, there’s this talk about how athletes are being taken advantage of because they’re technically amateurs. Do you see any movement on this issue?

Mark Conrad: I think there is significant movement on this issue. And I think in the next two to three years, there’ll be more movement on this issue. This is the beginning of a revolution because we’re finally realizing that with all the revenues that the NCAA makes in its men’s basketball tournament, it is really ludicrous to consider these players, who are the labor force for this tournament, the labor force that doesn’t get compensated when the coaches do, the media people do. The television networks pay the NCAA huge rights fees to see that. Advertisers advertise on this, for this particular broadcast and series of broadcasts. So this is really something that is getting to be manifestly unfair because a labor force is paid basically nothing when you’re dealing with elite men’s college basketball.

There have been a number of cases in the courts that have challenged this arrangement on anti-trust grounds. And there’s been some liberalization regarding some of the student compensational ready. And also in the football area, the conferences seem to be taking over control over big time college football. And the NCAA has sort of surrendered that. And it’s surrendered that for many years. Just as an example of how ludicrous this can be is that the University of Central Florida denied eligibility to a student who had a YouTube page and he did various creative projects on YouTube and did get some advertising revenue, which had nothing to do with basketball. And he launched a First Amendment lawsuit against the University of Central Florida, which is a public institution, saying that it violates his free speech rights.

What I think would be the easiest thing to do is allow students to make endorsement deals, allow students to engage in outside activities that could be somewhat sports related. And if the University’s wish were to try to control the money, they could put it in a trust fund. So if the student spends X period of time or even not, X years later it would be available to the student. So let’s say the student really can get an endorsement deal, or the student wants to teach basketball to someone like me, and get paid for it, why shouldn’t the student do that?

A music student has every right to do gigs on the side while that person is a music student in a school. And I know many music students who’ve done that. So why can’t a student athlete do the same thing if indeed there is a market for that? On the other hand, I don’t think paying players outright as employees would be the way to go, simply because it could be very costly and university budgets, athletic budgets often lose money, and you have many other sports that don’t raise those revenues. And second, to treat someone like an employee is very different than treating them like a student athlete or a student. It would pose other kinds of legal issues.

Patrick Verel: Let’s talk a little bit about the NFL. There’s been a real increased awareness of concussion-related injuries. And that’s been leading to a decrease in boys playing tackle football in many parts of the country. Do you think the league’s viability could be affected by a shrinking pool of potential players in the future?

Mark Conrad: Well, the quality of play could and the nature of who the NFL teams could pick could be affected. I don’t foresee the NFL shutting down because the NFL could certainly get enough of a talent pool. Because ultimately, those players could be deemed as high risk, high reward. They are being compensated. In many cases, compensated quite well for what they do, albeit in a very, very short time because the average NFL player only plays about three seasons. And of course, we do know about the serious physical risks that NFL players endure by playing that sport. But I do think that the era of open doors for the NFL to millions of potential kids out there who play in the junior high school or high school level may be receding a little bit. The concussion issue has been a serious issue. Many families are worried about it. And seeing the media reports of these veteran players that many of us know and watched suffering greatly does have a very powerful effect.

Patrick Verel: The NFL has got other challenges to face to. Can you talk a little bit about that?

Mark Conrad: Well, where do we start? The NFL has a problem with its players and its players union. And I suspect there’s a good chance there will be some kind of concerted action after the end of the present collective bargaining agreement, which is a fancy term for either a strike or a lockout. I think that the players want to change the arbitration system that existed, that one could argue burned Tom Brady and others because it is very unusual that the Commissioner can be the arbitrator or the Commissioner can appoint somebody to be the arbitrator when many of us learn that arbitrators should be independent and have no conflict of interest. It’s a very, very bizarre system that came about. I think that the players are really going to want to change that. That’s one thing.

The second of course are the concussion protocols, which are really more for the veteran players. And the NFL settled a lawsuit by thousands of former players regarding medical care for their injuries that arguably resulted from concussions. And that’s been slow to get off the ground. There is a $1 billion fund over many, many years, but apparently it’s been a slow process, and we have to see how indeed that plays out.

Indeed, I think the issue of television rights will be something to watch because the NFL’s main TV deals are expiring in a few years. Although, the recent deal with Fox for Thursday night broadcast of $1 billion over five years is a pretty astounding deal, much higher than the prior deals. So certainly, there’s still broadcasters out there that are willing to pay big bucks for the NFL.

And finally, of course the political issues, the whole “Colin Kaepernick effect” has been controversial and some say has hurt ratings in the NFL, while other say that quality of play this season has hurt ratings in the NFL. I’m not here to judge one way or the other. But I think it cannot be good that a lot of people felt that the game got politicized. On the other hand, I would say that the President exacerbated the situation by bringing up the issue a number of times when indeed it seemed to fading. And I think it’s almost a normal human reaction to say, “Well, you attack us by saying that. Well, we may just continue doing this sort of thing.” But in the long run, it may not be good for anyone because I suspect that the goal that the kneeling issue has sought has already been passed. At this point, we understand the issues. And do you keep doing this or not? And I think that’s something that we’ll have to see what happens the next season.

Patrick Verel: Before we started recording this, we were talking a little bit about the NFL and how about five, six years ago, it seemed like the League was invincible. And you had said that when you teach the class on the subject that your syllabus is often out of date by the end of the semester. Is there something inherent about his business that’s so chaotic?

Mark Conrad: Sports is an entertainment business. An entertainment business is a talent-driven business. Ask just about any sports executive to sum up the sports business, and they’ll say that. It’s a talent-type business that has a lot of similarities to entertainment because you’re dealing with personal services. People are paying money to watch individuals perform. They’re not paying money to buy a chair. It’s a very different kind of arrangement. So in a sense, it’s very fluid because you’re dealing with human beings performing.

Second, it is very technologically-driven and changes in technology, as it is with entertainment, also involve sports. The delivery systems, content providers, dissemination of various kinds of benefits, technologies, become very, very important in sports because there’s a lot of money involved in that. So I suspect that’s also a reason why it’s so dynamic.

And three, there’s often a lot of law that goes into sports because the courts are very, very busy. This is an endeavor that’s followed by tens of millions of people. There’s great interest. And even something like the Supreme Court ruling that in effect sports gambling can be legalized in much of the country, which is possible, can have a big effect starting almost immediately as a number of states may pass laws that will allow sports gambling. At this point, only Nevada has open sports books. That is likely or may very well likely change.

And then you create a very new business. What about gambling at the arenas? How much money do the states take? How much money do the leagues take? Jobs for analytic specialists because gambling is based on analytics and probabilities. So you create a new industry overnight. Another major issue of course are drugs, PEDs, and all the international attention that’s occurred there, and the controversies going on as well as the trials involving FIFA executives or former FIFA executives, which may not end because there are a number of investigations going on regarding the governance of international sports federations. This is an area that is not going to get stale.

Bonus Track

Patrick Verel: From a business perspective, what’s the best run sports organization and what’s the worst run sports organization, in your opinion?

Mark Conrad: In terms of sports leagues, the best run league is the NBA. Under Commissioner Adam Silver, who’s done an amazing job making the owners happy, making the players happy. He handled the Donald Sterling situation, a few years back, brilliantly. And the NBA has a new television contract that’s something like two and a half times the old one. So, things are going really, really well for the NBA. I would say they are the best.

In terms of the worst, I think you have to look internationally. There’s so many bad ones, so many federations are a problematic, but I would simply say at this point, USA Gymnastics probably has the award at this point for what had happened, which is absolutely outrageous. The U.S. Olympic Committee is not on that category because they’ve done some good things, but certainly the lack of aggressive investigation and involvement in this sexual abuse matter is a cause of great concern.

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