COVER

THE RICHES OF SPORT

HUGE TELEVISION REVENUES ARE PROPELLING THE NEW SEASON OF THE BIG DOLLAR

TOM FENNELL,D’ARCY JENISH April 9 1990
COVER

THE RICHES OF SPORT

HUGE TELEVISION REVENUES ARE PROPELLING THE NEW SEASON OF THE BIG DOLLAR

TOM FENNELL,D’ARCY JENISH April 9 1990

She is only 14 and she has only been playing professional tennis just over a month, but already a clothing company and a racket manufacturer have agreed to pay Jennifer Capriati, a Grade 8 student from Wesley Chapel, Fla., more than $5.8 million over the next five years. Capriati is only the latest athlete who has caught the tidal wave of money sweeping the sports industry. Late last month, the NFL’s Buffalo Bills agreed to pay star quarterback Jim Kelly a record $24 million over the next seven years. A year ago, the Dallas Cowboys were sold for a stunning $190 million, and television schedules are brimming with sports of all varieties, including special skating appearances by 1988 Winter Olympics gold medallist Katerina Witt of East Germany who has turned professional. Said Los Angeles Kings owner Bruce McNall: “We are just seeing the beginnings of an explosion in sport.”

It is the season of the big dollar. Next week, North America’s 26 major-league baseball teams will begin their lockout-delayed season with a record 152 players on their payrolls who will earn $1 million or more this year. When the NHL playoffs and Masters Golf Tournament get under way next week, they will be only the latest addition to the booming business of sport. Fed by television advertising—and events featuring everything from the artistry of Wayne Gretzky to the boorish behavior of wrestlers—the sports industry has become North America’s 22nd-largest industry, eclipsing even the petroleum, lumber and air-transportation sectors. The big money has touched every aspect of sport. It can be found in the series of multibillion-dollar television contracts, such as professional football’s new four-year, $902-million deal with NBC, the rise of the $3-million men in baseball and a new level of marketing opportunities for companies and athletes selling everything from underwear (former baseball pitcher Jim Palmer) to luxury cars (golfer Jack Nicklaus).

Star: The prospects for continued bliss in the marriage of sports and television, with its glamorous images of sex, power and conquest, are very bright. Transatlantic football and hockey leagues are being organized, the European market for televised sports is mushrooming, and municipalities across North America are building luxury private boxes in new stadiums to cater to wealthy corporate clients. And owners such as McNall will continue to purchase such star players as Gretzky, who along with his wife, actress Janet Jones, are basking in the sports spotlight in Los Angeles (page 46).

But the sports boom has many critics. Bruce Kidd, a star Canadian middle-distance runner in the early 1960s, who is now an associate professor of physical education at the University of Toronto, says that professional sport has been hurt by rampant commercialism. Some critics also complain that many sports have been so swamped by advertising that the players resemble little more than walking billboards. And with so much money at stake, some governments are now openly promoting sports gambling, even while antigambling groups attempt to restrict the phenomenon (page 50).

According to the WEFA Group of Pennsylvania, a private economic-forecasting firm, total revenues generated by sports of all types in Canada and the United States—from the sales of tickets to the purchase of tennis shoes—is more than $88.5 billion annually. And over the next 10 years, WEFA projects that total spending on sport in North America—on everything from ski trips to luxurious resorts—will nearly double to $160 billion. By the turn of the century, WEFA also predicts that U.S. and Canadian companies will be spending $13.8 billion per year on sports advertising—3 1/2 times as much as they currently spend. And globally, WEFA estimates that sports advertising will increase more than sixfold to $30 billion.

Money: As well, so-called recreational athletes are spending more money than ever before on products and services ranging from tennis racquets to golf vacations. The Toronto-based sports-marketing firm Christopher Lang & Associates estimates that Canadians spent close to $4.5 billion on sporting goods in 1989 (a 21.6-per-cent increase over $3.7 billion in 1987) and another $3.7 billion for the use of facilities at ice rinks, fitness clubs, golf courses and bowling alleys. In total, according to estimates, the average Canadian family spent about $400 to participate in sports in 1989— and nearly two-thirds of that money went to athletic shoes, ski outfits, gym wear and other equipment.

But television, with its voracious appetite for new sports programming, is clearly the most powerful force propelling the business of sport. Audiences worldwide seem to have an unquenchable thirst for ever more diverse fare, and satellite technology places a growing array of sports on television. Roger Werner, president of ESPN Inc., a 24-hour-a-day sports channel that reaches 56 million American households, says that the growth in U.S. cable networks and sports specialty channels has created vast new television audiences, as well as a growing demand for more obscure sports to broadcast.

Some industry executives are even gambling that sports will be able to compete against expensive prime-time dramas in the future. In the United States in recent years, CBS’s primetime entertainment programming has consistently come third in the ratings behind network leader NBC and second-ranked ABC. But Jay Rosenstein, vice-president of programming for CBS Sports is countering with a plan to use sports programming, primarily the baseball playoffs and World Series, to conquer its prime-time opposition over the next four years.

Fierce: The fierce struggle among the networks and cable companies for the right to broadcast sports has led to bidding wars that are just as competitive as a sudden-death playoff game. The resulting contracts have been so large and lucrative that they have changed the very nature of professional sports. The sports fan, who was once the foundation of every successful franchise, has been pushed aside by corporate interests and television, becoming a bit player on a large stage.

In fact, major-league baseball and the NFL now earn more money from television contracts than ticket sales. Indeed, some leading sports executives say that they believe fans will become disillusioned with the hype and commercialism of contemporary sports. And while the NHL has yet to sign a major U.S. contract, the size of the TV contracts for the other three major professional sports has even astonished hardened broadcast veterans. ESPN’s Werner told Maclean’s: “What’s driving the hyperinflation in TV sports is increasing competition and a shortage of good products.”

That problem has resulted in a financial windfall for major professional sports franchises. All 26 major-league baseball teams will receive $17 million per season from 1990 through 1994 as a result of a $1.2-billion contract signed with CBS in 1988. In addition, baseball will receive a further $480 million from ESPN to carry 175 games per season over four years.

Bonanza: The NBA, led by such stars as Michael Jordan of the Chicago Bulls, has also shared in the television bonanza. Last year, the professional basketball league signed a new four-year contract with NBC worth $720 million, up from $207 million in the league’s previous deal with CBS, which ran from 1986 to 1990. Despite the seemingly huge television payouts, Jerry Buss, the silver-haired owner of the former world champion Los Angeles Lakers, predicts that future contracts will be even larger. Said Buss: “We have just begun to scratch the surface of where television fees will be.”

A glimpse into just how rich the future of professional sport can be occurred on March 9, when the owners of the NFL’s 28 teams signed a $902-million broadcast deal with NBC. The agreement followed a series of television contracts with other networks that will pay the NFL $3.3 billion over the next four years. As part of the NBC agreement, the NFL agreed to add two more teams in the playoffs and one more week of season play. Says Pat Bowlen, an Edmonton businessman who owns the NFL’s Denver Broncos: “Leagues and teams could not exist without TV revenues. But where would television be without sports?”

Record: And while they bid furiously for the rights to broadcast major professional sports, the networks are also investing ever-increasing amounts in amateur sporting events. They range from the Olympics and U.S. college basketball games to Canadian college football, hockey and volleyball. In 1989, NBC paid a record $481 million for the rights to the 1992 Summer Olympics in Barcelona, and last November CBS paid a record $1.2 billion for a seven-year contract to broadcast the National Collegiate Athletic Association (NCAA) championship basketball tournament. Said CBS’s Rosenstein: “When you have so many major contracts coming up for renewal at the same time it creates a sense of frenzy.”

But while corporate sponsorship and television contracts generate huge revenues for owners and players, critics complain that many sports have virtually been taken over as an advertising vehicle. There are few sports in which the influence of sponsors is as obtrusive as professional golf. The PGA Tour encourages the local organizers of each of its 50 annual tournaments to find a sponsor who will agree to pay the cost of half the advertising time on television broadcasts of the event or put up most of its prize money, which this year will average about $1 million per tournament. Fully 31 of the PGA’S 50 tournaments now are named for a sponsor. As well, the PGA Tour has 23 official suppliers of goods and services for all of its events.

But the blurring of the distinction between the sport and its promotional function disturbs many golf traditionalists. Hord Hardin, for one, the chairman of the 56-year-old Masters golf tournament, says that he hopes that the annual classic in Augusta, Ga., which takes place this week, will never have a named corporate sponsor. He also says that he wants to guard the tradition of limiting commercials to four minutes an hour, compared with an average of 13 in other major tournaments. Said Hardin: “When you get commercialism involved, it takes the focus away from the golfers.” Hardin adds that he particularly dislikes the endorsement arrangements that turn the players into walking advertisements.

Health: Other critics argue that the commercial exploitation of sport has obscured what many people still consider its most important roles in society: building character, promoting better health and bringing communities together. The University of Toronto’s Kidd, who has written extensively on the economics of sport, says that overwhelming corporate influence “has altered the primary purpose of sport to one in which bottom-line considerations are dominant.” Even some powerful professional sports executives share Kidd’s concerns. Said NFL commissioner Paul Tagliabue: “We have to maintain the traditions. That’s part of what most fans bring to sport, and that has to be nurtured.” Kidd also maintains that the overwhelming pressure to perform for corporate sponsors and governments has driven some amateur athletes, including sprinter Ben Johnson, to use anabolic steroids and other performance-enhancing drugs. Says Kidd: “Athletes end up shaping, sculpting and paring their bodies to meet the marketplace requirements.”

In Johnson’s case, his coach, Charlie Francis, transformed him from a skinny teenager into the world’s fastest man—and Johnson’s earnings were transformed accordingly. The year before the 1988 Olympic Games in Seoul, the runner was earning an estimated $1 million a year, most of it from lucrative endorsements for companies including Toshiba of Canada and Mazda Motor Corp. of Japan. But when tests at Seoul revealed his use of banned performance-enhancing anabolic steroids, Johnson lost not only a gold medal, but also potential endorsement revenues worth an estimated $10 million.

Huge: The lure of big money is also forcing universities in the United States into a high-stakes fight for television revenues. Indeed, while the 28 NFL teams have maintained a united front in their negotiations with the networks, U.S. universities have fought among themselves for the huge fees from national television contracts. In February, Notre Dame University in South Bend, Ind., signed a separate, $45-million deal with NBC to broadcast six of its home games each year for the next five years. In so doing, it defected from the College Football Association, an alliance of 64 universities attempting to negotiate a comprehensive deal with ABC and ESPN. The Roman Catholic university, whose Fighting Irish football team’s exploits have become part of American legend, has one of the highest TV ratings of all U.S. schools. Within days of Notre Dame’s defection, the other association members had to settle for $60 million less— $360 million—in order to obtain a five-year deal.

In some instances, the pressure on communities to attract and keep major sports franchises is almost as intense as the pressure on athletes to win. In the NHL, arena owners are considering demolishing a number of venerable old sports shrines, including the Montreal Forum, the Boston Garden and Chicago Stadium, in order to generate more revenues by building larger stadiums. And since player contracts alone cost millions, teams need larger rinks to generate more money. As well, some communities are selling the valuable land that these old arenas sit on to attain large property increases. The Vancouver Canucks and Winnipeg Jets are now trying to pressure their city councils into financing new arenas. Jets president Barry Shenkarow says that a state-of-the-art arena with a capacity of about 20,000 seats should have at least 2,000 seats set aside, either within private boxes or in special sections, that can be sold for an average of $4,000 per season. Added Shenkarow: “You just can’t compete if you haven’t got the corporate community behind you.”

Driven by the hope of profits and the search for status, dozens of communities across North America are eager to acquire expansion franchises, or teams that have faltered in other cities. Earlier this month, Al Davis, the owner of the Los Angeles Raiders, agreed to examine a written agreement by Oakland city council that could possibly be the richest deal ever given by a city to a sports franchise. The agreement would move his Raiders to Oakland in 1992 from Los Angeles. As part of a complex package worth $792 million, the city guaranteed the Raiders at least $33.6 million in ticket income a year.

Oakland is not alone in seeking to enhance its image. Businessmen and local politicians from 30 municipalities, including Hamilton, Miami and Seattle, have approached the NHL about establishing expansion teams in their cities. As a result, the NHL has formed a committee of team owners to examine the possibility of awarding three new franchises, at a cost of $50 million each. And that cost will likely soar even higher in future. Says Alan Eagleson, executive director of the National Hockey League Players’ Association: “A lot of people are standing out there saying, ‘If I could only get a sports franchise, everybody would know me.’ ”

Even though North America already appears to be a congested market, sports promoters are attempting to form two more professional hockey leagues and a new football league. Gordon Stenback, president of Cleveland-based Gordon-Thomas Communications Inc., is trying to organize a six-team North American Hockey League, which would operate in non-NHL cities beginning in November. Even more ambitious is the Global Hockey League proposed by Michael Gobuty, a former owner of the Winnipeg Jets, in which 10 teams in North America and a minimum of six European teams would begin play in November.

Operating: Competition with teams in so-far undisclosed European cities is also the cornerstone of the proposed 12-team World League of American Football (with NFL team owners as its shareholders), which is scheduled to begin operating in March, 1991. World League vice-president Joseph Bailey says that he began organizing the new league after being approached in late 1988 by ABC and NBC executives who were convinced that both TV audiences and sponsors would support a spring league with a schedule running from March until June. Said league president Tex Schramm, former president of the Dallas Cowboys: “We believe American football will be one of the leading trendsetters as the world moves to the new era of globalization in the 21st century.” Indeed, as the big business of sport continues to boom—propelled by television, and an increasingly health-conscious society—the world is on the verge of being turned into one giant playing field.