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The nature of sports business
Cracking big money insanity
11/14/04 - by Fred Begin

The Big Fix
Assuming we can look at the broad-brush income and expense, and realize that there is a wide variance from sport to sport and franchise to franchise, what next? Let's agree that we want sports entertainment. Let's agree that we want sports entertainment in the cities that currently have the teams. Let's agree that if things make sense, we want to allow for expansion to share our pleasure with new and growing markets. Let's agree that the owners are entitled a profit. Let's agree that the players are entitled some form of exorbitant pay. What is the right formula? I think we should look at a graduated flat salary, with incentives and premiums. What does this mean . . . please bear with me.

I think all sports should have a flat salary guaranteed, based upon time of service. The leagues and unions can figure out their scale. Base it upon games played, years in service, add in some compensator for minor league shuttle players. Make no adjustment for the position, as that is handled below. Make no allowance for signing bonuses. I think it is ridiculous to pay millions to someone who has never touched a pro ball in play. Set a scale, $100,000 per year, $50,000 for every 20 games, some sort of progressive format, fitting the sport and giving credit for experience.

I can't begin to guess at the right amount because I do not know enough of the internal economics by sport. We are simply looking at time served with step-ups. Some sports have longevity and other don't. 164 games in baseball or 16 in football, but a general formula could be reached. Perhaps the steps begin to decrease after a period to time and level off. This might force some to retire early, if they have diminishing returns.

If we can agree to a simple step format for the base sports, then all contracts should be loaded with incentives. It is impossible to compare the home run king with the rookie shortstop. How do we measure a goalie against a shooting wing, shooting guard against defensive center or hot dog wide out against a nose tackle? Simple.

Level 1 Incentives - Individual Achievement. $5,000 for each homer. $5,000 for each sack. $1,000 for each 3 point conversion. How about $1,000 for each strike out. Make a save have value or runners stranded on base. $1,000 for every one in a double play. $500 for each shot on goal and $1,000 for each goal scored. Conversely, $500 for each blocked shot. Every sport has its special stats. Let's actually use them. However, we want to balance them out. We don't want every weenie short stop swinging for the cove. We get to balance performance against actuarial expectation. You knew stats would lead to bean counters, right? Statistically, we could figure out how many events are expected in a season and budget backwards.

Level 2 Incentives - Defensive Bonus and Failure Penalties. If you have some sport with defensive specialists, then if you figure out how to bonus them, then you can also figure out penalties for failure. Example, if you have a catcher who can't hit over the Mendoza, but you want him cause he calls a good game, controls a pitching staff or has a cannon for an arm, so be it. Bonus the catcher for the strike outs too, add in the throw outs. But ding him for successful steals, or pass balls. How about that huge center who couldn't sink a 3 point shot if it were a technical, but gets 20 blocked shots and 20 rebounds a game. This is not a necessary level, as you could blend them into Level 1, but it represents other levels of thought.

Level 3 Incentive - Team Incentives. Sports are filled with enough prima donnas. You want to encourage team play and success. If their individual efforts contribute to team success, then everyone profits. You can't say that they don't want to win. How often do we hear about players looking for a trade, even for a "lesser" contract in order to get the ring or kiss the cup? Bonus the whole team for every win over a certain threshold. Bonus the team for play off wins. Bonus the team for championship wins. Some of this is done now, but there is room for restructure. Since we are always comparing media market size and share, this team level bonus would be a prime way to redistribute revenues to the smaller media markets. In these play off games, I would imagine TV revenues increase as well, so there is your primary source.

Level 4 Incentives - Draft Bonus. A personal favorite of mine. We hear about rivalry in sports. From lower grades to the pros. Why not foster more of that. For every sport, we know how many players are typically drafted each season. Figure out some flat value per player in the draft. Owners pay in to a draft fund some amount, even per franchise. Ownership has some sense of territory or region. For every local player drafted, if a local franchise drafts the local player, they get a draw from the draft account. You can have two amounts, a larger amount for the local boy at the local school or a lesser amount for the local boy coming home for the pro sport.

Obviously, for hockey this would be really difficult as there isn't a lot of winter ice in Phoenix or Dallas. But for most other pro sports, we can draw from the local colleges. If you do, you deepen rivalry and probably broaden fan base. That bonus can be split between the franchise, the player or even the school. This could eliminate or balance the signing bonus. It also will tighten the relationships between local schools and the local pros.

I haven't done the math. I think these are some interesting of not good ideas. It could balance the playing field in so many different dimensions that I think we would all benefit. As it is no one benefits from sport on strike or lock out. So, take these ideas for what they're worth. If you like them, then pick up my next hot dog and beer for me. See you at the park, stadium, coliseum or field.


Contact Fred at fbegun@yahoo.com


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