Professional Sports Leagues Around the World and Sports Became a Business with Owners of Sports Teams on Lines Similar to Owners of Companies
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EAMSA 2015 Competitive Paper 1. Introduction: Elite sports, the way we know it, have had a large fan following for more than a 100 years. The modern Olympics starting in 1896 was a turning point in organized elite sports across different types of sporting events. As the Olympics have evolved they have taken in more sports under its umbrella. Individual sports have had their own specialized events at regular intervals. These include the annual Wimbledon tennis tournament that started in 1877 and the Football World Cup held every four years that had its first edition in 1930. Initially elite sports people were amateurs for whom sports was a past time and not a profession. Over the years professionalization of sports took place as sports people converted what used to be a past time into a full-fledged profession. This led to the formation of a large number of professional sports leagues around the world and sports became a business with owners of sports teams on lines similar to owners of companies. Sports as a business opened up different ways to monetize the purchasing power of sports fans and led to the creation of a variety of different revenue models. The advent of professional sports leagues happened in Europe and North America. Europe developed professional sports leagues in football that included the English Premier League (EPL), La Liga in Spain, Bundesliga in Germany and Serie A in Italy. In North America the professional sports leagues revolved around the sports popular in that part of the world. These included Major League Baseball (MLB), National Basketball Association (NBA), National Football League (NFL), and National Hockey League (NHL). Professional sports leagues in Asia are a much more recent phenomenon. One of the first successful and popular professional sports leagues in Asia was the J. League for football that started in Japan in 1993. India, which has a huge elite sports following was a very late adopter of professional sports leagues. The first league to be successful in India was the Indian Premier League (IPL) for cricket that was started in 2008. This has been followed by other successful professional sports leagues that include the Hockey India League (HIL) for hockey started in 2013, the Indian Super League (ISL) for football started in 2014, and the Pro Kabaddi League (PKL) for Kabaddi started in 2014. All of these subsequent sports leagues have been inspired by the success of IPL and their business models are very similar to that of the IPL. This paper will analyze in detail the business model of IPL, by far the largest and most popular professional sports league in India. The business model will be analyzed in terms of the different revenue streams that capture directly or indirectly buying capacity of the fans. The business model of IPL will be compared with that of EPL, a large open league from Europe, and NBA, a large closed league from North America. This comparison will provide insights about the areas where the IPL can develop to increase revenues and fuel growth of the league. 2. Background The term league has many different meanings in different areas around the world (https://en.wikipedia.org/wiki/Professional_sports_league_organization). Usually a league is a group of sports teams that play each other during the season. It is also often used for the name of the governing body that oversees the league, as in England's English Premier League or America's National Basketball Association. Since most European football clubs participate in different competitions during a season, regular-season home-and-away games are often referred to as league games and the others as non-league games, even though the separate competitions may be organized by the same governing body. Sports leagues are a very strong and popular business model in Europe and North America but now it is also gaining in popularity in the emerging economies. Professional sports leagues are organized in two broad categories. One category originated in Europe and refers to open leagues characterized by a tiered structure using promotion and relegation to determine participation in a hierarchy of leagues or divisions. The other category originated in North America and refers to closed leagues characterized by its use of franchises and closed membership. Both of these systems remain most common in their areas of origin, although both systems have now propagated worldwide. Figure 1 shows the professional sports leagues basic ecosystem, common to both open and closed leagues. 1 Clubs/ Franchise Advertiser Players Leagues Broadcaster Fans Sponsors Figure 1: Professional sports leagues ecosystem 2.1 Open leagues: The league structure for football in England has been adopted for football in most other countries, as well as for many other sports in Europe and across the world. A league has a number of clubs, where a club fields a team. The features of the system are: The existence of an elected governing body to which clubs at all levels of the sport belong The promotion of well-performing teams to higher-level leagues or divisions and the relegation of poorly performing teams to lower-level leagues or divisions Matches played both inside and outside of leagues European football clubs are members both of a league and of a governing body. In the case of England, all competitive football clubs are members of The Football Association, while the top 20 teams also are members of the English Premier League, a separate organization. The 72 teams in the three levels below the English Premier League are members of still another body, The Football League. In conjunction with other countries' governing bodies, it also sets the playing rules and the rules under which teams can sell players' contracts to other clubs. The rules or Laws of the Game are determined by the International Football Association Board. The English Premier League negotiates television contracts for its games. However, although the national league would be the dominating competition in which a club might participate, there are many non-league fixtures a club might play in a given year. In European football there are national cup competitions, which are single elimination knock-out tournaments, are played every year and all the clubs in the league participate. In addition, 2 the best performing clubs from the previous year may participate in pan-European tournaments such as the UEFA Champions League, operated by the Union of European Football Associations. An English Premier League team might play a league game one week, and an FA Cup game against a team from a lower-level league the next, followed by a League Cup game against a Football League team, and then a fourth game might be against a team from across Europe in the Champions League. The promotion and relegation system is generally used to determine membership of leagues. The league does not choose which cities are to have teams in the top division. Most commonly, a pre- determined number of teams that finish the bottom of a league or division are automatically dropped down, or relegated, to a lower level for the next season. They are replaced by teams who are promoted from that lower tier either by finishing with the best records or by winning a playoff. 2.2 Closed Leagues: Professional sports leagues in North America comprise a stipulated number of teams, known as franchises, which field one team each. The franchises have territorial rights, usually exclusive territories large enough to cover major metropolitan areas, so that they usually have no local rivals. New teams may enter the competition only by a vote of current members, where typically a new place is put up for bid by would-be owners. This system is often called a "franchise system." It was introduced in baseball with the formation of the National League in 1876, now called Major League Baseball (MLB), and later adopted by the other North American leagues such as National Basketball Association (NBA), National Football League (NFL), National Hockey League (NHL), and more recently Major League Soccer (MLS). Although member teams are corporate entities separate from their leagues, they operate only under league auspices. As a result of these restrictions, teams from North American closed leagues almost never play competitive games against outside opponents. National Hockey League (NHL) and National Basketball Association (NBA) teams have played against European hockey and basketball teams in pre-season exhibitions. The North American leagues, rather than any sport governing body, determines the playing rules and scoring rules of its game, and the rules under which players join and change teams. The teams are organized with a view to each major city having a team to support. Only the largest cities such as New York, Chicago or Los Angeles have more than one team. These teams are referred to as franchises. Even though they are not technically franchises in a business sense, the league is 3 organized in a way that assures teams continued existence in the league from year to year, which fosters an ongoing connection with the team's supporters. On occasion a league may decide to grow the sport by admitting a new expansion team into the league. Most of the teams in the four major North American pro sports leagues were created as part of a planned league expansion or through the merger of a rival league. Only a handful of teams in the National Hockey League, for example, existed before becoming part of the NHL. The rest of the teams were created as expansion teams or as charter members of the World Hockey Association, which merged with the NHL in 1979. The best teams in a given season reach a playoff tournament, and the winner of the playoffs is crowned champion of the league, and, in some cases as world champions.