INDUSTRIES

When the New York Giants football team opened its 1980 home season against the Washington Redskins on Sept. 13, two sounds were clearly audible at Giants Stadium in New Jersey: the roar of 73,000 fans and the ringing of owner Wellington Mara's cash register. Had the vast stadium been entirely devoid of spectators-who paid roughly $700,000 for the privilege of seeing the Giants lose-Mara's money counter would have slowed somewhat, but the national television contract he shares in equally with other National Football League owners provides about the same amount of revenues as do paid admissions. On that Sunday, for example, the Giants' take for national television rights to the game totaled $620,000.

While football is the blue chip of professional sports, Mara's experiences are not dissimilar from those of many owners of professional baseball, basketball, and hockey teams, for the $700 milliona-year business of professional sports today is a highly charged enterprise capable of producing heavy profits for its owners. And although baseball, basketball, and hockey are a notch below football in bottom-line performance from

operations, the industry as a whole nevertheless is generating millions of dollars of profits for those corporations. individuals, and syndicates that own the franchises.

Snowball effect. Moreover, professional sports is spinning off several times that amount of money to the plethora of businesses that it touches-television, radio, brewing, retailing, and even gambling, where as much as $75 million a year is wagered on sporting events. In fact, given professional sports' monopoly status and self-regulating characteristics, the business can only become bigger. "Americans are affected every day by two cartels-OPEC and professional sports," says one insider. "People just don't realize how powerful the latter one is."

Owning a professional sports franchise is a popular daily double. Huge profits are available both through the ongoing-business side of the venture as well as via the sale of a franchise. Indeed, in becoming America's homegrown cartel, the business of professional sports has undergone a remarkable metamorphosis: Disappearing, for the most part, are the mom-and-pop and

Football's Rozelle: "A professional sports franchise is like a Picasso."

family-run operations motivated by civic pride and public relations, replaced instead by savvy broadcasting- and entertainment-sensitive businessmen eager to reap the riches that only a monopoly enterprise can ensure. Disappearing, too, is the overriding importance of tax benefits-formerly the big lure in attracting owners (page 147). Tax benefits "are not a primary reason to get into baseball," says San Francisco Giants owner Robert Lurie, a multimillionaire with substantial real estate holdings, which presumably offer their own tax advantages. Echoes Texas oilman Lamar Hunt, who owns the Kansas City Chiefs football team and the Dallas Tornado soccer team: "I've always believed that you don't go into any venture unless you can make a profit."

Profit is the name of the game. The average National Football League franahise earns a profit of about $1.2 million a year on revenues of $11 million regardless of whether it wins the Super Bowl or winds up the season losing all 16 games. Baseball and basketball teams can be slightly less profitable, and only about one-half to two-thirds of them are consistent money-makers. (Yet insiders maintain that those clubs that fail to earn a profit do so because of sloppy business practices and not because the profits are not out there.) Many hockey

teams, moreover, are still turning profits despite the loss of a national TV contract. And the new kid on the block-soccer, the fastest-growing of all sports-may end up better than all except football.

While the guarantee that a monopoly carries with it is clearly the most appealing aspect of owning a professional sports franchise, it is only the bottomline result of a wide range of considerations that are changing the face of pro sports and making ownership so attractive. These include:

The largesse of both network and local television and radio operators, who are only too happy to pay hundreds of millions of dollars to obtain a product from which they, too, can profit.

The growing acceptance of pay television, which is even more dependent on obtaining outside products than are the commercial stations.

The guarantee, because of the cartel arrangement, that the price of a franchise will grow by incredible proportions regardless of the team's balance sheet or performance in competition.

The beneficence of many municipal and state governing bodies, which firmly believe that granting a sweetheart lease to a tenant is more desirable than losing that team to another city.

At the foundation of the boom is an antitrust exemption that has guarded professional sports for many years. Yet the exemption is sketchy at best. Based on a 1922 decision by the Supreme Court, baseball, in fact, is the only sport actually ruled to be exempt. But the

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Franchises: From tax shelters to money-makers

Two factors have combined to speed the changeover in franchise ownership from tax-shelter enterprises to money-makers the federal government and the accounting practices of the owners themselves. Prior to the Tax Reform Act of 1976, for example, owners were permitted to depreciate 95% of the cost of their players over five years, a financial bonanza that results in red ink on the books but greenbacks in the pockets.

The allowance was used to varying degrees. In buying the Milwaukee Braves for $6.2 million in 1966 and moving them to Atlanta, the team's new owners valued the players at 99% of the total purchase price, a maneuver that would mean a tax write-off of $1.2 million each year.

The setback of 8. But the maneuvering ran into snags when the Atlanta Falcons, an expansion NFL team in 1966, set player costs at 91% of its $8.5 million entry fee. The Internal Revenue Service jumped in and slashed that percentage to 12%. Early in 1978, the Supreme Court finally upheld a lower court ruling setting the allowable percentage at less than 40%.

"Prior to the 1976 act, an owner could basically get away with what he wanted to get away with," says Michael Redemake, a tax partner with Price Water

same ruling has provided hockey, football, and basketball with de facto exemptions. Sports management bristles at the suggestion that they are getting away with something, however. Baseball Commissioner Bowie Kuhn, for example, has a difficult time admitting that baseball is a business. And Pete Rozelle, commissioner of the NFL, says that football has been scrutinized repeatedly and comes up clean each time. "We've been investigated by the FCC, FTC, Justice Dept., NLRB, and IRS, plus a multitude of state and local bodies," he says. "We are not an unregulated monopoly. We are constantly challenged. What we are is a natural monopoly."

Dividing the spolla. Natural or not, the monopoly allows baseball to operate with a financial structure under which about 30% of total revenues of about $310 million goes to player salaries, bonuses, and pension costs-which owners constantly cite as the most onerous expense of the business. In football, the figure rises to 40%, and in basketball to some 55%. The remainder, then, is available for other expenses and profits.

The amount left over for profits is enticing enough to persuade new ventures where previous ones have already

house & Co. in San Francisco. "Everyone was in the depreciation mode." However, Congress' passage of the 1976 act effectively clamped a prevent defense around such fine tuning. Today, in purchasing a new franchise, an owner can allocate only 50% of the cost of the franchise to player costs, and must depreciate those over five years. Moreover, Redemake says, the accounting profession has also read that mandate to mean that a new owner cannot allocate more for the player costs than the seller realized as profit in the transaction.

Cash and the flag. If an owner makes a $5 million profit in selling a franchise for $15 million, for example, the first rule would indicate a depreciable sum of $7.5 million for the buyer. However, because the profit to the seller is just $5 million, the $7.5 million figure would be superseded by the lower figure.

Still, a $5 million allowance would translate into a $1 million-a-year writeoff for the new owners. And, likewise, that would mean that a profit of $1 million could show up on the books as zero. Baseball entrepreneur Bill Veeck, who is selling the Chicago White Sox, admitted in his 1965 book, The Hustler's Handbookc "Look, we play The Star-Spangled Banner before every game. You want us to pay income taxes, too?"

failed. The Dallas Mavericks basketball team-an expansion team starting its first season this winter-will operate in an area where professional basketball failed when the defunct American Basketball Assn. operated a team there in the late 1960s and early 1970s. Yet the team expects to be profitable this year despite the likelihood that it may win only about 25% of its games. The optimism is based on some of the certainties locked into the business, not the least of which is the knowledge that Mavericks broadcasts will bring in some $1.5 million in revenues this season.

Indeed, the game plan for most teams is tied closely to television. The NFL's four-year, $656 million contract with the three commercial networks brings each team in the league $5.2 million a year. (That figure is expected to jump to nearly $9 million in 1982.) "Pro football teams are always highly profitable in the first two or three years of a new contract," says Rozelle.

Conglomerates. In baseball and basketball, the network broadcast riches are not as huge, but unlike football owners. baseball and basketball teams can supplement their income by peddling local rights to games. Each major-league

baseball team gets a $1.8 million share of the national TV contract, and NBA teams each receive about $1 million. After that, it's every man for himself. And depending on the size of one's market, the sky is the limit.

In New York, George Steinbrenner's Yankees receive $5 million a year from a local station. And even a lowly squad such as baseball's San Diego Padres, for example, has seen its local TV revenues increase to $700,000 this year from just $5,000 in 1976.

The "broadcasting pot of gold" is bringing to sports a whole new breed of owner-which San Francisco sports marketing consultant Matthew Levine calls "sophisticated entertainment-industry people." These owners, Levine says, are integrating sports franchises with their other holdings-sports facilities, entertainment programming, and broadcasting-to form the 1980 version of the sports conglomerate: the "internally linked operation," or no. "They respond to different objectives and operating economies often unseen by outsiders." he says. "They recruit higher-qualAn NFL team that loses all 16 games can still earn better than $1 million

ity executive talent, and they focus on longer-range planning horizons than competitors with more singular interesta."

Heading for pay-TV. Currently, he says, there are seven major Los operating in professional sports: Capital Centre in Landover, Md., California Sports in Los Angeles, Golden West Broadcasters in Los Angeles, Gulf & Western Industries Inc. in New York, the Spectrum in Philadelphia, Turner Broadcasting System Inc. in Atlanta, and Warner Communications Inc. in New York (table, page 146).

Not surprisingly, the evolution of the Los fits in perfectly with what may become the biggest payoff of all in professional sports-pay television. "It's no coincidence that many owners in the NBA also are involved with pay-TV," says Lawrence Fleischer, head of the NBA Players Assn. "They see the future."

The importance of TV is vividly illustrated in Atlanta, where impresario Robert E. "Ted" Turner's basketball Hawks and baseball Braves are simply products to fill time on his television station, WTBS, the nation's first superstation. Although the flashy Turner personifies the old-time sportsman in his public antics, he readily admits that he bought the teams in December, 1976-the Braves for $10 million and the Hawks for "between $7 million and $8 milLion"-to keep them in Atlanta so he could televise the games. Both teams are

unprofitable even today on their own, but Turner says they have played an important role in developing a nationwide audience for the station. WTBS is now picked up on satellite by about 2,300 cable systems that are wired into about 9.3 million homes.

"We could get hurt.' As promising as payTV appears to the owners, it troubles sports' self-appointed regulators, especially the prospect of owners' involvement in both the team and the broadcast operation. "I'm not pleased with the prospect of broadcast interests buying baseball teams," says baseball's Kuhn. "That would trouble me." Commissioner

Lawrence F. O'Brien of the NBA also worries about the danger of overexposure of the product. "We have our toe in the water," he says. "But it's a dual highway. We could get hurt."

Despite the possible consequences, many of the new breed of owners coming into the game hope to make as much money in sports as they have in their other ventures. One who firmly believes he will is Jerry Buss, the flamboyant owner of the Los Angeles Lakers basketball team, Los Angeles Kings hockey team, and the lavish Forum arenawhich he purchased from Teleprompter Corp. scion Jack Kent Cooke in June,

The prestige playoffs among corporate owners

The list of corporate owners of profes sional sports franchises is impressive enough to make all-pro in any league: Anheuser-Busch, Ralston Purina, Gulf & Western Industries, Warner Communications, and the big three Canadian brewers, Molson, Carling O'Keefe, and Labatt. CBS played the game for a while, and even Merrill Lynch, the U. S.'s largest brokerage firm, considered the possibility a few months back.

For some of the corporate giants, the entrance into sports has been a healthy experience. Warner Communications, for example, the giant motion picture and recording concern, took a flier on professional soccer in 1971, when it bought the struggling New York Cosmos. Thanks to a strong team, the promotion of the legendary Brazilian soccer star Pelé, and a move into a huge new stadium in the New Jersey Meadowlands, the Cosmos became an instant success, and they brought the whole concept of professional soccer to majorleague status in the U. S.

Gulf & Western has had similar experiences. In buying Madison Square Garden in 1977, caw committed itself to pro sports. Yet the company was not satisfied to sit tight with just the basketball, hockey, and horse-racing interests the purchase brought. It has since followed Warner's lead and bought a soccer team-the Washington Diplomats.

A beer-baseball the. Longtime owner Anheuser-Busch is equally pleased with its ownership of the St. Louis Cardinals baseball team. Even this year, with the Cardinals expected to lose upwards of $3 million, Busch management is hardpressed to find fault with the endeavor. Says August A. Busch Jr., the 81-yearold former chairman and chief executive officer, who engineered the purchase in 1964, "Sports in good times and bad have long been important to AnheuserBusch."

One reason the company is happy with the team, despite its losses, is the not30-subtle relationship between sports and Busch's product. "It's no secret that beer and sports go together," says Robert D. Brandon, Busch's director of marketing services. Indeed, Busch today is the world's largest sponsor of sporting

events.

That fact has not escaped the notice of Canada's three largest brewers. In fact. it has spawned a war. Toronto's Carling O'Keefe Ltd. owns the Quebec Nordiques of the National Hockey League and Olympic Stadium advertising rights for the Montreal Alouettes football team of the Canadian Football League. Moreover, it has similar arrangements for promotion and broadcast rights to Montreal Expos baseball games. To counter that spreading influence, in 1978 Montreal-based Molson Cos. paid $20 million to purchase Canada's blue-chip sports franchise, hockey's Montreal Canadiens. infighting. The one-two punch has all bu: frozen out John Labatt Ltd. from exposure in Quebec province. In Ontario. however, Labatt has sought to punch back, purchasing a 45% interest in the Toronto Blue Jays baseball team. "Our investment in the Blue Jays gives us broadcast and sponsorship rights for television and radio," says J. H. "Herb" England, vice-president for finance. "If we didn't own the team, we would have to have a long-term contract for those rights, and we feel ownership is cheaper in the long run."

The fight has not always been aboveboard, however. In 1979, when Caring O'Keefe's Nordiques and two other teams from the fledgling World Hockey Assn. sought to enter the NHL, the Molson-owned Montreal Canadiens voted against accepting the new franchises. That vote was turned around only after fans in the three cities involved threat. ened to boycott Molson products.