Take a minute to think about how often you watch or listen to sports games, whether in person or on the TV or radio. Did you grow up hearing the background sounds of football, baseball, or basketball? Are your friends rabid sports fans who wear their Toronto Maple Leafs or Dallas Cowboys gear every game? For many of us, sports play a huge role in our lives. But while watching sports might practically be a family tradition, there’s a good chance you’ve never thought much about the role of money in sports. Even if you religiously follow and love to watch your favorite professional players and teams, talk incessantly about the latest winners and losers, and get together with friends and family to enjoy the big games (like the Super Bowl or March Madness), do you ever think about all the money that’s involved in the game?
The global sports market was valued at around $388 billion in 2020. Not exactly a small number! And this was down from $459 billion a year earlier before the Covid-19 pandemic came along and wreaked havoc on everything. It’s predicted that by 2025 this market will be worth $600 billion and then $826 billion another five years after that. That’s certainly a lot of money flowing through the system.
The global sports market can be broken down into the following categories: participatory (including entities that operate fitness and recreational sports establishments, bowling alleys, skiing facilities, golf clubs, and marinas) and spectator (including entities that provide live sporting events to paying audiences). While the participatory segment is larger (72% in 2020), the spectator category is expected to grow faster at a compound annual growth rate (CAGR) of 11% between 2020 and 2025, driven by various trends that are explored later in this article. North America constitutes the largest part of the market at 35%, followed by Asia Pacific, Western Europe, and then the others.
As you can see from these statistics, the global sports industry is fueled by money… and lots of it. Sometimes we forget that when we’re in the comfort of our home enjoying the game. Trust us, there’s a lot going on behind the scenes.
Where Does the Money in Sports Come From?
Let’s narrow our focus to the spectator segment of the global sports market for a moment. At the end of the day, money controls the decisions that are made no matter the level (team owner, top player, regular players, and so on). Just think about the mind-boggling fact that as of 2019, there were 106 global sports franchises worth more than $1 billion each, every one making a profit of millions annually. But where, you might wonder, does all this money in sports come from? There are three main sources, including fan-based revenue/TV deals, merchandising/licensing deals, and advertising/corporate sponsorships. Let’s talk about each one individually.
Source #1: Fan-Based Revenue and TV Deals
Fan-based revenue is exactly what it sounds like: income that is generated by the fans who watch and listen to the games (in-person, on TV, or on the radio), including ticket sales (this can include season tickets and premium seat licenses too), concessions, TV views, and radio listens. Media companies like Amazon, ESPN/ABC, NBC, CBS, and FOX pay hefty amounts to sports teams for the right to stream their matches (which are highly viewed; in fact, National Football League (NFL) football games in particular are the most-viewed sports matches in the U.S.)
In the NFL, the average football stadium seats 70,000 people and tickets usually sell for around $150 each. Teams sometimes choose to host non-football-related events like concerts in their stadiums to earn more money, or they renovate their stadiums to add more seating and/or concessions. Concessions (like food and drinks) don’t bring in a ton of income for the teams compared to other revenue streams, but their margins are very high.
Source #2: Merchandising and Licensing Deals
Professional teams also make money in sports by selling companies the right to sell items with their logos, team colors, and player information on them. This gives sports fanatics (and just regular fans!) the ability to buy team gear and apparel to show their support of their favorite team(s). An example of this is the 10-year licensing deal that Nike and the NFL signed with sports retailer Fanatics back in 2018. While we don’t know exactly how much Fanatics paid for this right, it was likely a nice amount given that Fanatics now has the exclusive ability to manufacture and distribute Nike-branded NFL adult merchandise.
Source #3: Advertising and Corporate Sponsorship
Corporate advertisers recognize how lucrative and influential the sports industry is and are always looking to capitalize on that. Consequently, advertising in sports and corporate sponsorship can be a big revenue generator. Sometimes advertisers partner with one of the sports leagues; other times they team up with a famous athlete who acts as a spokesperson for their brand. Corporate sponsors will also pay professional sports teams to put its logo on their merchandise and uniforms or to rename its stadium with their company’s name.
Where Does the Money Go? How Does it Get Divided?
Professional sports organizations need to earn a lot of revenue in order to cover all the costs of running their teams. Take the NFL, for example. The most successful American sports league to date, it is technically a trade association that is comprised of and financed by 32 member teams. One of them, the Green Bay Packers, spent $410 million on operational expenditures in 2021. This was used to pay the players their wages, maintain their stadium, cover team and administrative costs, and pay for marketing.
When the money comes in, no matter the sport, it gets split among the players and owners of the team. But each sport strikes different deals. So, for instance, as of 2021, the NFL agreed to give its players around 48% of the generated revenue, whereas in the National Basketball Association (NBA) and Major League Baseball (MLB) typically keep that percentage a bit higher at around 49-51%. In the National Hockey League (NHL) it’s a 50/50 split.
Most of us don’t spend much time at all thinking about the role of money in sports. We just kick back and enjoy the game with our buddies. But it can be fascinating to fully understand this highly lucrative industry. So the next time you buy a ticket to attend an in-person sporting event, purchase some gear with your favorite team’s logo on it, or watch Thursday night football on TV, recognize the part you’re playing in this huge money-making system.