OXFORD REVIEW OF ECONOMIC POLICY, VOL. 19, NO.

SPORT AS BUSINESS

ANDREW ZIMBALIST
Smith College1

There is both a popular and academic literature suggesting that owners of sports teams do not profit maximize. The
alternative formulation entails either win or utility maximization, usually subject to a break-even constraint.
Another line of economic analysis holds that team owners do fundamentally profit maximize or that profit
maximization provides a useful benchmark against which to assess actual performance. There has been some
empirical work attempting to decipher the true objective function of team owners. These results are inconclusive.
Objective functions, however, remain important because they affect both owner behaviour and league performance.
In practice, owners’ objectives vary by team, league, and country and are strongly affected by how the team relates
to an owner’s other assets. The next task for modelling the behaviour and performance of sports leagues is to take
fuller account of the diversity of ownership objectives within a given league.

I. INTRODUCTION extensively in the local print, audio, and video media,

and discussed widely and passionately by millions of
Unlike businesses in other industries, professional fans.
sports teams in a given league both compete against
and cooperate with each other. The success of a Do these unique features of sporting leagues lead
league is, to some extent, affected by the degree of team owners to behave differently from owners of
uncertainty of outcome of its contests and its sea- other businesses? Pre-eminent sportswriter Leonard
sonal competitions, or, stated differently, by the Koppett (1973, p. 11), writing in the New York
degree of balance among its teams. Times Magazine 30 years ago, suggested that they
do:
Professional sports leagues also differ from other Club owners are not ordinary businessmen. To begin
industries in the degree of public exposure they with, profit in itself is not the owner’s primary motive. Any
garner. The daily game results are reported upon man with the resources to acquire a major league team can
1
The author would like to thank Stefan Szymanski, Stefan Kesenne, Peter Sloane, Dan Rascher, and Roger Noll for comments
on an earlier version of this paper.

© 2003 OXFORD UNIVERSITY PRESS AND THE OXFORD REVIEW OF ECONOMIC POLICY LIMITED 503
OXFORD REVIEW OF ECONOMIC POLICY, VOL. 19, NO. 4

find ways to make better dollar-for-dollar investments. of others, including Neale (1964), Davenport (1969),
His payoff is in terms of social prestige. . . . A man who runs Dabscheck (1975a,b), Brower (1977), Markham
a $100m-a-year business is usually anonymous to the and Teplitz (1981), Daly and Moore (1981), and
general public; a man who owns even a piece of a ball club Cairns et al. (1986).
that grosses $5m a year is a celebrity. His picture and
comments are repeatedly published in newspapers known
in every corner of his community. . . . This does not mean,
Of course, the presumption that club owners do not
of course, that ball clubs don’t seek profits . . . but the profit maximize is also found in the literature on US
driving force is to be identified with a popular and suc- sporting leagues. For their book on the baseball
cessful team . . . and that motivation leads to important business, Jesse Markham and Paul Teplitz (1981, p.
variations from ‘normal’ business behavior. 26) interviewed ten owners as well as various other
club executives and concluded that owners ‘were
To be sure, many economists agree with this per- motivated to enter the baseball industry more out of
spective. Peter Sloane, in his well-known piece on reason of personal gratification, love of the game,
English football (soccer), writes: devotion to professional sports generally, or out of
civic pride than by the prospects of profits’. Markham
It is quite apparent that directors and shareholders invest and Teplitz claim that owners ‘satisfice’, that is, they
money in football clubs not because of expectations of
seek ‘good enough’ performance—analogous to
pecuniary income but for psychological reasons as the
urge for power, the desire for prestige, the propensity to
utility maximization subject to a minimum profit
group identification and the related feeling of group constraint or, as the English football report put it,
loyalty. (Sloane, 1971, p. 134) ‘playing success whilst remaining solvent’.3

He then goes on to quote a 1966 report on the There is no dearth of newspaper articles or televi-
English Football Association (FA) that found the sion shows where one can find pious ownership
objective of a club owner was ‘to provide entertain- claims about their motives. Joe Maloof, owner of the
ment in the form of a football match. The objective National Basketball Association (NBA)’s Sacra-
is not to maximize profits, but to achieve playing mento Kings, for instance, on 13 May 2003, ap-
success whilst remaining solvent.’ Sloane suggests peared on Jim Rome’s ESPN show and stated: ‘We
an owner-objective function with playing success, have one goal in mind and that’s to win a title. We’re
average attendance, health of the league, and mini- not going to rest until we have that for the city of
mum profits as its arguments. Sacramento and for our franchise. We’ve never
had a title and that’s what we need to get.’4
At the time Sloane was writing, a large share of FA
clubs carried payrolls that were above 80 per cent Another line of economic analysis of sports leagues
of team revenues and FA rules stipulated maximum holds either that team owners fundamentally maxi-
dividend pay-outs to shareholders for the minority of mize profit or that analysing leagues under the
teams that were publicly held.2 Indeed, it became profit-maximization assumption provides a useful
commonplace among economists to associate FA efficiency standard against which to assess actual
club ownership with utility—rather than profit— performance. The literature here is also extensive,
maximization. In a 1999 article, for instance, Stefan including Rottenberg (1956), Jones (1969), El Hodiri
Kesenne and Claude Jeanrenaud state matter-of- and Quirk (1971), Scully (1974, 1989), Schofield
factly: ‘The most important difference between the (1982), Ferguson et al. (1991), Fort and Quirk
USA and Europe is that American clubs are busi- (1995), Vrooman (1995), and Fort (2002).
ness-type companies seeking to make profits,
whereas the only aim of most European clubs so far In his new book on Major League Baseball (MLB),
is to be successful on the field.’ Kesenne and Michael Lewis (2003, pp. 57–8) tells the tale of two
Jeanrenaud are joined in this view by a sizeable list different ownership approaches in Oakland, California.
2
In their excellent overview of English soccer, Stefan Szymanski and Tim Kuypers (1999, p. 16) write that the FA first imposed
dividend limitations in 1896. The first limit was 5 per cent of paid-in capital. It was raised to 7.5 per cent in 1920 and to 15 per
cent in 1983, but most teams had ceased to pay dividends in the 1950s.
3
The most common formalization of this approach is to assume win maximization subject to a break-even constraint.
4
Quoted in the Sports Business Daily, 14 May 2003, p. 20.

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 A. Zimbalist

Since the late 1970s the A’s had been owned by Walter find that the actual level of attained dominance is
A. Haas, Jr, who was, by instinct, more of a philanthropist consistent with profit maximization but below the
than a businessman. Haas viewed professional baseball level that would yield revenue maximization.
ownership as a kind of public trust and spent money on
it accordingly. Haas was willing to lose millions to field a
Scully’s findings (1974, 1989) that baseball teams
competitive team that would do Oakland proud. . . .
Deferring to success became an untenable strategy in
pay players below their marginal revenue products
1995 when Walter Haas died. His estate sold the team to are consistent with profit-maximizing behaviour, as
a pair of Bay Area real estate developers. Steve Schott and is Zimbalist’s (1992a) estimate—using a modified
Ken Hofmann, who were, by instinct, more businessmen Scully methodology—that on balance players are
than philanthropists. Schott and Hofmann wanted [Sandy] roughly paid their marginal revenue products.
Alderson to continue running the team but on a much
tighter budget.5 Szymanski and Hall (2003) analyse the perform-
ance of 16 FA clubs that went public since 1995 to
Most economists do not accept at face value asser- see if their behaviour changed along with owner-
tions from ownership to the effect that they are ship. The hypothesis is that if clubs were utility
motivated strictly or mostly by civic pride or elee- maximizers when privately held, then when they
mosynary goals. Interviews and survey data that went public there would be increased pressure for
produce self-proclaimed, non-selfish motives can them to perform on the bottom line. They, however,
be found among executives in many industries. found no significant evidence of modified perform-
ance. This finding is consistent either with the
Because of this distrust of the survey/interview argument that FA clubs are still utility maximizers
methodology, some economists have attempted to after going public or the argument that clubs were
seek empirical confirmation of ownership motiva- always profit maximizers.8
tion. Noll (1974) finds that ticket prices are set
where the price elasticity of demand is sufficiently While some of the empirical results in the literature
close to unity, so that the hypothesis of profit have been consistent with the hypothesis of profit
maximization cannot be rejected. Demmert (1973), maximization, the results have not been conclusive.
Scully (1989, p. 113), and Ferguson et al. (1991) Indeed, Fort and Quirk (2002) find that without
reach a similar conclusion.6 Of course, it is possible holding revenue and labour demand functions con-
that teams follow profit-maximizing behaviour with stant, it is not possible to find a definitive test to
regard to ticket pricing, and utility-maximizing be- discern whether owners in a league are profit or win
haviour with regard to player salaries (by offering maximizing. Still another hypothesis was suggested
above competitive salaries). Furthermore, as by author James Michener in his book Sports in
Kesenne and Pauwels (2002) point out, profit and America (1976, p. 441):
win maximizers are likely to follow identical pricing
In the early years of every professional sport, the owners
rules.7
were men of great dedication and expertise. . . . Their type
was soon superseded, however, by the business tycoon
Hunt and Lewis (1976) study the level of individual who made his fortune in trade, then dabbled in sports
team dominance in MLB with respect to what level ownership both as a means of advertising his product and
of dominance produces profit maximization and finding community approval. The beer barons—Jacob
what level produces revenue maximization. They Ruppert with his New York Yankees and Augie Busch

5
While Walter Haas was more willing to spend money on player salaries than his successors, it would be premature to characterize
his behaviour as win maximizing.
6
A difficulty with each of these studies is that they use average ticket prices. Another problem is that a profit-maximizing team
owner, assuming a zero marginal cost, would set ticket prices not to maximize ticket revenue, but to maximize ticket plus net
concessions/memorabilia/parking/signage/sponsorship revenue. This will lead to lower ticket prices than simply trying to maximize
ticket revenue. Zimbalist (1992b, pp. 54, 237–8) attempts to adjust for these factors and also concludes that the evidence does
not allow the rejection of the profit-maximization hypothesis. Kesenne and Pauwels (2002) develop this point.
7
This result may be altered if home-field advantage is partially based on attendance.
8
Szymanski and Kuypers (1999, p. 19) point out that when Manchester United went public in 1991, it organized a holding
company that received most of the team’s revenue. Among other things, the holding company was a way to avoid FA regulations
over the appointment of directors and limitations on dividend pay-outs.

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OXFORD REVIEW OF ECONOMIC POLICY, VOL. 19, NO. 4

with his St Louis Cardinals—were prototypes; they be- Rottenberg (1956) argued that a league with profit-
came famous across America and the sales of their beer maximizing owners will be more mindful of the need
did not suffer in the process. It is interesting that when to maintain a certain level of balance and, hence, will
William Wrigley, the Chicago tycoon, wanted to buy into be more restrained in labour-market spending.11 In
the National League, he was strongly opposed by Colo-
contrast, a league of individual utility maximizers will
nel Ruppert, who feared such ownership might be used
to commercialize chewing gum.
prioritize winning over league success and spend
more aggressively on the players’ market, even if it
Then came a third echelon of ownership, the corporate renders certain teams perennially dominant.
manager who bought a club not only to publicize his
business enterprises but also to take advantage of a
curious development in federal tax laws.
While this logic suggests that profit-maximizing
behaviour will lead to greater competitive balance,
One could easily quibble with aspects of Michener’s El Hodiri and Quirk (1971) show that this generally
taxonomy. What are particularly interesting for our will not be the case as long as market size and
purposes, however, are the notions that: (a) owner- revenue potential remain disparate across the teams.
ship motives might change over time, particularly as Underscoring this point, a recent article by Burger
franchise values skyrocket—it being one thing to and Walters (2003), using data from MLB during
treat a sports club as a plaything when it is pur- 1995–9 and respecifying the traditional revenue
chased for $1m, yet quite another when it is pur- equation, find that profit-maximizing teams in the
chased for $800m, and (b) within a given league, largest markets will value a player six times more
ownership motives may vary. than teams in the smallest markets, and that, within
a given market, when a team is in contention, it can
raise a player’s value sixfold.
II. WHY DO OWNER OBJECTIVES
MATTER? In theory, whether owners in a league are profit or
utility maximizers may also affect the success of
The behaviour of clubs and the performance of policies to promote competitive balance. If we
sporting leagues may be affected by objectives of assume that owners maximize winning and, there-
owners. If club owners are profit maximizers, then fore, they spend any available revenue on improving
they would invest in team success up to the point their team, then the collective selling of television or
where the expected marginal revenue from an Internet rights or other revenue-sharing schemes
additional win is equal to the marginal cost. In will improve league balance (Cairns et al., 1986;
contrast, if owners are utility or win maximizers, Kesenne, 1996).12 This is so because collective
then they may invest beyond this point.9 Thus, if selling will result in less money for rich teams and
some clubs in a league are utility maximizers and more money for poor teams, and, by assumption, this
others are profit maximizers, it may provide an will yield greater equality in payroll spending across
additional source of competitive imbalance.10 Of teams. Conversely, if we assume that owners maxi-
course, if it is the owners of small market teams that mize profits and that fan attendance depends only on
utility maximize (while the owners of large market the relative quality of the home team, proportional
teams profit maximize), then playing balance may revenue sharing will not alter the relative marginal
be enhanced. revenues from winning and, thus, will not alter the

9
This point is nicely exposited by Szymanski and Hall (2003). Depending on one’s assumptions, if clubs are constrained win
maximizers, they may evince the same labour-market behaviour as profit maximizers. If owners were unconstrained win maximizers,
they presumably would invest in increments to player talent until the last player had zero productivity.
10
Fort and Quirk (2002), however, point out that, assuming concavity in teams’ revenue functions, the level of competitive
imbalance in a profit-maximizing or constrained win-maximizing league is indeterminate.
11
Rottenberg (1956) also argued that diminishing returns to additional star players would support the appropriate level of
competitive balance.
12
Kesenne (1996) finds this to hold if the owner maximizes wins subject to a break-even financial constraint. Kesenne (2000)
finds it to hold even without a break-even constraint. Still another possibility not considered in the literature is that owners will
spend revenues from sources other than their sports franchises to improve team quality.

506
 A. Zimbalist

relative payrolls or talent distribution (although over- owner of the expansion NBA in Charlotte: ‘I’m first
all salaries would be reduced under most revenue- and foremost a business guy and I don’t see a
sharing schemes) (Fort and Quirk, 1995; Vrooman, distinction between a winning team and profitable
1995; Marburger, 1997).13 team.’ Or to Mark Cuban, owner of the NBA’s
Dallas Mavericks, expressing a somewhat more
There is one potentially significant caveat to the last enlightened view:
assertion. When teams sign a free agent, they do not
There’s a misconception that people look at sports and
know how the player will perform and what impact say the real people who focus on the business side are just
his performance will have on revenues. They can the ones that reduce costs, that the only way to really
only estimate a player’s marginal revenue product. reflect running it as a business is to keep your player costs
Hiring players, then, comes along with risk. Teams low, when the reality is if I increase my sales enough it
with higher revenues may be less risk averse and doesn’t matter what my costs are.16
more willing to be aggressive in the free-agent
market. Revenue sharing, although it may not alter The likelihood is that owner-objective functions are
the expected relative marginal revenue product of a both more nuanced and more varied than is allowed
player, may change owner behaviour by providing in the literature attempting to model sports leagues.
poorer teams with a larger financial cushion and In the next section, I suggest a more complex view
making them less risk averse. It may also increase of what today’s club owners seek to maximize.
the risk aversion among owners of high-revenue
teams. Insofar as revenue sharing promotes either of
these results, it may promote competitive balance.14 III. WHAT DO OWNERS REALLY
SEEK?
Although owners’ objectives will affect behaviour
and league success, existing literature does little Owners, in fact, take their returns on sports fran-
more than suggest possible tendencies. Most observ- chises in a number of ways. As indicated above, one
ed behaviour is consistent with a variety of objective obvious aspect of their return is the fun, perquisites,
functions. In his 1971 piece on English football, power, and ego gratification they receive. Owner-
Sloane observes that an owner’s objective could be ship, in part, is a consumption good. Thus, it would
‘rationalised so that it is consistent with almost any make sense to think of owners as maximizing their
type of behaviour and therefore tends to lack opera- total (consumption and investment) return, not just
tional significance’. And Cairns et al. (1986, p. 10) their financial profit.
conclude that ‘there are great difficulties involved in
distinguishing between the competing hypotheses’.15 A significant part of the investment return is indi-
rect. For instance, team ownership provides oppor-
To be sure, owners themselves seem to have diffi- tunities to develop new business relationships and to
culty distinguishing between different objectives. leverage political influence—potentially benefiting
Listen, for instance, to Robert Kraft, owner of the the owner’s other investments as well as the sports
National Football League (NFL)’s New England team. Still another return in the United States is the
Patriots: ‘And if you’re passionate about winning significant tax advantage derived from the non-
and you help put an organization in place that can sensical ability to attribute roughly 50 per cent of
win, the business part will follow.’ And listen to franchise value to player contracts and then amor-
Robert Johnson, founder of the BET network and tize this sum over 5 years.17
13
In contrast, if we assume profit maximization and that attendance is a function of the quality of both the home and visiting
teams, then increased revenue sharing will equalize the distribution of talent (Marburger, 1997). Rascher (1997) posits an objective
function with both profits and wins as arguments and shows that if clubs assign different weights to winning, revenue sharing will
promote league balance.
14
To the extent that risk aversion differs between profit- and utility-maximizing owners, the relationship between payroll size
and ownership objectives becomes still more complicated.
15
This conclusion is also reached by Fort and Quirk (2002) and by Kesenne and Pauwels (2002).
16
Quoted in the Sports Business Daily, 16 May 2003.
17
Apparently there is a move afoot within the Bush Administration’s Internal Revenue Service to raise the presumptive share
of franchise value attributable to player contracts from 50 to 60 per cent.

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OXFORD REVIEW OF ECONOMIC POLICY, VOL. 19, NO. 4

With few exceptions, franchise ownership also transfer pricing, can reduce reported franchise rev-
produces substantial capital gains. According to enues substantially. Consider the example of MLB’s
Fort’s estimates (2002, p. 389), during the 1990s the Chicago Cubs.
average annual rates of franchise appreciation were
11.3 per cent in MLB, 17.7 per cent in the NBA, According to 2001 figures that MLB Commissioner
10.7 per cent in the National Hockey League (NHL), Bud Selig delivered to the US Congress, the Chicago
and 12.7 per cent in the NFL. Moag (2002, p. 2), White Sox’s income from local TV, radio, and cable
using a different methodology and, updating through was $30.1m, and that of the Chicago Cubs was
mid-2002, estimated the annual rate of return to $23.6m. Yet, everyone knows that the Cubs are by
owning a baseball franchise to be 12.44 per cent far the more popular team in the Windy City, and TV
from 1960 to 2002, which would put it well above the ratings bear this out: in 2001 the Cubs’ average
return to common stock ownership for the same ratings were 6.8 on over-the-air broadcasting and 3.8
period (6.91 per cent for the S&P 500 through 30 on cable; the White Sox’s were 3.6 and 1.9, respec-
June 2002).18 According to Szymanski and Kuypers tively. And this does not take account of the fact that
(1999, p. 19), an investor who paid 385 pence for a the Cubs games are shown on super-station WGN
share of Manchester United stock in 1991 and sold which reaches 55m-plus homes nationally.
the share in mid-1998 would have experienced a
capital gain of £24.40 on the single share for an So, how can we understand Selig’s figures? The
annual rate of return of above 30 per cent. Cubs are owned by the Tribune Corporation, which
also owns WGN. The Tribune Corporation, in ef-
In each of these instances—consumption value, fect, is transferring revenue away from the Cubs
business connections, political ties, tax benefits, and and lowering the costs of WGN. It does this by using
capital gains—the investment return will not show related party transactions, which are entirely lawful
up on the income statement and is long term in and widely used in the sports industry and across
nature. Other than the tax shelter, each of these business generally. According to Broadcasting &
returns is enriched by having a winning team. This Cable, the industry’s authoritative source, the esti-
suggests that owners’ objective functions may con- mated value of the Cubs’ local media earnings in
tain both wins and profits. It may also include 2001 was $59m. If the Cubs reported this figure
accumulation of star players. instead of $23.6m, then their reported $1.8m loss
would become a $33.6m profit in 2001!20
There is also a great many ways for an owner to
take short-run and pecuniary returns.19 First, an Why would the Cubs (and all other baseball teams)
owner can boost other companies in his or her want to reduce their reported revenues? There are
portfolio through favoured contracting with the team. several possible reasons. First, since 1996, MLB
Many team owners today own entities (such as TV, has had a revenue-sharing system that levies a tax
cable, or radio stations, and facility management, on a team’s net local revenues. In 2001 this tax was
concessions, or chartering companies) that do busi- at 20 per cent (in 2003 the effective marginal tax
ness with the team. When the owner does business rate is close to 40 per cent) (Zimbalist, 2003, ch. 5).
with himself he can charge whatever prices he Thus, for every dollar in local revenue not reported
likes—it is money in one pocket or the other. This in 2001, the team saved just under 20 cents.21 Since
practice, known as a related-party transaction or WGN pays no such tax to the broadcasting industry,

18
Using data through the early 1990s, Scully (1995, ch. 6, pp. 118–25) finds even higher annual rates of return on sports franchise
ownership.
19
What follows in the text is not intended as an exhaustive list of the ways ownership can manipulate the results on an income
statement. Another common practice is for an owner to lend money to a partnership and then have the partnership buy the team.
The owner in this case receives his return via interest payments on his loan and these interest payments enter the income statement
as costs, lowering team book profits. It is also common for the owner to receive financial returns by benefiting from salary, consulting
fees, or perquisites, and by hiring family members.
20
It is possible that this figure should be adjusted for the super-station payments that the Cubs make to MLB, which are probably
in the order of $15m annually. It is also possible, however, that the Broadcasting & Cable figure is conservative.
21
The reason the net tax was just under 20 cents was that the team gets back roughly one-thirtieth of every dollar it contributed.

508
 A. Zimbalist

it is preferable for the parent corporation, Tribune, Owners can take their investment returns in a
to have the profits appear on WGN’s books. number of ways. For instance, George Steinbrenner
used his New York Yankees to create the YES
Second, baseball teams (and even the Cubs, who regional sports network in the nation’s largest media
were seeking public permission to erect higher left- market. In 2001, YES had a market value upward of
field stands in 2002) seek various kinds of public $850m. Rupert Murdoch admitted that his purchase
support for their facilities. They may believe that the of the Dodgers paid off because it enabled him to
more impecunious they appear, the more likely it is prevent Disney from creating a regional sports
that such support will be forthcoming. network in southern California.22 In 1998, Disney
had signed up its MLB Angels and NHL Mighty
Third, every few years the owners negotiate with Ducks to a 10-year cable contract with Fox Sports
the players over a new collective-bargaining con- Net West II for a seemingly well-under-market
tract. The owners always seek new restrictions in $12m a year. It is not unlikely that Disney received
the labour market to lower salaries. One of the other benefits from the News Corp. (such as car-
justifications for these restrictions commonly is that riage at an attractive price for Disney’s many cable
the teams are losing money. Whether or not the channels on the News Corp.’s worldwide satellite
Players Association is persuaded by such argu- distribution systems).
ments, it appears to be permanently fixed as part of
the owners’ opening gambit. Tom Hicks hopes to use his ownership of the Texas
Rangers to develop some 270 acres of commercial
Fourth, MLB is the only professional sport in the and residential real estate around the ball park in
United States that has a presumed antitrust exemp- Arlington and to grow his Southwest Sports Group,
tion. Periodically, MLB is called before Congress to among other things. Dick Jacobs exploited his owner-
justify this special treatment. One of the arguments ship of the Indians to promote the value of his down-
that MLB has repeatedly trotted out—most re- town real estate. And so on. Once again, the team’s
cently by Selig before the US Congress in Decem- income statement will not tell the whole story.
ber 2001—is that the industry cannot possibly be
abusing its market power because it is not profitable. One important implication of the preceding discus-
sion is that competitive balance may be more elusive
Fifth, ownership may believe that claims of poverty to sporting leagues. Not only may different owner-
may help to justify higher ticket or concessions objective functions and team-specific revenue
prices to the fans. potentials engender imbalance, but team synergies
with related business interests may exacerbate
As in the example of the Chicago Cubs, many MLB inequalities. For instance, when Tom Hicks signed
teams and teams in other sports make extensive use Alex Rodriguez to a 10-year deal for $25.2m annu-
of related party transactions. In each case, the ally, he was thinking about the return A-Rod would
team’s true financial return is unlikely to be found on bring to all of his businesses, not just to the Rangers.
the bottom line. Hence, a cursory glance at a team’s Thus, what might appear as utility-maximizing be-
income statement is unlikely to reveal ownership haviour by an owner is really global (portfolio-wide)
motives. profit-maximizing behaviour.23 Put differently, own-
ers may find that the best way to profit maximize
More generally, it is common for owners to treat globally is to win maximize at the team level.24
sports teams as part of their entire investment
portfolio. Often, the team itself is not managed as a When owner investment in players yields returns to
profit centre, but rather as a vehicle for promoting both the ball club and to other businesses of the
the owner’s other investments. owner, this may be a significant additional source of
22
Bill Shaikin, ‘Fox Reaches Dodger Goals’, Los Angeles Times, 13 December 2001, p. Sports-8.
23
A similar imbalance may appear in European national football leagues as leading clubs sign players who produce returns not
only in the national league but also in Europe-wide competitions, such as the Champions League.
24
To the extent that this is true, of course, the win-maximization assumption would be appropriate for modelling ownership
behaviour in a sports league.

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OXFORD REVIEW OF ECONOMIC POLICY, VOL. 19, NO. 4

league imbalance. Under such circumstances, exchange. Such a policy might be the best guarantee
leagues may be justified in imposing constraints on that teams are run as stand-alone profit centres.25
the legal form of ownership, such as proscribing
corporate ownership. In sum, one obvious conclusion to draw from the
foregoing discussion is that owners maximize global,
In the United States, however, other than the gen- long-term returns and that these are very different
eral and welfare-diminishing prohibition on munici- from a team’s reported annual operating profits.
pal ownership in all leagues, the NFL is the only While, at today’s stratospheric franchise prices, it is
league to limit systematically the ownership form. It problematic for most owners to be pure sports-
does so by outlawing corporate ownership. There is men—maximizing utility without a financial con-
an irony here, because the NFL, with its relatively straint—it is almost a certainty that different
hard salary cap and extensive revenue sharing, is owners give different weights to the variety of
probably the only US league that does not have to arguments in their objective functions. The next task
worry about competitive balance. for modelling the behaviour and performance of
sports leagues is to take fuller account of this
An alternative league strategy might be to require all probable diversity of ownership objectives within a
teams to float 100 per cent of ownership on the stock given league.

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Of course, in the English Premier League, where several teams are publicly held, the potential salutary competitive balance
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