When It Comes to Sports, Will Europe Become American?

EUROPE AND AMERICA HAVE TWO DIFFERENT BUSINESS MODELS IN PROFESSIONAL TEAM SPORTS. HOWEVER, WHEN THE EUROPEAN SUPER LEAGUE REPLACES THE EXISTING CHAMPIONS LEAGUE, THE WINNING MODEL WILL BE APPARENT

by Piero Almiento, SDA Bocconi School of Management
Translated by Alex Foti

European sports is rushing towards the transformation of its most important soccer tournaments. The idea of a European Super League, which would favor the great European clubs at the expense of national championships and smaller clubs, is the most striking example of the clash between two different business models in sports, one American, the other European. In the US, marketing is adapted to sports in order to maximize profits. In Europe, instead, profitability is important but also sociology, demography and law need to be taken into account.

The two models have differing implications for the sustainability of the sports industry, whose main sources of revenue are: individual consumers purchasing goods and services linked to sporting events (tickets, food and beverages, merchandising); private companies (sponsorships, advertising banners, TV rights); government aid.

In the past, thanks to public funding (which has now dried up), Europe could afford a less marketing-oriented approach. With the reduction of subsidies, European sports organizations now compete in the market for global entertainment, where the American organizational model is more functional, as is evident from the strategies adopted on two fundamental marketing aspects.

Firstly, for a company, the economic prospects of a project depend on its remaining on the reference market for the time needed to recoup the return on investment. The US organizational model for sports leagues respects this principle, since professional leagues such as NFL, NBA, NHL are closed both on the inside (no promotions and no relegations) and on the outside (teams can only take part in League championships). The European model, on the other hand, is based on a system of national federations and is open on the inside: national championships have mechanisms for advancing and relegating teams, as do European tournaments. In short, every in Europe every year market actors can change, while in the US they usually cannot. Across the ocean, they have well understood that one shouldn’t pile up additional uncertainty onto the intrinsic uncertainty of results in the field, by having a continuously changing industry landscape.
 
Secondly, in sports the combination of uncertain results and strong competitiveness between teams produces a compelling show, which guarantees the highest profit. The American model posits that the League’s task is to impose checks and balances to keep the playing ground level. These are: the draft system, whereby the weakest teams get to choose first which new players should be put under contract, and the salary cap, which sets a maximum for players’ compensation, by tying it to game receipts. In Europe, on the other hand, the market for players is freer: there is no limit on salaries, and the richest clubs dominate the market. Striking the right competitive balance is not a strategic goal.

The right balance can also be attained through the allocation of economic resources. United States and Europe differ significantly in the sharing of television rights and box office receipts among teams. In the US, national TV rights contracted by the League are divided equally, while each company negotiates contracts with local media. In Europe, just a portion gets shared equally, while a substantial part is proportional to fans’ followings.

In North America, the distribution of ticket revenues between home team and host team changes according to the sports in question, but on average it gives a higher share of receipts to away teams with respect to Europe. In short, Europe will have to go through major changes and especially overcome cultural obstacles, if it wants to evolve towards the pragmatic and marketing-oriented American model.