Money In Sports :: The Sport Business Parallel
New research has suggested the adage ‘it’s not what you know, but who you know’ is one to avoid in business.
Networking is seen as the way to progress a career, but companies hiring through business contacts could be harming their performance. By using the data-rich world of professional basketball researchers analyzed the signings and performance of every team in the National Basketball Association (NBA) in the US fro m 1977 to 2011.
In the paper Managers’ external social ties at worth blessing or cursing for the firm?, published in the Journal of Economic Behavior & Organization, Leif Brandes, of Warwick Business School, and Marc Brechot and Egon Franck, of University of Zurich, found that those teams who signed players through their managers’ contacts at his old clubs produced a lower winning percentage than those sides that didn’t do this.
Far from the manager’s contacts giving them inside information of money in sports, it seems to have produced a negative effect on the team.
Dr Brandes said: “We found teams with ‘tie-hired – players’ – that is those where the manager signed the player through former colleagues on the coaching staff or among the owners at one of their old clubs – win 45.2 per cent of their regular season games, while teams without such players win 50.2 per cent of their games. And that is after controlling for a team’s budget and quality differences in teams and managers.
“Anecdotally it seems firms often seek well-connected employees, but our industry-wide analysis shows the hidden costs of such hiring practices.
“Pre-existing strong social ties to colleagues at a former business in the same industry are potentially very influential as they create opportunities for various deals and transactions. But our study found evidence that such external business contacts interfere with a company’s ability to select the best transaction partner.”
Such was the negative result in the NBA that teams risked losing a place in the play-offs when signing a player from a side with ties to their manager as in 64 per cent of the seasons studied the five per cent fall in the win ratio would have been the difference between a team finishing eighth and ninth, just outside the play-off spots.
In spite of this negative performance effect, Dr Brandes and colleagues found that the 146 active managers between 1977 and 2011 were on average 32 per cent more likely to acquire players from teams they had been at before than from unrelated teams, resulting in a total of 190 tie-hired-players.
“We also found the negative performance effect is entirely driven by managers under team owners who do not have strong incentives to scrutinize their manager’s decisions,” said Dr Brandes. “These are owners who have brought in the manager, so will give them more leeway as firing them means they are admitting to a mistake”.
“If the owner arrives after the manager, the manager is scrutinized more as he is easier to fire, because they are correcting somebody else’s hiring mistake, and not their own.”
Information on manager turnover in the NBA supports the idea that new owners engage in stronger monitoring: within one year of an ownership change, 48 per cent of pre-existing managers are replaced. This would suggest under new ownership a manager would come under far more scrutiny.
The money in sport findings suggest managers use their social network to reduce time and expense in looking for a business partner in the short-term and not to maximize performance in the long-term – which would be in the best interest of shareholders or owners.
Dr Brandes added: “While the setting of this analysis is unusual, the results of our study have fairly broad implications. Several studies in the management and economics literature reveal that employees” external social network influences their decision-making on behalf of the firm, for example, in connection with hiring, financing or investing.
“The fact that these business ties persist beyond shared working experiences makes them potentially influential in decisions made on behalf of the company. Basketball provides a data-rich environment to explore what effect these ties outside the company have on performance and we find the negative effect of a manager’s business contacts is large. It is something managers and companies need to consider when making decisions in both hiring and in other transactions.”
MONEY IN SPORTS – TVSM GLOBAL REPORT 2015
Sports media rights have grown strongly in value almost everywhere in the world in the last five years, despite problems in the wider global economy. The TVSM Global Report 2015, a new publication from TV Sports Markets, illustrates and explains this growth story…
$36.8bn – The total, global value of sports media rights deals in 2014 (an increase in value of 34% since 2010).
Breaking down the money in sports a little, the big movers include…
$2.9bn – Increase in value of media rights for football, the worlds most valuable sport, in 2010-2014.
$4.6bn – – Increase in value of sports media rights in the US, the world’s most valuable market, in 2010-2014.
52% increase in the value of the National Football League, the world’s most valuable sports property, in 2010-2014.
WHAT IS BEHIND THE GROWTH OF MONEY IN SPORTS?
There are many reasons, and they vary from market to market but among the biggest factors are:
Increasing penetration of pay-television.
Emergence of aggressive new players in rights markets, operating on global (e.g. Fox International Channels, Discovery Communications) and local (eg BT Sport) levels.
Sports organizations becoming smarter at exploiting their media rights increasing their money in sport.
New, media-friendly competition formats, such as Twenty20 cricket.
Consolidation in the sports-rights agency industry, with a small number of wealthy companies paying strategic fees for rights.
Fragmentation of television audiences, due to an increasing number of channels and online platforms, reducing the types of content which can regularly deliver large audiences.
Economic growth in Asia, Latin America and Africa.
THE FUTURE OF MONEY IN SPORTS
Many of the reasons above will continue to apply in the next three years, so between 2014 and 2017 our expectations include:
21% increase in the value of the global sports media rights market.
92% increase in the value of basketball rights.
29% increase in the value of sports media rights in the Indian subcontinent.