Expansion Has Its Limits

The four major American professional sports leagues have all fallen prey to the same illusion. The NHL, NBA, MLB, and NFL each have created too many expansion teams, which have hurt the leagues’ financial bottom line and diminished the on-field quality of play.

According to Forbes, in 2010, 17 of the 30 NBA teams had operating losses, while 16 of the 30 NHL clubs posted operating losses. Baseball and football have two organizations each in the red.

The addition of too many teams has lowered the relative quality of play, because the top talent has been thinly spread around. In the case of football, there simply are not 32 quarterbacks serviceable enough to be game managers. Hall of Fame Boston Celtics coach/general manager Red Auerbach was against the NBA’s expansion in 1980, when the league added Dallas, because it would “dilute the product.” On many of his excellent Celtics teams, he had several Hall of Fame players. However, that concentration of talent rarely exists anymore.

For a city to support a professional sports franchise, the city (and its surrounding suburbs) must have three C’s: A large CROWD (population), with enough CASH, who CARE enough about the team. The NHL provides the clearest examples of the need for each of these C’s.

Atlanta had the first two C’s in place. Metropolitan Atlanta is the eighth-largest TV market in the country and had, according to the 2000 US Census, the seventh-greatest median household income. However, the Atlanta Thrashers, a 1999 expansion team, have posted paltry attendance numbers since their inception and thus lost millions of dollars annually. This spring, the franchise relocated to Winnipeg, Manitoba. Atlanta simply did not care enough about hockey to support a team.

The NHL has put many other teams in southern, so-called non-traditional hockey markets, and many of those have been unsuccessful. The Phoenix Coyotes and Florida Panthers are two of these teams. Poor attendance has put all three clubs – and many others like them – in the red. There is a very realistic chance that the Thrashers won’t be the last of the southern teams packing their bags to head northward.

Major League Soccer, which began play in 1996, has been aggressively expanding, adding nine teams since 2005, doubling their previous total. Although many cities could theoretically financially support an MLS franchise, there is simply not enough interest in many areas.

The league is banking on the sport gaining much more popularity across the country, riding the recent wave of interest surrounding the USA World Cup teams. A favorable aspect for MLS is the relatively miniscule player costs; the salary cap is under $3 million per club. However, the salary history of other professional sports leagues provides an expectation that the costs will rise significantly.

The second C, cash, has become a large issue recently. For years, billionaire owners have had the extreme fortune of having a city fall to its collective knees to woo their team to the city. Politicians have readily signed off on public financing for new stadiums – saving owners hundreds of millions of dollars. If that wasn’t enough, these owners have frequently received generous tax breaks.

However, the recent economic downturn has slowed these grants significantly. With towns being forced to lay off teachers, firefighters, and policemen, taxpayers argue, it is irrational and reckless to increase taxes to finance a new sports stadium.

The recent economic downturn has eliminated much of people’s disposable income, on which sports have feasted. Tickets, concessions, and merchandise have become very expensive. As a result, the public is simply saying no.

Another cost of attending a game is time. Combining a half-hour commute to and from a weeknight game requires a four-hour commitment. Getting home at 10:30 or 11 PM makes for a late night for kids (and many adults, too).

Leagues are realizing that sports tickets don’t have an endless demand. At a certain price, fans will choose not to purchase tickets. The New York Yankees found this out on a large and embarrassing scale when they priced the most choice seats at their new (publicly funded) stadium in 2009 at a preposterous $2,500 apiece. Very few people and corporations purchased tickets, forcing the team to halve the prices to $1,250. (What a bargain!)

The third C, crowd (population), is very important for expansion teams. The Jacksonville Jaguars were an NFL expansion team in 1995. The decision to put a team in Jacksonville, the 40th-largest metropolitan area in the U.S. with only 1.3 million people, was puzzling. Over the years, the Jaguars have struggled to fill their stadium, causing the team to tarp off many sections in hopes of “selling out” and thus avoiding a local television blackout of games. Over one-half million seats are available over the course of their eight games at EverBank Field. The small number of potential customers has been a large drawback for the Jags.

Expansion teams significantly increase the supply of seats. For example, two MLB expansion teams would add nearly six-and-a-half million seats. This assumes an additional 40,000 seats over 162 games. Two additional NHL or NBA teams would result in 1.5 million seats. While Boston or Philadelphia fans may find this hard to believe, one-third of MLB teams have filled fewer than 60% of seats in 2011.

A major factor unanticipated in the 1980s, when much expansion took place, was the huge increase of the electronic entertainment. Sports are merely one piece of the vast entertainment pie whose quest is to capture the public’s attention and limited time and money. Additionally, college sports have become a very significant competitor against professional sports.

Another reason that the leagues have expanded is to score a richer national television contract, Boston Bruins radio announcer Dave Goucher recently said on “Sports Talk with Yoni and Matt” on Sharon (MA) Community Television. With teams in more cities across the country, there are more total fans of the sport across the country. In this aspect, the NHL has succeeded. NBC will continue televising the NHL for the next 10 years, paying the league $2 billion.

Financial and marketing solutions will be needed to maintain the long-term health of professional sports. This may consist of the relocation of teams, a reduction in the number of teams, a decrease in expenses consisting primarily of player salaries, creative marketing such as variable ticket pricing, and waiting for an overall increase in population and available disposable incomes. While sports certainly have its troubles, I believe that it will resolve many of these issues and succeed in providing enjoyable entertainment for fans for the long term.