Common Issues with Revenue Generated from Broadcasting Right
February 12, 2025
Pension funds have always been considered to be conservative investors. This means that pension funds have generally been associated with low-risk instruments such as bonds. However, over the past few years, pension funds started aggressively investing in privately listed equities. As a result, they were able to generate a fairly high return as compared to […]
In the previous articles, we have learned about how the money market is just like any other financial market. This means that just like other markets, speculators also form a significant portion of investors in the money market. As a result, the money market also has a certain amount of volatility just like other markets. […]
Economic cycles are a reality of life. Founders need to be aware of the fact that their start-up company could find itself in the middle of an economic downturn. Such situations tend to be the real test of start-up companies. The poorly managed start-ups face severe cash flow issues during such recessions. A lot of […]
Forfaiting is an important means of raising short-term finance for companies that indulge in foreign trade. With the increasingly easy availability of information regarding the creditworthiness of counterparties, the importance of contracts such as factoring is dwindling. However, it is still a pivotal financial service as far as foreign trade is concerned. Definition of Forfaiting […]
Whenever investors pool their resources together in order to create a fund that then invests in other assets, the concept of fiduciary duty comes into play. The average investor considers fiduciary duty to be a complex legal subject and hence tries to avoid delving into the details. However, the subject is not very complex. Also, […]
The discipline of economics is generally valid for all industries across the world. This is because the basic fundamental economic principles of demand, supply, and free market are applicable to almost all industries in the world. There are only a few industries where these economic principles are not really applicable. The sporting industry is one such unique case.
The normal economic principles of demand and supply do not really apply here because of certain economic peculiarities. Hence, we need to understand the specific economic issues that are relevant to sports leagues and how they must be taken into consideration.
In this article, we will try to understand the peculiar economics related to sports leagues.
Sports leagues and teams are able to make money because of their fan following. Sometimes, this means that the league has to compromise on short-term profits in order to keep the fans interested. Hence, the objective of the league is not static. Instead, these objectives keep on changing based on the stage of the league and even the stature of the club. Hence, many economic laws that blindly pursue the principle of profit maximization are not applicable to sports leagues.
If there is no league, no competitors, and no competition, the team does not have any significant economic value. This is because the product being sold by the sports league is entertainment.
Entertainment is a function of the close matches which happen as a result of tough competition between teams. Hence, the sports league teams jointly produce the product.
Generally, economic organizations try to produce the best product which can always beat the competition in the marketplace. However, this logic does not work in sports leagues. If the product of one team is far better and always beats the competition, the customers i.e. the viewers begin to lose interest.
Adam Smith has defined this phenomenon as the invisible hand wherein if each player pursues their own individual objective, the objective of the marketplace is also achieved.
However, this rule does not apply to sports leagues. This is because in the case of sports leagues, if a sports team is able to perform well and corner all the resources i.e. players, then they will end up winning consistently. There will not be an element of uncertainty in the game. As a result, the viewership and fan following will drop and there will be negative economic impacts on the entire league.
Hence, it can be said that the free-market principles do not apply to sports leagues. Instead, the sports league exists in a controlled environment wherein it is imperative to ensure that all teams have approximately the same level of competition.
In essence, they form a cartel of clubs that actively work with each other. However, they do not co-operate with the competition. The word “cartel” generally has a negative connotation when it comes to economics. However, sports leagues are natural monopolies. It is common for leagues to control the supply in the following manner.
Generally, leagues exercise this control by limiting compensation, having cooling-off periods, and creating rules that govern the transfer of players between different teams in the league. This control is necessary to ensure that the competitive balance within the league is maintained.
Hence, it can be said that the economic fundamentals of sports leagues are quite different from the general economic principles. It is for this reason that the reader must become aware of these peculiar economic fundamentals in order to better understand the decision-making in the game.
Your email address will not be published. Required fields are marked *