Question

The NFL does not currently allow any team have any shareholders. Make arguments both for and against the NFL changing this rule.

Answer 1

The advantage of a public ownership structure is the ability to raise capital through stock sales. Leagues ban this ownership model in part because of this ability to create large amounts of capital. This ability only exists when the demand for stock in a particular team is strong and continuous. If a team is traded publicly and pays a dividend, then this might be the case, as buyers may view the team's stock as an investment.

Private stock does not carry this advantage. Stock sales only generate revenue during limited time periods when stock is made available for sale; the lack of a financial incentive means that those who buy the shares have other motivations, such as fandom or novelty. The pool of people who will pay hundreds of dollars for a stock share with no economic value is limited.

For example, during the Packers' last stock sale in 1997, 400,000 shares were made available for sale, but only 120,010 shares were actually sold. If the demand for stock were truly unlimited, then all 400,000 shares should have sold. If the sale had not ended, perhaps all of the stock would even-stockholder cannot be audited by the league. Other owners generally have to approve any new owners. and this is not possible with thousands or even hundreds of stockholders. The grandfathering of the Green Bay Packers precluded the need to prove their stockholders. The leagues also do not want any individual stockholder ro be able to raise issues with the league's or team's management, profitability, or other operating decisions.

Another primary reason for limitations on corporate ownership is that. at least in the United States, publicly owned companies have to release their financial information to the public. It is nor in the interest of professional sport teams or leagues to disclose their financial information. Given the Ocker prices rhe fans pay; the cost oi merchandise. memo, and sponsorships; and the repeated requests for public money to fund facilities; revealing team or league revenues could undermine the proffered reasons for the costs of these items. If the public could sec the revenues and annual profits generated by a team, the public may not be as willing to pro. vide taxpayer money to facilities that will be used primarily by private companies. The Green Bay Packers. even with private have to provide the public an annual accounting Oi the team's finances. Although the public and pundits appreciate this insight into the NFI% finances. the league, like most private businesses. Wants the public to know as little as possible about their finances.

Single-Entity Ownership

The newest form of professional team ownership is the single-entity model. This model was created to avoid some of the limitations caused by the application of antitrust laws to professional sport leagues. Since all the teams are owned by rhe league. they cannot conspire with one another. thus avoiding Section I of the Sherman Act. although they are still subject to 2 of the act.

The model has the league as the primary owner of all oi the teams. Investors buy into the league. investing some set amount of money. In return. these investors are granted operating control Of one or more of the teams owned by the league. In many cases, the operator can "sell" their ream to another "owner," thus another party provides moncy to the league in exchange for control of a team or teams. The individual teams are run as individual entities. but are all ultimately owned by the league. thus creating the single-entity.

Maior [.eague Sexcer ( MIS), the Womerfi National Basketball Association and the Wornetfi United Soccer Association are examples of leagues created with a single•entlty structure. MIS consisted oi 16 teams as of 2010, with expansion to 19 or 20 teams planned by 2012. The WNBA began as a single-entity league. owned by the NBA. Although MLS remains a single-entity, the WNBA does not. As of 2010, seven of the 12 teams that comprised the WNBA were independently owned. with the remaining tive teams still under NBA ownership.

Pros and Cons of Single-Entity Leagues

The antitrust advantages of a single•cnriry struc• ture are a primary reason for rhe creation of such an ownership model. However, there a number Of other advantages and disadvantages to a singleentity league.

The capital necessary to Start a single-entity league is significant. Unlike a traditional league, where individuals come together and add new memlk•rs over time. all on the finances of the individual owners. a single-entity league requires large sums of money at inception, Offices must be procured. league and team staffs hired, coaches and players paid, facilities rented or built. There must be enough teams to have a Season and a variety Of competition, so start up costs run into the tens or cvcn hundreds of million dollars. Finally. it is unlikely rhat a new league Will create a profit in the first several years, So investors also need to have additional capital to cover any operating losses.

The WtJSA spent $40 million in its first year of operation as a single-entity league, an amount that had been budgeted to last for five years. After only three years. the league suspended operations, with investors having spent over S 100 million in that period. The casc oi the WUSA shows how much capital goes into a single-entity league.

There are a lot more due to time constraints i would like to conclude with these.