Sports Broke Capitalism

A reader theory on the maddening paradox that defines this site

Why entrust Chat GPT to write my articles when I can instead rely on smart subscribers? Today, we have some trenchant thoughts outlined by a patron named Vic. He gets at what’s roiling the sports industry, and why it’s this Substack’s leitmotif.

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Ethan:

I stumbled across your work recently, subscribed, and have enjoyed it tremendously.  I have a theory on the NBA I've long believed to be true. Curious what your thoughts are.

At a high level, the logic of capitalism is that in exchange for me giving you money, you have to give me something I value in return.  The modern NBA has largely rejected this logic, giving fans far less of what they want -- stars sitting out, stars playing fewer minutes even when they do play, creating superteams, demanding trades, treating the games largely as Twitter fodder, insisting on taking outspoken political positions, disdaining the ASG, etc.  

What is crucial is that NBA players still want the benefits of capitalism (i.e. tremendous wealth) and have actually succeeded in attaining this wealth despite palpably not caring what their customers want, and actually losing customers (i.e. as you point, viewership is declining).  This paradox demands explanation.  

I suspect the answer to this paradox is two-fold:

• The vast majority of cable subscribers have no interest in the NBA, yet nevertheless pay the ESPN/Turner "tax" for sports as part of their monthly bill.  The NBA (and other leagues) are thus in the anomalous position of getting a huge slug of revenue from people that aren't willing consumers of their product; this isn't true in other businesses, entertainment or otherwise.  Imagine if anybody interested in anything Substack publishes on any topic -- politics, music, culture -- also had to also subscribe to your service.  This severs the logic of capitalism -- the NBA doesn't have to appeal to customers as much as other businesses do, because a large chunk of its revenue is totally untethered from its customers at all (i.e. non-sports fans that subscribe to cable, don't watch the NBA, but nevertheless pay $15-20 a month for sports).  To an extent, the NBA has bad customer service for the same reason the IRS does; the revenue isn't voluntary, so there is no need to keep the customer happy.  

• CPMs (the cost to advertise on TV) has gone up tremendously in response to declining TV ratings.  Basically, TV advertising is very attractive to advertisers because it is very effective.  Thanks to media fragmentation and streaming services, large TV audiences are in very short supply, and thus command a very high premium.  The NBA has benefited tremendously from this, as networks can offset plummeting ratings with aggressive ad rate increases.  Again, this price increase has nothing to do w/ the NBA's product quality; the NBA is benefitting from cord-cutting and the fact that scripted TV is just far better suited for ad-free streaming.  This has created a windfall for the NBA based on the scarcity of what it offers (i.e. a relatively large audience).  

This is crucial: in both instances, the NBA has seen its revenue grow very large for reasons having nothing to do w/ the NBA's popularity or product quality.  This has severed the capitalist link between revenue and satisfying customer desires.  Because the NBA has grown revenue for so long without having to really care about what customers want, they have grown to disdain the very idea that its job is to provide what customers want.  

Incidentally, this isn't limited to the NBA.  There is a narrative that the NFL is massively popular.  This isn't really true, or at least is true only in a relative sense.  In 2019, the highest rated show was SNF.  Its ratings however were lower than TOUCHED BY AN ANGEL in 1998 (the year I graduated high school).  There is this narrative that the NFL dominates TV.  This is true only because the TV audience has plummeted.  SNF in 2019 was far less popular than VERONICA's CLOSET in 1998.  The NFL got incredibly wealthy because it declined less than other forms of TV, making its ability to aggregate audiences very scarce and therefore very valuable.  Like the NBA, the NFL's massive windfall had nothing to do at all with growing its fan base or being more appealing to the American public.  

This sort of decoupling between revenue and popularity led sports leaders to believe the fans didn't really matter.  I suspect this dynamic underlies much of what you write about, namely the bewildering way in which sports leadership is indifferent at best, often openly contemptuous at worst, towards the desires and beliefs of its fan base.    

Franchise values have dramatically increased over the past twenty years. Generally for assets to get more valuable, the owner/capitalist has to operate them well and grow the customer base.  Pro sports franchises have been exempt from this requirement.  Franchise values appreciated across all franchises and all sports -- MLS teams are now far more expensive than what Jerry Jones paid for the Cowboys -- suggesting that the reason for the franchise value appreciation has nothing to do the acumen of specific leagues or owners. Rather, franchises have uniformly become more valuable for a variety of reasons (e.g. growth in the number of global billionaires, declining interest rates, TV money increasing due to scarcity of large television audiences) that have nothing to do with how well the businesses were run or how well they satisfied customer desires. Owners got fabulously wealthy as their franchises appreciated for reasons totally unrelated to how well they ran their franchises. 

Again, the logic of capitalism -- businesses prosper only when they satisfy customer demand and improve their product or lower prices -- simply did not apply to the business of sports. This I would argue made owners complacent and arrogant, and emboldened them to operate in ways that are bizarrely antagonistic to their fans.  

Well then.

There’s a lot I agree with here, though I slightly disagree with aspects of the NFL analysis. Veronica’s Closet numbers aside, the Super Bowl now garners about 30 million more viewers than did it in 1998. This is in stark contrast to the NBA, whose modern Finals are at less than half the viewership of its 1998 peak. So credit to the NFL, which I believe made some savvy choices while expanding its lead on everybody else.

Still, Vic is obviously correct, generally speaking, about what’s happened across professional sports. These leagues’ fortunes have been decoupled from their, well, fortunes. To be a fan is to bear witness to a post-growth bonanza that seems to defy obvious rules. Crashing customer base? No worries, we can depend on more soaring profits. For now anyway. Eventually, this whole issue of young people not watching sports will become a problem down the line for somebody.

On the NBA paradox, this is the most salient Vic insight out of many good ones:

Because the NBA has grown revenue for so long without having to really care about what customers want, they have grown to disdain the very idea that its job is to provide what customers want.  

It’s a subjective, sweeping assessment, but seems true enough. It also makes sense. If your incentives aren’t fully aligned with making customers happy, you’ll start to resent a customer who demands happiness. To focus on the most public facing aspect of the operation, player salaries have ballooned while league popularity has shrunk. If you think the athletes of this era are annoying, perhaps it’s not social media that’s the root issue here. Maybe, instead, it’s simply that these players don’t think they need you and are acting accordingly. They’ve certainly been paid accordingly.

There are a lot of questions connected to the post-growth boom paradox in sports. Sports is the odd business that must be more than a business. To be profitable, it has to transcend, motivating masses in a manner beyond what any other industry can accomplish. But what happens when sports starts acting like it’s less than a business? Well, we might be living through that.