Q&A: Andrew Zimbalist, Sports Economist

Posted Sunday, December 8, 2019 8:00 am

Professor Andrew Zimbalist is one of the country's leading experts in sports economics and the business of sports. As we approach the end of 2019, we reached out to Professor Zimbalist and asked him about some of the larger issues that made headlines this year in the world of sports. As always, we try to approach our subjects with an historical perspective.

Title IX was passed in 1972 and it gave women equal access to federally-funded college programs, especially sports. Today, the women's national soccer team outclasses the men's on the international stage by leaps and bounds, yet professionally there is a wide pay gap. Why is that? The gender pay gap begins with the large differential in prize money offered by FIFA, the world soccer organization. It is reinforced by US sporting culture which assumes that there is more fan interest in men’s than women’s sports. Cultural prejudices die hard, but the striking success of the women’s soccer team is making it difficult for this discrimination to persist.

College athletes in California and other states will now be eligible for third party sponsorships. How long has this battle been going on and why have universities resisted it? Actually, prior to 1964 the NCAA had no rules against college athletes receiving income from endorsements and appearances. The current battle goes back to the Jeremy Bloom case about ten years ago and continued with the Keller and O’Bannon litigations. The NCAA is concerned that if publicity rights income is allowed that it will create a surrogate market for high school athletes and begin to transform their amateur model.

Division I schools with successful sports teams benefit tremendously from media broadcasting revenues. How much of that money finds its way to the schools' academic areas? Virtually none of the media revenue from DI college sports finds its way into the educational budget. The median FBS school (the 130 most commercialized programs in DI) runs a deficit of $16.3 million in its athletic department. Those few schools which have a prospective surplus invariably find a new area within athletics (facilities, recruiting, coaches’ salaries, accommodations, etc.) to spend it. Athletic departments are not run for profit; they are run for victories.

Popular college sports like Lacrosse and Rugby never succeeded in going fully professional. What does it take to develop a new professional league today? It is not an easy road to start a new league and expect to be as successful as the big four. Even MLS has encountered terrific obstacles despite the massive popularity of soccer among the youth. A new league needs stadiums, media contracts, corporate sponsorship and, of course, fans. While it is easier these days to find a streaming outlet for video coverage of games, it is next to impossible in this hyper competitive and fragmented environment to generate the following and the revenues needed. Of course, esports seems to be the exception and its success is utterly baffling to me.

On that note, do MLB, NFL, NBA, and NHL have a monopoly on the sports market today? The big four leagues each has a monopoly in its sport, but not in the general sports market. Their monopoly power, along with the fact that they are closed leagues, unlike the promotion/relegation systems in European soccer, means that team owners have substantial bargaining in eliciting public funding for their stadiums and arenas.

There was a time when professional teams relied exclusively on stadium gate receipts to generate revenues. What portion of a team's business today comes just from selling tickets?Approximately 25 percent of revenue comes from ticket sales, though the share is higher in the NHL and MLS where media revenue is much lower and the share is lower in leagues, such as the NFL, NBA and MLB, where media revenue is higher.

Billions of dollars went into building new sports stadiums across the country in the past decade. Are these stadiums making their projections? If you mean making their projections for the teams in terms of revenue generation, the answer is almost always yes. There are a few poorly managed teams that do not take advantage of their new, expensive facilities. If you mean making their projections in terms of job and income generation for the inhabitants of the city, the answer is that most of the time the new facilities do not pay off as economic investments. The devil, however, is in the details.

A team like the New York Knicks hasn't won an NBA title since 1973 or a Conference title since 1999. Yet, the Knicks are the NBA's most valuable franchise. How do you explain that? The value of NBA franchises is determined by the market when a franchise sells. The value you cite is nothing more than an estimate by Forbes magazine. The reason the Knicks are as valuable as they are is because they are in New York City and, even though it is increasingly ancient, because of their history.

Sponsorship of athletes and teams has exploded over the years, outpacing inflation considerably. Are sponsors getting their money's worth? The best gauge for this is, once again, the market. Corporations keep coming back for more, suggesting that they are indeed getting their money’s worth. Like everything else in the marketplace, not all investments work out, but enough do to retain the companies’ interest.

The reserve clause in baseball which bound players to teams and kept their salaries low was put in place in 1879 and it wasn't lifted until 1977. Why did it take so long? Progressive institutional and social change generally requires well-organized protest. Players in the major sports were not well-organized until the 1970s. It took a special combination of Curt Flood, Marvin Miller, Andy Messersmith, Dave McNally and Catfish Hunter, among others, to open up the labor markets in professional sports. After baseball players blazed the trail, the players in the other leagues followed suit.

Star athletes today are actually global brands with enormous marketing power. Tiger Woods, Roger Federer and Lionel Messi are all household names around the world. What impact have they had on the business of sports? Star power drives fan interest. I think that one of the enduring attachments that fans have to sports is the ability of great athletes in their performances to test the boundaries of human mortality.

What can we expect from the legalization of sports betting? Who are the winners and the losers? The sports world faces transformation on a variety of fronts, chief among them are (1) OTT and fragmentation of media markets and (2) the deep assimilation of gambling platforms into our sports facilities and sport culture. The teams hope to gain a more rabid fandom and higher ratings, but also revenue from integrity fees and data access. Sports betting is legalized in Europe. Remember that we have gambling on sporting contests, whether or not it is legal. If it is well-monitored and regulated, however noxious some of its effects, legalized gambling can be tolerated. The one exception to this is college sports, especially if it retains the amateur model. Unpaid athletes will be vulnerable to the appeals of gambling mafias. We need national, not state by state, gambling legislation and it must proscribe betting on college sports.

Andrew Zimbalist is the Robert A. Woods Professor of Economics at Smith College. He has authored 28 books and written dozens of articles for major and scholarly publications. Sought out for his deep and extensive knowledge of sports economics, he has consulted to professional leagues, teams, college associations, municipalities, agencies, and many more. His biographical information can be found at Andrew Zimbalist and some of his books are available for sale on our website.