Whose Money Is It, Actually?

On the Michael Kay Show this week, while talking about the Yankees attempts to sign DJ LeMahieu, Kay said something you hear a lot from sports radio guys and ESPN pundits. Dismissing calls from fans who want the team to pay whatever it takes to keep LeMahieu, he said, “It’s easy for them to say—it’s not their money!” Some version of this sentiment comes up whenever fans criticize an owner: You may not agree with what the owner is doing, but it’s HIS money, so he can do what he wants.

But whose money is it, really? Sports teams make money from the tickets they sell to fans, the merchandise they sell to fans, and the rights to air games watched by the fans. All revenues in sports are ultimately derived from the fans. And what do the owners do to earn this revenue? It’s really hard to say. In an economics class, they will teach you that business owners exist to provide capital to launch and sustain a business, as well as guidance to oversee it while it competes for customers in a competitive marketplace.

But this is not how sports teams work. A fan not like other “customers” and teams are not like other businesses. The supply of teams is controlled by the leagues themselves, not individual owners—no owner can launch a team without approval from the league, nor can an owner shut a team down (if an owner wants out and there’s no buyer, the league will simply buy the team itself until it can find someone else) or even move it without permission. And owners don’t compete over fans with the quality of their product the way Apple and Samsung compete over customers with the quality of their phones. They inherit their fans based on their location and the overall success of their sport. The money fans spend on a sport technically goes to the owner, but it is not really a function of anything the owner does. So it’s a little perverse to think of it as “their money.”

Owners can do certain things on the margins to increase or decrease revenue from fans—they can spruce up their venues, do community outreach, or pay for an exciting free agent. But ultimately they are relying on fans having a deep connection to the sport and the team, and this connection is not with the owner. The players and the history and the city are what creates fans with strong allegiances—the owners simply reap the rewards, regardless of what they do. Fan allegiance is a stubborn thing that can survive almost anything an owner does to undermine it. And since revenues from the sport are shared throughout the league, ultimately the owners’ influence on the value of his or her franchise is minimal.

This is not to say that owners don’t matter—any Knicks or Mets fan will tell you that they do—but they matter mainly by getting in the way and letting their own personal issues influence the team. This doesn’t often hurt the value of the franchise, but it can screw up the team and anger the fans, whether it’s James Dolan throwing people out of the arena for hurting his feelings, Fred Wilpon getting swindled by his friend Bernie Madoff, or Jerry Reinsdorf hiring his friend as manager. The best owners are the ones fans never hear about. So, again, what value are they providing that makes it “their money”?

The other way the “it’s their money” line gets justified is regarding the massive amounts of money that owners now pay for teams. Steve Cohen just paid an ungodly sum for the New York Mets, and teams in all sports now routinely go for over $1 billion. If owners are investing these amounts of money, the thinking goes, then surely they can run the teams as they want. Except that the teams are virtually always a good investment, rising in value far faster than the rate of inflation, almost independent of what the teams actually do, so the owners actually incur very little risk with these purchases.

Owners want to have it both ways, continually complaining that business is bad while still seeing the value of their assets skyrocket. And because owners are so irrelevant to fans, that increase is assured even for teams that are horribly managed. Donald Sterling was a laughingstock of an owner for three decades, presiding over a perennial loser that won only one playoff series in nearly three decades, moving the Clippers to Los Angeles without league approval, and then embarrassing the league with racist comments that ultimately led him to have to sell the team. For his trouble, he made $2 billion, a nearly 6,000% return on his initial investment, adjusted for inflation.

That the Clippers increased so much in value is not even particularly surprising. There are a fixed number of NBA teams; Los Angeles is a big city where basketball is very popular; revenue sharing and other competitive balance rules ensure that even a terribly run franchise can produce a good team every now and then. Indeed, by the end of Sterling’s disastrous reign, the Clippers were in the midst of an amazing run because two franchise players had fallen into their lap—Blake Griffin via the draft and Chris Paul via a fishy trade. A lot of things were responsible for the Clippers’ increase in value, almost none having to do with Donald Sterling… and yet somehow it’s “his money”?

In other words, the money in sports is entirely a function of the fans, who provide the revenue, and the players, who create the product that attracts fans in the first place. The owners offer nothing. They are not contributing to the sport by risking an investment or improving the quality of the product. They are not bringing fans to the game or players to the sport. To insist that the money involved is “their money” is to simply state a matter of faith. It is only “theirs” because we make it so, because we accept, as a premise of our economic system, that there must always be an ownership class skimming revenues off the top, because the money is simply “theirs.”