Vertical Integration in Sports
Total Page：16
File Type：pdf, Size：1020Kb
Vertical integration in sports Bachelor Thesis Organization & Strategy, 2010 Paul Tips S469657 Eric Dooms 7.914 words Table of Contents Chapter 1 Introdution ................................................................................................. 3 1.1 Introduction...................................................................................................... 3 1.2 Problem Indication ........................................................................................... 3 1.3 Problem statement .......................................................................................... 3 1.4 Research Questions ........................................................................................ 4 1.5 Research Design and Data Collection ............................................................. 5 1.6 Structure of the thesis ...................................................................................... 5 2. Competitive advantage through vertical integration ............................................... 6 2.1 Introduction...................................................................................................... 6 2.2 Reasons .......................................................................................................... 6 2.3 Transaction costs ............................................................................................ 6 2.4 Competitive advantage .................................................................................... 8 2.5 Conclusion....................................................................................................... 9 3. Vertical integration and competitive advantage in sports ..................................... 10 3.1 Introduction.................................................................................................... 10 3.2 The sport business ........................................................................................ 10 3.3 Owner behaviour ........................................................................................... 11 3.4 Winnig as competitive advantage .................................................................. 11 3.5 Business results as competitive advantage ................................................... 12 3.6 Conclusion..................................................................................................... 15 4. Consequences of vertical integration on the competitive balance of MLB ............ 16 4.1 Introduction.................................................................................................... 16 4.2 Winning percentages 2000 – 2009 ................................................................ 17 4.3 Postseason 2000 – 2009 ............................................................................... 18 4.4 Championships 2000 – 2009 ......................................................................... 19 4.5 Historic perspective ....................................................................................... 20 4.6 Financial performance ................................................................................... 22 4.7 Conclusions ................................................................................................... 23 Chapter 5 Conclusion, discussion and recommendations ....................................... 24 5.1 Introduction.................................................................................................... 24 5.2 Conclusion..................................................................................................... 24 5.3 Discussion ..................................................................................................... 24 5.4 Recommendations ......................................................................................... 25 References .............................................................................................................. 26 Appendix A Major League Baseball Division ........................................................... 30 Appendix B Wins / losses 2000 – 2009 ................................................................... 31 1 Appendix C SPSS Output........................................................................................ 32 Appendix D Major League Baseball playoff format .................................................. 33 Appendix E Postseason appearances ..................................................................... 34 Appendix F Historic overview .................................................................................. 35 Appendix G Franchise values .................................................................................. 36 Appendix H Profit / loss values ................................................................................ 37 2 Chapter 1 Introdution 1.1 Introduction In this first chapter the problem that this thesis is going to address is introduced and the questions this thesis will try to answer to come to a conclusion and suggestions about how the problem can be handled are clarified. 1.2 Problem Indication Apart from many publicly listed companies the trend of multiple business and multinational operations is also emerging in other kinds of organizations. While we have seen vertical integration in the industrial business world since the beginning of the twentieth century (Coase, 1937) this development took long to gain ground in the sports world. The first good example of this development are the 1980s the Major League Baseballs (MLB) Chicago Cubs which their owners the Tribune Corporation used to extend the national market for the Tribunes World's Greatest Network (WGN). The trend of vertical integration really took a flight in the mid-1990s though when News Corp. bought the Los Angeles Dodgers, Walt Disney purchased the Anaheim Angels and the Mighty Ducks of Anaheim, and Time Warner took over the Atlanta Braves, Hawks and Trashers (Bellamy & Walker, 2005). Then, starting in 2002 Yankees Global Enterprises LLC (YGE) started operating the Major League Baseball (MLB) team New York Yankees and its Minor League affiliates but also the broadcasts of the team‟s games through its Yes Network. Ever since these first starters this tradition has been followed by numerous organizations, both clubs and governing bodies, in both the United States and Europe (Hoehn & Lancefield, 2003). As shown this trend is only a very recent one, not more than 30 years old. It is strange that it took sports organizations so long to get involved in vertical integration, but more important to me is why they are doing it now. This thesis will try to find out whether or not vertical integration has lead to a competitive advantage for sport teams involved. 1.3 Problem statement Can sustainable competitive advantage be achieved through vertical integration in the sports industry? In the industrial world one of the reasons to get involved in vertical integration is to gain a sustainable competitive advantage over competitors. Extensive research has been done into this (Stucky& White, 1993). Not so much attention has been paid to 3 vertical integration in the sports world though. I will try to find out how a sustainable competitive advantage can be gained by sports organizations by vertically integrating. (A firm can be described as vertically integrated if it encompasses two single-output production processes in which either (1) the entire output of the "upstream" process is employed as part or all of the quantity of one intermediate input into the "downstream" process, or (2) the entire quantity of one intermediate input into the "downstream" process is obtained from part or all of the output of the "upstream" process (Perry, 1990).) 1.4 Research Questions How can sustainable competitive advantage be achieved through vertical integration? To research if competitive advantage can be achieved through vertical integration we first need to research how competitive advantage can be achieved using vertical integration. Because there is not a lot of scientific study on the way this is done in the sports world I will study the industrial business world, look at how it‟s done there and then try to link that to the world of sports. How can competitive advantage be measured in sports? After I have established that vertical integration can lead to a competitive advantage it is important to know how competitive advantage can be measured in sports. Apart from financial results there are of course also the results, winning or losing, on the playing field and probably these two results are related. How do stakeholders look at these advantages and which do they find most important. What are the consequences of vertical integration on the competitive balance in MLB? After we have established how competitive advantage can be measured in sports I will single out Major League Baseball and try to establish whether or not baseball organisations that have gotten vertically integrated have gained a competitive edge over their competitors that have not moved in that direction. 4 1.5 Research Design and Data Collection This research will be an exploratory research. The method that will be used is a literature review but financial data and results of sports organizations will also be reviewed. The focus will be on the Major League Baseball, with literature in the field of sport management, strategic management and organizational behaviour being studied. This study will primarily use secondary data sources. These secondary