Sports Labor Strife Has Long-Term Effects

Professor Mike Lewis

Mike Lewis is an Associate Professor of Marketing at Emory University's Goizueta Business School. PHOTO: Allison Shirreffs

The following is a guest commentary from Goizueta marketing professor Mike Lewis.

As NFL owners and players continue their negotiations on a new collective bargaining agreement and an owner-imposed lockout continues, my thoughts stretch back to how past collective bargaining agreements across multiple leagues have affected fans.  As a sports fan, I think these agreements have too often been about players and owners focusing on their short-term interests with too little attention being paid to how it affects the fans.  As a marketing professor, I believe these agreements have often been negotiated in a manner that harms the relationship between the consumer (the fans) and the brands (the players, teams and leagues).

The most dramatic example of how a collective bargaining agreement can impact fans is instances where strikes or lockouts result in the cancellation of games or the use of substitute players.  The Major League Baseball strike of 1994 and 1995 is a prime example of how a work stoppage can have short- and long-term negative consequences.  The strike itself directly cost teams on average around 1.5 million lost ticket sales.  The strike also resulted in extended periods of reduced attendance, lower World Series ratings, and maybe even a loss in prominence for MLB relative to the NFL.

While sports fans are intensely brand loyal, strikes and lockouts represent a severe betrayal.

Baseball’s post-strike attendance woes were exacerbated by teams implementing ticket price increases of  more than 15 percent in the year following the strike.  Imposing price increases in the aftermath of an epic service failure like the strike was an epic marketing mistake.  Rather than try and mend its relationship with fans, teams essentially told them they needed to give more.

For players the consequences of a lost season are even more severe.  Athletic careers are short and the loss of a season costs players an enormous chunk of salary and may harm his/her legacy.

Collective bargaining agreements are often focused on salary caps and revenue sharing. These policies are motivated by the long-running belief that competitive balance makes leagues more appealing.  The NFL shares the most revenue and has been the most successful in producing competitive small market teams.

The last two Super Bowls featured teams from Indianapolis, New Orleans, Pittsburgh and Green Bay (small- to mid-size markets) while the previous two World Series featured teams from New York, Philadelphia, Texas (Dallas-Fort Worth) and San Francisco.

The ability of small market teams to compete for championships has important ramifications because on-field success is a central means by which teams develop brand equity.  In addition to using less overall revenue sharing, MLB also increases revenue sharing transfers when local revenues are lower. This means teams can earn greater revenue sharing dollars by attracting fewer fans.  This allows small market teams like the Royals and Pirates to generate revenues through decisions (low payrolls and limited, on-field success) that in the long-run harm brands.

While there are occasional pushes to reduce revenue sharing by NFL owners, the fact that the practice is not a current issue bodes well for the league.

Salary caps can also change the behavior of teams and players in unexpected and perhaps inopportune ways.

The NBA is unique in that salary caps are instituted at both the team and player level.  An important consequence of the individual level salary cap is NBA owners financially benefit from possessing stars to a greater degree than owners in other leagues.  This occurs because in other leagues players are able to negotiate salaries that capture the vast majority of incremental revenues they produce for clubs.  This has led to a situation where NBA teams often manage rosters to clear cap space in order to compete for free agents.  This may be detrimental since teams may be more focused on cap space than winning.

Limits on individual salaries may also lead stars to make career decisions they believe will grow the value of their individual brands (i.e. endorsements).  The NBA provides an instructive example of this type of behavior.  The recent trend is towards stars converging to large markets that already possess talent.  Players understand their individual brand names may be enhanced when they play in larger markets and, more importantly, when they are part of championship teams.  LeBron James (through free agency) and Carmelo Anthony (through forcing a trade) are the most notable examples of this kind of “brand” management.

Finally, we can speculate about the consequences of some of the key items being negotiated by NFL owners and players.

The sometimes discussed extension of the season to 18 games would seem to be a change that fans would embrace.  Fan attendance is far more constrained by capacity than in other leagues but this extension could have unforeseen consequences.  Given that the average player career is just 3.5 years, the players are justifiably concerned that increasing games could lead to a shorter career (and the ability to build personal brands).  Alternatively, extending the season may necessitate rule changes to better protect players.  This may seem a minor issue but last year’s crackdown on violent hits has already created controversy.

Another interesting proposal is for a rookie pay scale.

While the rookie pay scale is generally uncontroversial it could have unintended consequences.  The proposal is viewed as less contentious because reduced rookie salaries could result in more money being diverted to veteran players.  My suspicion is that limiting rookie salaries will result in a greater emphasis on young players and a higher value placed on draft picks.  By reducing the costs of rookie players this type of salary cap may place downward pressure on veteran salaries since rookies and veterans are substitutable.  College players may also be more likely to enter the NFL draft earlier since the quicker they sign a rookie contract the quicker they reach free agency.

For the NFL owners and players there’sharm in cancelling a whole or part of a season.  Rather than treat the negotiations as a zero sum game with winners and losers, the NFL should take the opportunity to develop an agreement that works for all parties and creates a league that is more appealing to fans.

Mike Lewis is an Associate Professor of Marketing at Emory University’s Goizueta Business School. Past research has focused on sports brand issues, political campaigns and customer relationship management.  His areas of expertise include CRM, revenue management, nonlinear and dynamic pricing, sports marketing and political marketing.

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