Newspaper sports pages have - in recent years - often read more like business sections with reports of mergers, acquisitions and well-funded startups trying to steal market share. But those deals tend to be structured with the interests of team bosses and players in mind, rather than the fans. That got the “Money Talks” team wondering: where does the balance lie between commercial imperatives in sport and fan support? 
On this week’s podcast, hosts Mike Bird and Alice Fulwood draft in The Economist’s resident sports geek Arjun Ramani to examine what makes a good sports business. The deputy commissioner of the National Basketball Association, Mark Tatum, tells them how to structure a league to keep fans engaged. And Chatri Sityodtong, the founder of martial arts league ONE Championship, explains how to make money from those fans. But Bobby Sharma, the founder of Bluestone Equity Partners, says the rules of the game are changing as younger fans turn to streaming services rather than cable. 
Sign up for our new weekly newsletter dissecting the big themes in markets, business and the economy at www.economist.com/moneytalks 
For full access to print, digital and audio editions, subscribe to The Economist at www.economist.com/podcastoffer

 Hosted on Acast. See acast.com/privacy for more information.

Trade wars, geopolitical tensions, regional conflicts.

Events like these can break your supply chain, damage business reputation, and cause loss of revenue.

That's why Fortune 500 and Global 2000 Enterprises count on GEP to mitigate supply chain risks.

GEP's comprehensive portfolio of procurement and supply chain solutions helps companies stay resilient in times of disruption.

GEP, helping the world's best companies do better.

In April, 2021, the world of football or soccer, as it's known in some parts of the world, nearly changed forever.

of Europe's biggest football clubs intend to break away to form a super league all of their own.

The founder members of the proposed European Super League included the biggest names from the English, Spanish and Italian leagues, Manchester United, Chelsea, Real Madrid and Inter Milan, among others.

Their plan was to break away from European soccer's governing body, UEFA, to create their own competition containing 20 teams.

The founding clubs and 3 others would be the permanent members, facing no threat of relegation.

They claimed it would be good for football, giving fans the chance to see Europe's sporting titans locked in a battle for supremacy.

The fans, pundits, ex-players and pretty much everyone else disagreed.

The league would break the sport's long-standing ecosystem while promising eye-popping paydays from media rights and merchandising.

Revenues would be funneled to the club's billionaire owners.

Former Manchester United player Rio Ferdinand summed up the public perception.

It's a close shot for these bigwigs, and it's completely and utterly only about 1 thing, and that's money.

The rich getting richer, and the others not even being considered.

It became a PR fiasco, and was furiously denounced by soccer fans around the world.

We've got it, We've got it, Come on, Joe.

Caving into public and political pressure, the English teams pulled out.

2 days after the proposal was first made public, the idea of the European Super League was all but dead.

Football is already big business, and the European Super League was a case of some of the sport's biggest names trying to take greater commercial control of the game.

It failed because it turns out that upsetting the fans isn't good for business.

So where does the balance lie between commercial imperatives and fan support?

Which way of running a sport is best for business?

You're listening to Money Talks from The Economist, our weekly podcast on the markets, the economy and the world of business.

And in today's show, what makes a good sports business?

First, we'll hear from the Deputy Commissioner of the NBA on building a successful league.

Going into every season, you want the fans in every single market believing that their team has an opportunity to win the championship that year, regardless of market size.

Then we speak to the boss of Combat Sports League 1 Championship on how to make money from those fans.

Of course, you can monetize from media rights, which is the biggest advertising and sponsorship, which is also a

Ticket sales are actually the smallest revenue line item for all the major sports properties.

Finally, we'll explore how all that is changing.

There's an existential question that's been posed to even the most successful of properties as to what happens in a world where the fundamental broadcast economics change.

Yes, I am just back at the mothership for a couple of weeks making sure everything's still in place.

Someone had to keep Tom seat warm in the studio while he's off in Tanzania on his honeymoon, popping his anti-malarial.

No, I'll be back to Singapore in a couple of weeks.

Yeah, it's always important to do the annual pilgrimage back to London.

Usually I try to time mine to coincide with Wimbledon, which would have meant we overlapped, but I didn't manage to do that this year.

I was thrilled this weekend to watch the Wimbledon final between Novak Djokovic, the 36 year old greatest ever 23 title holding tennis player and Carlos Algaraz, who is just 20 years old.

And Carlos Algaraz did win his first ever Wimbledon.

His only, only the second event he'd ever played on grass.

He's a sort of real prodigy and it was great to watch that match.

My formative memories of Wimbledon growing up were mostly delayed The Simpsons on BBC 2.

I am a sort of fair weather football fan.

I'm a Sheffield United fan through my dad, but nobody could accuse me of being a glory supporter.

But because we're a little bit light on American sporting knowledge on the Money Talks team, I've asked our colleague Arjun Ramani to join us for this week's episode.

He's the Economist's global business and economics correspondent, but much more importantly, he's for our purposes, the resident sports geek at The Economist.

So I actually was at Wimbledon last week.

In fact, I got there at 3pm on a Saturday, But I didn't start watching matches until the next day because I queued, which is an amazing British tradition where you can wait in line and get row 12 seats on centre court in the round of 16, which was fantastic.

And it's 1 of my favourite things I've done since I've come to London.

I did have an inside knowledge that Arjun was also a tennis fan because we have played tennis and in that match I was the old, decrepit, falling apart player and Arjun was the young whipper-stapper who absolutely blew me off the court.

I recall the match being quite close, but that's nice of you to say.

But anyway, I'm a big basketball fan personally, as well as tennis, but my professional interest is more about the business of sport than the sport itself.

say you're in good company with me and Mike there as well.

But the sports pages were reading an awful lot like the business pages of late anyway.

Yeah, so there's lots going on in the sporting world lately.

So the normally sedate world of golf has been consumed by drama after Saudi Arabia's sovereign wealth fund launched what was called a breakaway league.

It's called Live Golf, offering some of the game's biggest names, nine-figure sums of money to leave the PGA, which is the most popular league that's been around for a while.

So the PGA and this new Saudi breakaway league, they've actually sued each other, but most recently they've actually dropped their suits and are now merging.

The Glazer family, which owns Manchester United, 1 of the most successful English Premier League football teams of all time, they're constantly making headlines because they're trying to sell the club.

I think all of this is really interesting precisely because it highlights that tension that exists between sport as a purely commercial enterprise and success there and entertainment which is what pro sports is all about, right?

So whether you're talking about what Europeans call football, what we call soccer in the States, I had to train myself, not slip up for this, or whether you're talking proper football, so that's American football, you know, where you tackle each other, baseball or hockey, all these sports face the same challenges but they approach it in quite different ways.

So obviously you have the teams and like Manchester United they can be privately owned by wealthy individuals or they can even be listed entities in some cases and they play within leagues And the job of those leagues is to make the sport entertaining for fans, but also profitable for the owners.

So, there's like a variety of structures to how you can run a league, and they make a huge difference to both the commercial and entertainment sides of the sport, right?

It's like a sort of perfect natural economic experiment.

So there are a few different structures that the leagues use that make them competitive in different ways.

So just to give a few examples, if you look at European soccer, you have what's called a system of promotion and relegation.

So you have the English Premier League, which is the most elite league in England.

But if you do poorly, you can get kicked out.

So that's kind of a competitive mechanism there.

But then if you go across the pond to the States and take a look at the NFL, we have what's called a hard salary cap, which basically means that teams cannot spend above a certain threshold on player salaries.

And that's not something that exists in the English Premier League where they can spend unlimited amounts basically on players.

Ok, so that works to make a sport entertaining, but what does it mean for the sort of business side of things, which is what we're most interested in?

Yes, I think it has implications for how valuable these teams are and how competitive the leagues are.

And I think there's also a connection between the 2 that we'll draw out in a bit.

But take the NBA, so the National Basketball Association, that's my personal favorite league.

So the league's been around for about 75 years, and really 2 teams have dominated, the Los Angeles Lakers and the Boston Celtics.

Between them, they've won nearly half of the championships over those 75 years.

So then if you look more recently, despite there being 30 teams in the league, the Golden State Warriors, a team based in San Francisco, and 3 other teams, all of which at different times featured 1 player, LeBron James, they've basically been at the top.

So there's a case that the NBA is not all that competitive.

What was happening that made the league seemingly so uncompetitive?

Yeah, so 1 of the reasons is structural, just what's going on in the sport itself.

If you've ever watched basketball, you'll know that compared to most other team sports like football, basketball has relatively few players in play at any given time, just 5 people.

So that allows superstars like LeBron to wield a lot more influence.

They can kind of dominate the games in a way that maybe it's harder to in other sports.

And then as a result, the teams they play for can dominate.

And another aspect here is how the playoffs, the end of season tournament where you compete for the championship, how that is structured.

So unlike in American football where there's a single game you play against another team and then whoever wins advances to the next round of the tournament, the NBA playoffs are best of 7 series, which means that there are more chances for the better team to come back.

So basically it reduces the likelihood of an upset, and it works in favor of the best teams.

And then the final thing, which links back to the business, is money.

So historically, the penalty for breaking the NBA salary cap, which is now around $124 million per year per team, has been quite light.

So that's allowed these big teams like the Los Angeles Lakers and Boston Celtics that have very lucrative local markets.

They've basically been able to pay quite a bit for the best players.

There is a small penalty, but it's not been prohibitive.

So that's left the other teams with less of a chance of competing with them.

But have they managed to address some of those structural issues to make basketball more competitive?

Yeah, so the NBA is very, very focused on trying to make their league more competitive.

In some ways, they're trying to make it more like the NFL.

So, you know, they've in 2011, the NBA strengthened the penalties for overspending teams that it had introduced a decade earlier.

The latest deal between team owners and the players union, which was signed this April, and it's called the collective bargaining agreement, which is a very interesting process in itself, you know, where the owners and the players, they'll negotiate how to divide the pie that the league earns.

That also made it even harder for the rich teams to break the salary cap, which brings the NBA closer to the NFL.

And I actually just came across a very fun fact here, which is, you know, all these practices that we talked about that make the NBA more valuable, there are now more NBA players with $30 million annual salaries than CEOs in the S&P 500.

Well, to understand how all of that has affected the business of the game, who better to speak to than the Deputy Commissioner of the NBA himself, Mark Tatum.

Mark, thank you very much for joining us.

So in sort of very broad terms, How do you think about balancing the needs of a sport like basketball, the teams, the fans, with the running of the NBA as a commercial business?

What sort of trade-offs do you have to make?

I would say that ensuring that the NBA season remains the most compelling on-court product for our fans and at the same time delivering on business priorities are not mutually exclusive.

If we are delivering a great product for our fans on the court, It will translate into more interest, more viewership, more people wanting to see the games, and that will further our commercial interest.

We just announced that we're going to play in in-season tournament for the very first time this upcoming season, and that's a new opportunity to create this new championship tradition very familiar in the international sporting world but relatively new here in the United States and what we want to do is create something in the middle of the season to create another additional competition where the teams and the fans could get excited about.

At the same time, meeting the needs of our fans and our business partners as well.

Let's talk a little bit about competition and the ideas around super teams.

There's been some success in keeping things competitive, but Aside from what the fans are looking for in that, is that a commercial imperative on the part of the NBA preventing the development of very dominant teams?

Well I will tell you our focus has always been on creating a system that promotes parity of opportunity, right?

Going into every season you want the fans in every single market believing that their team has an opportunity to win the championship that year, regardless of market size, whether you're in a small market or big market.

And so I would say that this year was a great example where we demonstrated this is 1 of our most competitive seasons in NBA history.

of our 30 teams still had an opportunity to make our playoffs in the postseason.

The Denver Nuggets, who won the championship this year, they became the fifth different franchise to win the NBA championship over the past 5 years.

So we've really seen this level of competition increase, this level of parity increasing, and it's clear that that has driven fan interest.

This playoffs this year were the most viewed playoffs in 11 years.

We actually set a record for attendance this year and the capacity in our buildings.

So for us, when you create more competition amongst all your teams, where every fan in every market believes that their team has a chance to win, we think that that makes for a better league.

Will Barron Could you tell us a little bit about the sort of major growth areas for the NBA as a business specifically?

You know, how are the ways that people want to follow the sport changing, follow the athletes, how people want to spend their money?

What are the most interesting developments there?

As you mentioned, there's a shifting in the landscape of how people are consuming our content.

And so we've invested a ton of resources into creating a true direct-to-consumer business in our next, what we're calling our NextGen Initiative, we believe that that's the future of our business and 1 of the major priorities for our organization.

And so, media and content, that will continue to drive everything that we do, particularly in how we engage our fans outside of the United States, who quite frankly experience the NBA virtually exclusively through some form of media.

That was part of the thinking as we launched our new NBA app at the start of the season, And we've been able to create these personalized experience with wall-to-wall content from every NBA game, social style vertical video, behind-the-scenes access.

And that's really helped drive and fuel the growth.

The other area I would point to, Mike, is just the international opportunity and growth of our league.

And so, you know, our games are distributed now in more than 200 countries and territories around the world.

More than a quarter of our players were born outside the United States.

We've cut a social media following in reach of more than 2 billion people.

So as you think about the world and the opportunity that we have to continue to grow the sport, those are, I would say, the 2 major growth opportunities that we see going forward.

Have you ever had periods of sort of worrying about the prospect of serious competition developing?

You know, in many other sports, there's been an injection of money from the Gulf or anywhere else.

I wonder whether there could ever be a sort of basketball league overseas that, for example, didn't have things like salary caps, whether you'd ever see a sort of advantage in developing that.

But it sounds like you think the NBA is relatively resistant

Well, remember, There are leagues all over the world today and I think play a very important role in developing fans' interest.

I will say 1 of the unique things about the NBA is that the best basketball players in the world truly do play in 1 league and that's the NBA.

And I think if you're the best French player, if you're the best Australian player, the best Canadian player in the world, you want to play in the NBA.

We're focused on creating the best product that we can so we are not afraid to try new things, to innovate, to stay ahead.

We export our game through different forms of media and content and technology and I think if we continue to do that then we don't have to worry too much about what other people are doing.

you very much for making the time to speak to us.

So, Arjun, what did you make of what Mark had to say?

I thought it was interesting that he mentioned the in-season tournament.

So this is an effort to increase interest in the NBA's regular season.

They have an 82-game regular season that determines who qualifies for the end-of-season tournament.

And the league has had this problem for a while now where superstars like LeBron James, they won't play all the games in the regular season.

And that's pretty controversial because it reduces fan interest.

Sometimes you buy your tickets before you find out if LeBron is playing or not.

So it's not all that great and reduces the interest in the regular season.

A lot of people think that the NBA's regular season is not really all that competitive.

So they're basically trying to revive the game's vitality during the cold months of the winter.

Second thing to note on what he said is it's true that the NBA actually has had a historically competitive season this year.

And I actually agree that the efforts around salary capping and so forth do make the league more competitive.

But it is worth remembering that the NBA, while it's competitive in some ways, in other ways it's not.

So remember that the teams in the NBA are always protected.

There's no threat of being relegated to a lower league like European soccer.

That's something the NBA probably won't talk about very much.

And both these rules, they make the NBA extremely owner-friendly.

So over the past decade, the value of the average NBA team has actually grown by more than 600%, which is more than 3 times the stock market.

So that is how 1 of the world's most established leagues thinks about its business.

But to understand the lessons a relatively newly commercialized sport has learned from the NBA, I spoke to Chhatri Sitcharton, who runs 1 Championship, a Singapore-based martial arts promoter that was founded 12 years ago.

Chhatri, thank you very much for joining us.

So give us a little bit of information to start with.

What made you think of starting the championship?

When I was in the US, I saw how big sporting culture was, but sports properties.

Then I looked across Europe and F1, Champions League, EPL, these are all worth tens of billions of dollars.

And at the time, around 12 years ago when I started 1, there's literally nothing coming out of Asia on a global basis.

And yet, if you think about Asia's history, 5, 000 year history as the birthplace of martial arts, it just made a lot of sense that the 4 billion people here would rally behind something that's already part of the culture and history and daily life of the continent.

When it comes to attracting and retaining talent in some leagues, in some sports, I'm thinking the NBA here for example, you don't really have to worry about teams or players leaving the league, the outfit in general, completely because it's so dominant.

In combat sports you guys do have competition.

How do you attract people, the talent you want to keep appearing with 1 and how do you keep them there?

Well the world of combat sports has become a global duopoly.

The 2 giants are UFC out of the West and 1 out of the East.

1 championship ranked number fourth in the world across all sports properties.

So if you are a fighter, really there's only 2 places that you really dream of going to.

And so I think what happens is people gravitate to what they are naturally inclined to.

So our mission since day 1 has been always to unleash real life superheroes who ignite the world with hope, strength, dreams, inspiration.

And that's a very different ethos than, let's say, our Western counterpart in the UFC, where blood, sport, and anger, and controversy, and hatred, and all these other things are encouraged on their platform.

In many ways, 1 and UFC are 180 degrees opposite from each other in its DNA and ethos.

In terms of the business model of the company, how important is the sort of mechanism of actually broadcasting the fights?

We're talking about obviously streaming here, all the other mechanisms.

How important is that side of things commercially?

I mean, that's why we're broadcasting in hundreds of countries every Friday.

You know, live sports is the king of content.

But the other aspect of live sports is making sure that we have the widest reach and ease of access.

And so in most countries, we are with the number 1 or number 2 largest free-to-air broadcaster or largest digital streamer.

We're not just gonna partner with anybody who truly believe that you have to be wide and deep in a given country in order to have the population excited.

And We were a lucky beneficiary because of the digital economy.

We were born right in the middle of the skyrocketing growth of the digital economy, whether it's social media, whether it's digital media.

I mean, old school linear TV, where you could only put out content for a given country.

So the company, like a lot of rapidly growing ones the last decade or so, it's not reliably profitable.

And that's certainly not unique to combat sports or unique to 1 championship, but how does this sort of era of higher interest rates and a change in the economic environment we've seen over the past years affect you guys?

You know, 1 has been an investment phase for 10 years And now to build our platform to have TV and digital streaming deals in 179 countries takes time.

You don't just walk up to Amazon and say, hey, please take my content.

It took a year and a half for that deal alone to do, right?

In the last 2 years, we've really begun to see the fruits of our labor where the monetization has taken off.

See all Money Talks from The Economist transcripts on Applepodcasts

Money Talks: How to build a sports business