How do Sports Leagues & Teams make money?
Sports is a universal topic that can break borders and boundaries and is loved by pretty much everyone on this planet. The global sports market was worth $354.96 Billion in 2021 and grew to $496.52 Billion by 2022.
The major sports leagues of the world, from Premier League Football in England, the NFL and NBA in the US, F1 Racing, UFC and IPL in India, are some of the largest spectacles in the world, having massive fan bases. This obviously translates into big money.
Before exploring the different revenue streams for sports, let’s first look at some of the major expenses sports teams incur to better understand the sports industry's financial model.
- Players salaries and benefits
- Marketing and Public Community Relations
- Finance
- Administrative
- Stadium related expenses
Now let’s have a look at the different ways sports teams make their money.
- Broadcasting Revenue
- Ticket and Concession sales
- Winnings
- Sponsorships
- Merchandise
- Player contracts
Most sports leagues’ primary source of revenue comes from broadcasting revenue. The NFL (American Football) recently signed a 10-year $100 Billion deal with several networks. In 2019, the UFC (MMA) signed a 5-year, $150 Million / year deal with ESPN for broadcasting rights. F1 pays each team $36 million annually through its broadcasting and sponsorship deals. The NBA (Basketball) signed a 9-year, $24 Billion deal with Disney’s ABC/ESPN and Warner Brothers in 2014. They’re looking to pursue a $50 Billion - $75 Billion deal for its next multi-year extension. A portion of the money coming from this broadcasting is shared with the teams in the league. Teams can also make more money from separate deals with local media companies. In 2017, the Los Angeles Lakers earned $149 Million from local media right deals, especially from Time Warner.
Another way sports teams make their money is through ticket and concessionary sales plus other smaller sources of revenue such as parking. In the NBA, each team would host a total of 41 games. Ticket prices average at around $100 per ticket and there are usually close to 20,000 fans in attendance per game. At the height of the COVID-19 pandemic, fans couldn’t physically attend matches – and this resulted in massive losses for sports leagues. Here are some of the estimated losses due to no-attendance
- NFL: $4 Billion
- NBA: $1.5 Billion
- MLB: $3 Billion
- Premier League: $2.5 Billion
It is estimated that 10%-40% of the revenues made by professional sports leagues come from tickets, concessions, merchandise, parking services and more.
Merchandise deals is another major revenue source for sports leagues and teams. The NBA signed an 8-year, $1 Billion contract with Nike for an official apparel contract. The UFC signed an apparel deal with Reebok which was valued at $80 Million over its 6-year lifetime.
Sports Teams also get paid by the league for how well they perform each season. In F1, the champion received $61 Million, whereas the team ended up in last place only ends up with $13 Million. A Constructors championship bonus, too is paid for the teams ranking high in the league.
Sponsorship money is also a key part of the revenue made by sports teams. According to Forbes, F1 alone generated $30 Billion in sponsorship money within just 15 years. Premier League Football team Liverpoool, signed a 4-year, £40 Million / year deal with Standard Chartered as their main partners. Arsenal and Tottenham have deals of similar value with Emirates and AIA respectively. Recently bankrupt FTX signed a 19-year, $135 Million stadium naming rights deal with the Miami Heat. Sports leagues can also go for title-sponsor deals, such as in the case of IPL (Cricket). Tata group has replaced VIVO as the IPL title sponsor for the 2022-2023 season by paying INR 3 Billion!
Sports teams have also appreciated in value as brands. The Golden State Warriors franchise was purchased for $450 Million in 2010. Recently, a 5% minority share of the sports franchise was sold to Arctos Sports Partners at a valuation of $5.5 Billion! The New York Mets was purchased by Billionnaire Hedge Fund manager Steven Cohen at a record $2.4 Billion which topped the previous record sale of the Los Angeles Dodgers in 2012! If your teams do well, owning a sports team appears to be quite a lucrative deal for investors.