Potential of popular US Professional Sports Leagues/Franchises Expanding to the European Sports Market

Table of Contents

List of Figures

List of Tables

1 Introduction

2 Structure of the Paper

3 Theoretical principles of sports consumption
3.1 The sports market
3.2 The sports product
3.3 The sports consumer

4 Current state of Research
4.1 US Sports and League Structures
4.2 Economics of US Sports in the United States
4.3 Previous and Actual Expansions of US Sports to Europe
4.4 Economics of US Sports in Europe and Germany

5 Web-Surveys
5.1 German Survey
5.1.1 Methodology
5.1.2 Results
5.2 US Survey
5.2.1 Methodology
5.2.2 Results
5.3 Limitations
5.4 Conclusions
5.5 Recommendations

6 Possible Forms of Expansion
6.1 International Games
6.1.1 Possible Concepts
6.1.2 Limitations
6.2 New League Structures and Tournaments
6.2.1 Possible Concepts
6.2.2 Limitations
6.3 Merchandising
6.3.1 Possible Concepts
6.3.2 Limitations
6.4 Media
6.4.1 Possible Concepts
6.4.2 Limitations

7 Recommendations

8 Discussion

9 Conclusion

Appendices
Appendix 1: Interview with Bastian Strobl
Appendix 2: Questionnaire of the German survey
Appendix 3: Descriptive statistics of the German survey
Appendix 4: Questionnaire of the US survey
Appendix 5: Descriptive statistics of the US survey

Bibliography

Abstract

This paper discusses the potential of popular US professional sports leagues expanding to the European and especially the German sports market with regard to the NBA, NFL, NHL and MLS. The unique characteristics of sports consumption and differences between US and European sports cultures and economics are taken into consideration. Furthermore, earlier expansions by these leagues are explored. Due to the lack of sufficient scientific literature, two web-surveys were carried out in the United States and in Germany in order to collect primary data. Additionally, an expert interview was conducted. Based on these data this paper presents recommendations on the following questions: Which league should expand to Europe? Which expansion strategies should be used? What are possible limitations and difficulties? Which areas need further research?

List of Figures

Figure 1 The sports product (Bühler & Nufer, 2014, p.9)

Figure 2 The sports ecosystem: the flow of money (Collignon & Sultan, 2014, p.6)

Figure 3 Percentage of Germans spending money, because of their interest in sports, differenced by age and gender (Alfs, 2014, p.141)

Figure 4 I am very interested in this league. (own diagram; see Appendix 3)

Figure 5 I have more interest in the US league of a sport than in the German league. (own diagram; see Appendix 3)

Figure 6 My interest for this league increased in the last couple of years. (own diagram; see Appendix 3)

Figure 7 NBA: Attitude towards different expansion strategies (own diagram; see Appendix 3)

Figure 8 NFL: Attitude towards different expansion strategies (own diagram; see Appendix 3)

Figure 9 I am very interested in this league. (own diagram; see Appendix 5)

Figure 10 My interest would increase if one or more teams get introduced to this league (own diagram; see Appendix 5)

Figure 11 I would buy merchandising articles, if this would get me limited access to live broadcasts (own diagram; see Appendix 5)

Figure 12 How much time, do you spent on passive sports consumption per day? (own diagram; see Appendices 3 & 5)

Figure 13 The league should play more regular season and playoff games in Europe. (own diagram; see Appendices 3 & 5)

Figure 14 Service-Profit-Chain (Woratschek & Zieschang, 2001, p.25)

List of Tables

Table 1 Core Needs of Fanship (Kahle & Close, 2011, p.74)

Table 2 Key Elements of professional sports leagues (Andreff & Szymanski, 2009, p.301)

Table 3 Average per game attendance of the five major sports leagues in North America 2013/14 (www.statista.de, 2014)

Table 4 Percentage comparisons for Sex and Age (own diagram; see Appendices 3 & 5)

1 Introduction

Between the 1870s to the 1920s, the world of sports experienced its first expansion. It started in England and spread different sports all over the world. This expansion also included a significant increase of international sports events (Smart, 2007). Since the 1970s sports experienced a new wave of globalization and expansion. Markovits & Rensmann (2010, p.26) describe this development as the “second (…) postindustrial Globalization”. They indicate five reasons that led to this development: New technologies and media, new types of sports fans and consumers, workplace-related changes, increased global political interactions, and improved outreach of sports related institutions (ib.).

A new study by A.T. Kearney (2014) shows that the current turnover generated per year by the worldwide Sports Industry is approximately 700 billion US-Dollars, which is equal to one percent of the global GDP, and the size of the market increases an average of seven percent each year. The seven sports with the biggest volume in chronological order are soccer, American football, baseball, Formula One, basketball, hockey and tennis.

Despite the continuous growth of sports broadcasting and sponsorship, leagues and franchises continually try to expand to new markets and to steadily improve the popularity of their respective sport. This year, under the claim Experience Greatness, eight of the world’s most popular soccer clubs, among which are Real Madrid, Manchester United, Liverpool FC and A.C. Milan competed in the International Champions Cup in the United States (internationalchampionscup.com, 2014). Thanks to the World Cup 2014, they profited from the actual soccer boom in the United States. The game between Real Madrid and Manchester United was played in front of a record crowd of 109,318 spectators (focus.de, 2014). Another example for the desire to expand is Bayern Munich. They did a nine-day trip across the United States. Not only did they play against the MLS All-Stars and Club Deportivo Guadalajara, but they also did a lot of promotion events and introduced a new office in New York (fcbayern.de, 2014).

However, not only soccer teams try to increase global interest in their leagues. Leagues like the NFL, NBA and NHL play games all over the world to present their respective sport to new markets and to attract new sports consumers. The NFL even introduced its own developmental league in Europe, but the project had only moderate success (Markovits & Rensmann, 2010). Nevertheless, officials of US leagues are constantly trying to elaborate new expansion concepts and even consider the implementation of European teams into their associations.

This is the exact starting point for this paper. Because of the second globalization, sports have received a lot of new broadening opportunities. The question is, which forms can US Leagues and Franchises use to expand to the European Market and, in the case of this paper, especially to the German Market? What is the potential of these expansion processes and what are possible difficulties and limitations?

2 Structure of the Paper

In recent years, US Leagues have been very interested in expanding to the European sports market. In almost every interview, league officials consider this market a great opportunity, but so far few studies have looked at the real potential of US Sports on the European, and particularly on the German Market.

The purpose of this paper is to offer scientific conclusions and answers to the previously mentioned questions. The scope of this paper is limited to the National Football League (NFL), the National Basketball Association (NBA), the National Hockey League (NHL), and the Major League Soccer (MLS). Here, the Major League Baseball (MLB) is not taken into consideration, as it is not as popular in Europe at the moment. Baseball has expanded to Japan and the Caribbean, but so far failed to extend its range to Europe. However, recently this sport has gained more global popularity (Markovits & Rensmann, 2010).

This paper is organized as follows: Chapter 3 illuminates the theoretical principles of sports consumption. These principles include the unique nature of sports fans and special characteristics of sports products. Chapter 4 outlines the current state of research. US league structures, former expansions to the European and mainly the German market, and the economics of US sports in the United States and in Germany will be regarded. In Chapter 5, the researcher presents a case study approach in the form of a Web-Survey. In this survey, the current interest in US sports by German students was examined. The students are generally interested in sports. It further addresses the attitude of German students towards the expansions of US professional sports leagues to Europe. In addition, a second Web-Survey, which thematized the same topics, was carried out in the United States in order to enable a comparison of both studies. Subsequently, the methodology, results, limitations and recommendations of these surveys are presented. Chapter 6 is divided into four sections: International Games, new league structures and tournaments, merchandising, and media. Each of these topics examines possible forms and limitations of expansion for the NFL and NBA. The MLS and NHL are not included, as the results of the studies apply to these just as well. Chapter 7 offers recommendations for each of the four leagues with regard to possible future expansion concepts. Chapter 8 goes on to discuss, whether a European expansion makes sense and which further factors need to be taken into consideration in each case. In the concluding section, it is outlined how these leagues should proceed in the future and advice and ideas for further research are given.

3 Theoretical principles of sports consumption

Sports consumption is not comparable to any other kind of consumption, because sports have various unique characteristics. According to Bühler and Nufer (2014) these characteristics relate to the sports market, the sports product, and the sports consumer. Consumer-behavior of sports fans in particular is influenced by more variables and factors than general consumer-behavior and their buying decision process. In the following, the particularities of every characteristic are shown with the primary focus on passive sports consumption.

3.1 The sports market

To begin with, it is necessary to divide the sports market into active and passive. The active market includes sports participants and the passive sports spectators. The latter can further be divided into consumers who attend live events and consumers who enjoy sports through conventional and new media (Shank, 2005). Nevertheless, many people are a member of both main groups. This means they attend sporting events or watch them on media devices, but also participate in sports. Every sport has different correlations with regard to the amount of active and passive sports consumers. For example, while 81% of the people playing basketball also consume professional basketball, on the other hand almost no NASCAR spectator is also a participant (ib.).

The sports market has more exceptional characteristics, which cannot be found in any other market. These include the competition, the coopetition, the focus on the sporting performance and the extent of public perception (A. Bühler & Nufer, 2014).

First, competition in sports is organized in leagues, which often have cartel structures. These leagues determine structures, schedules, and rules to “guarantee a certain level of competitive balance” (Bühler & Nufer, 2014, p.7). Therefore, leagues function as coordinators and ensure an equal distribution of the available resources. In many other economic sectors this would be inconceivable.

The second particularity of sports is the phenomenon of coopetition. This is a combination of cooperation and competition. On the one hand, leagues and teams need to cooperate with each other in other to produce and distribute their product. On the other hand, they compete on and off the court for titles, players and different resources to gain sporting success and to arouse interest. (A. Bühler & Nufer, 2014)

Thirdly, companies normally try to maximize their profit. By contrast, sports organizations are often non-profit oriented and focus on the sporting performance itself. However, the financial aspect is not unimportant, because every league and franchise needs to stay liquid in order to survive.

The fourth and probably the most meaningful characteristic is the extent of public perception. Despite the huge media coverage of sports, consumers personally identify themselves much more with the product sports than customers of other products. Therefore, almost everyone considers him- or herself an expert and sport organizations have to justify every decision towards the public. (ib.)

3.2 The sports product

The sports product itself also has unique characteristics. Shrank (2005, p.16) defines a sports product as “a good, a service, or any combination of the two that is designed to provide benefits to a sports spectator, participant, or sponsor”. As Figure 1 shows, it needs to be divided into the product extensions and into the core product, which is further subclassified into participant and spectator sports. Main products are always a service, whereas product extensions can either be a good or a service (A. Bühler & Nufer, 2014). A service is, among other specificities, defined through intangibility, heterogeneity, perishability, and inseparability of production and consumption (Bruhn & Meffert, 2012). Typical sporting goods are merchandising articles, collectibles, and sports equipment (Shank, 2005). In this chapter, only spectator sports and its product extensions are discussed in detail.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1 The sports product (Bühler & Nufer, 2014, p.9)

In this paper the sporting event is always the primary product. As already mentioned, people can watch a game live at the stadium or at home on TV or on the internet. The following characteristics apply for both groups, but though especially for fans attending an event.

One of the most important attributes of sports is the uncertainty of the outcome. Three types of uncertainty are to be distinguished: Firstly, the course of a game as well as the result is uncertain to some degree. The second type is the course of the season: Nobody knows with absolute certainty, which team will win the championship. And finally, there is long-term uncertainty. It encompasses the unpredictable future development of teams, leagues, and of the sport itself. For this reason, every sporting event always also entails a certain degree of suspense (Andreff & Szymanski, 2009).

A further characteristic of every sports competition is the fact that every fan is a consumer and producer at the same time. Thereafter, every fan is a “co-creator of value” (A. Bühler & Nufer, 2014, p.11). This phenomen has been demonstrated in the Sport Value Framework by Woratschek et al. (2014), which was developed on the basis of the Service-Dominant Logic (Vargo & Lusch, 2004). Essentially, this means that every fan, watching a sporting event with other people, affects the experience of everybody around him by creating a special atmosphere.

Lastly, every core product cannot be separated from its product extensions. Accordingly, every sporting event consists of “complementary products” (Andreff & Szymanski, 2009, p.79). The term refers to intangible as well as tangible products. A few examples of it are stadium newness and access, licensed merchandise articles, catering, hospitality, atmosphere and fan solidarity. It can be concluded that every consumer experiences a completely different event and product.

3.3 The sports consumer

Moreover, sports consumers also have exclusive characteristics which influence their behavior and experience. These emerge from the fact that every customer is also some kind of fan and that every purchasing decision is influenced by emotions (Kahle & Close, 2011). Therefore, these customers are not typical consumers; they also identify themselves with one or more teams and its particular products. The question is how do these customers get interested in sports in the first place and then consequently develop their fandom? In order to answer this question it has to be noted that both, active and passive sports consumers have “completely different motives” (Bühler & Nufer, 2014, p.11). Furthermore, there are various reasons for sports consumption within these groups: Whereas one fan desires a close game and hopes for a victory of his favored team, another simply wants to enjoy the overall spectacle of the event (Nufer & Bühler, 2011). There are different motivations for active sports consumption, as well, but as pointed out earlier, this paper only studies the passive consumption of sports.

People become sports fans for multiple reasons. One important factor is the influence of the family, friends, and the social environment as well as the geographical location. Further reasons are the preference of certain players, a team’s style of play, and the amount of TV coverage of a team (Kahle & Close, 2011). Especially in team sports, a correlation between sports participation and fandom is frequent. As a result of sports fandom, people develop emotions and affiliations towards their favored team. This commitment also results in different needs and motivations, which can only be satisfied through sports.

As Westerbeek (2003) has noted, the influences on the behavior of sports customers can be divided into harder and softer factors. The former include the “price of the event, real incomes of spectators, price of substitute goods, market size, importance of the contest (…) and closeness of the competition” (Andreff & Szymanski, 2009, p.79). According to the neoclassical theory, these are typical factors that influence and determine the decision-making process. However, the soft factors are just as crucial. These include three core needs of fanship: validation, pleasure, and arousal. Table 1 shows the most important motives that are associated with said needs. There are several others, but the illustration and explanation of all would go beyond the framework of this thesis.

Table 1 Core Needs of Fanship (Kahle & Close, 2011, p.74)

Abbildung in dieser Leseprobe nicht enthalten

As can be seen, self-esteem is an important motive closely connected to fan identification. It is important to have high self-esteem in everyday life and it can be significantly influenced through sports. Closely linked with this motive of self-esteem are the phenomena of basking in reflected glory (BIRGing) and of cutting off reflected failure (CORFing) (Nufer & Bühler, 2013). In the case of a win of the preferred team, the fan’s self-esteem increases, as he or she feels proud and sometimes even perceives the win as his or her own (BIRGing). In case of loss, fans often distance themselves from the club in order to avoid negative effects and to protect themselves (CORFing) (Kahle & Close, 2011; Woratschek et al., 2014). They might even feel like they lost at the game themselves. The extent of these phenomena depends on the level of commitment towards a team.

Companionship and Group Affiliation are both inseparably linked to social interactions with other sports fans. Sports spectators converse about sports with each other and develop a feeling of belonging to a specific group (Kahle & Close, 2011; Westerbeek & Smith, 2003). Following Maslow’s (1978) hierarchy of needs, people seek for love and belonging. Sports provide an opportunity to satisfy these needs.

Furthermore, one of the most fundamental reasons for people watching sports is the desire to experience entertainment. They hope to enjoy a good game and to achieve “emotional satisfaction” (Kahle & Close, 2011, p.63), while supporting their team.

Aesthetics are closely related to entertainment. Sports consumers admire the athletes’ skills and the beauty of a sport. This phenomenon is not exclusively limited to sports that mainly focus on the perfect execution of a routine, like gymnastics or ice figure skating. The unbelievable catch by Odell Beckham Jr., this NFL season, is also considered some kind of aesthetics as well, for instance.

Another important motive is eustress. The term describes positive stress that is healthy and gives sports customers a feeling of fulfillment. Eustress is an arousal, which fans experience before and during a sporting event in terms of different emotions. It is especially influenced by the uncertainty of outcome and the closeness of the contest. Therefore, eustress is independent from the final result (Kahle & Close, 2011).

Many sports consumers also use sports to escape from their daily lives, which is often characterized by routines or stresses (ib.). While watching sports, they can forget all these things for a certain time. They can take on a different role and use it to release their emotions and frustrations by celebrating, cheering, and shouting before returning to their everyday life (Westerbeek & Smith, 2003). All in all, every fan has various reasons for his or her sports consumption and every sports consumer lives a different kind of sports fandom.

As a consequence, the combination of hard and soft factors results in a unique sports consumer behavior. In particular, this means that fans are passionate and loyal with regard of the product sports. This may result in an irrational purchasing behavior (A. Bühler & Nufer, 2014). Furthermore, in the case of extremely committed fans, substitute goods for their sports are nonexistent (Andreff & Szymanski, 2009). The influence of these characteristics on the customer behavior increases with the degree of fan identification and commitment as well as his satisfaction. For all these reasons, it is essential to understand the characteristics of the sports market, products, and especially the consumers before developing any expansion strategies.

4 Current state of Research

As already mentioned, although, in recent years, many officials of US leagues have developed a generally positive attitude towards expansion and globalization, there are hardly any operating numbers about the real potential thereof.

Previous research has mainly concentrated on the economics of US sports inside the United States, or compared US leagues to European soccer leagues, especially the English Premier League (EPL). These researches have mostly failed to provide sufficient insight into the economics, popularity, and opportunities of US Sports outside of the United States. Hence, this chapter outlines the structures and economics of US sports and leagues in the United States and Europe based on former researches and literature.

4.1 US Sports and League Structures

In general, sports in the United States are dominated by the Big Four: National Football League (NFL), National Basketball Association (NBA), Major League Baseball (MLB), and National Hockey League (NHL). Indeed, in the near future it could become the Big Five, because the Major League Soccer (MLS) registers a significant increase in interest and revenues (Turner, 2014). In Europe, so far only soccer has been as primary and dominant team sport.

All North American professional leagues are organized in the form of closed systems in contrast to European leagues, which are organized in terms of open systems. The main difference between these two lies in the existence of a promotion and relegation system. In open leagues, teams can be rewarded for sporting success by being promoted to a higher league, but they can also be relegated to a lower league if they perform badly (Ross & Szymanski, 2002). By contrast, teams in a closed league stay in the league regardless of their sporting performance during the season. They even get rewarded for sporting failure by the “reverse-order-of-finish draft systems” (Kahane & Shmanske, 2012, p. 13). There are further differences between these leagues, e.g. salary caps, allocation of revenues and the transfer system. For clarification, Table 1 shows the key elements of the European and North American professional sports leagues. A detailed explanation and analysis of all diversities would be beyond the framework of this paper. This also applies for the question, which league system should be favored.

Table 2 Key Elements of professional sports leagues (Andreff & Szymanski, 2009, p.301)

Abbildung in dieser Leseprobe nicht enthalten

All American professional leagues are divided into two Conferences, which are further separated into Divisions.

In 1917, the NHL was founded and nowadays consists of 30 teams, which are split up in two Conferences. The Eastern Conference is segmented into the Atlantic and Metropolitan Division and includes 16 teams, whereas the Western Conference only comprises 14 teams and is divided into the Central and Pacific Division. After the regular season the eight best teams of each conference qualify for the playoffs. These are based on a knockout-format and organized as a best-of-seven series. This means that two teams play against each other until one has won four games and therefore advances to the next round. In the finale, the two best clubs of the league contest for the Stanley Cup (www.nhl.com, 2014).

The NBA was established in 1949 and today it consists of 30 franchises divided in two conferences, with 15 teams each (history.com, n.d.). Both conferences consist of three divisions with five teams. After 82 regular season games the eight best teams of each conference qualify for the playoffs. These are organized in the same way as the ones of the NHL. In the NBA finals the leagues’ two best teams play for the Larry O’Brien Championship trophy.

Currently, the NFL is the most popular professional sports league in the United States, and the Super Bowl – the finale between the AFC and the NFC champion – attracts more than 111 million viewers all over the country, and millions more worldwide (A. Bühler & Nufer, 2014). In 1920, the NFL was founded with 14, and has expanded to currently 32 franchises (profootballhof.com, 2014). Each of its two conferences (American Football Conference & National Football Conference) consists of four divisions (East, North, South and West) with four teams. In both conferences, the four winners of their respective division and the two franchises with the best win-percentage of the remaining teams advance to the playoffs. Hence, 12 teams contest in a knockout competition for the Vince Lombardi Trophy.

The MLS is the youngest league. It was founded in 1996 and started out with ten teams. Nowadays, the amount of franchises increased to 19 teams altogether. In the 2015 season it will even be 20 and the league plans to expand to 24 teams until 2020 (Garber, 2013). The league is divided into the Eastern (ten teams) and the Western Conference (nine teams). At the end of each season, the best five clubs of each conference are qualified for the playoffs. The 4th and 5th placed teams of each conference have to play one game and the winner qualifies for the Semifinals of their respective conference. In the conference-semifinals and -finals, the teams have to play against their opponent twice in home- and away-matches. Finally, the best team of each conference contests for the MLS Cup in the Cup final (mlssoccer.com, 2014).

4.2 Economics of US Sports in the United States

After explaining the structure of US leagues and the difference between European and American systems, now this paper will examine which parties spend money on sports and the corresponding amounts inside the United States. Figure 2 shows the general flow of money within the sports ecosystem and the coherences between different clusters, independent from the observed sports market.

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Figure 2 The sports ecosystem: the flow of money (Collignon & Sultan, 2014, p.6)

The media has a huge impact on the overall cash flow. On the one hand, they pay leagues to acquire rights for televising games. On the other hand, they generate revenues from the fans and brands due to advertising and pay TV subscriptions as well. Television broadcasters conclude contracts for several years and commonly, every new contract is more valuable than the previous. For instance, the NFL now earns $4.950 million a year, compared to $420 million in the 1980s (Collignon & Sultan, 2014). Another example is the new eight-year TV deal of the MLS. The new arrangement is worth $90 million per year and thus pays the league three times as much as the last contract (Smith, 2014). The NHL and NBA have also shown significant increases over the last decades. Broadcasters compensate these immense investments by means of advertising revenues and obtaining more viewers for their television channel. The most prominent example is the Super Bowl: Nowadays, firms pay $4 million for a 30-second commercial spot (Siltanen, 2014). One special case is the vertical integration of teams. It means that some teams own TV broadcasters on the local level in order to maximize their profits (Leeds & Allmen, 2008).

Brands approximately spend $50 billion per year on sports sponsoring and advertising. Sponsoring measures can be implemented in various ways. Therefore, brands have to make two main decisions according to their aims. On the one hand, they must determine the scope of their involvement. For instance, this scope includes official partnerships, supplier contracts, and acquiring naming rights. On the other hand, it is necessary to pick the best possible partner. In tangible terms, this encompasses leagues, clubs, and athletes (Collignon & Sultan, 2014). In the 2013 season, the NFL ($1.07 billion) and the NBA ($679 million) received an combined revenue of approximately $1.75 billion through sponsoring (sponsorship.com, 2014a, 2014b). However, in the major US leagues, sponsoring revenues still can increase significantly. A new option would be to place ads on jerseys, which is a general practice in European soccer.

The main task of leagues is the organization of the contests. Furthermore, they receive money from selling TV rights (40 %), ticketing (30 %), player transfers (10 %), and marketing (20 %), which also includes Sponsoring (Collignon & Sultan, 2014). These revenues are mostly distributed to the teams under various allocation systems, which differ from league to league. The turnovers for the considered leagues were $9.2 billion (NFL), $4.6 billion (NBA), $2.6 billion (NHL), and $494.2 million (MLS) in 2012/13 (plunkettresearch.com, 2014).

Fans are essential for the success of the sports ecosystem and without them, value co-creation is impossible. Fans spend a lot of time and money on sports. In 2014, fans had to pay average ticket prices of $84.43 (NFL), $53.98 (NBA), $62.18 (NHL), and $34.28 (MLS) to see a season game (Harris, 2014). According to the Fan Cost Index, which examines the costs for a family of four to attend a game, one family spends between $333.58 and $478.59 per game (teammarketing.com, 2013). Table 2 illustrates the average game attendance. It can be seen that much more spectators attend the NFL than any of the other leagues. Indeed, the number of visitors depends on the size of the stadium, the average ticket price, and the amount of games played per season.

Table 3 Average per game attendance of the five major sports leagues in North America 2013/14 (statista.com, 2014)

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In addition, fans also spend money on sports, even when they are not attending a game: by buying merchandise articles, betting, or by watching games on TV. In 2012, the sports goods industry earned $7.5 billion by selling licensed merchandise articles (A. Bühler & Nufer, 2014). The motives for passive sports consumption and the demand for sports have already been explained in Chapter 3.

Clubs also play a key role for the success of the sports ecosystem. They are “the origin of the excitement for most fans, and, ultimately, where the money ends up at the end of the value chain” (Collignon & Sultan, 2014, p. 8). Clubs generate money from fans, brands, the league, as well as transfer fees. They receive these revenues in the form of ticketing, merchandising, sponsoring, and revenue distribution which is mostly generated through media rights. The majority of their expenses occur in terms of salaries for their players and staff. Researchers use many different methods to evaluate and compare team values (Alexander & Kern, 2004; Büschemann & Deutscher, 2011; Humphreys & Lee, 2010; Humphreys & Mondello, 2008; Miller, 2009; Scelles, Helleu, Durand, & Bonnal, 2013). This leads to varying results, but overall all researchers support the hypothesis of continuously growing team values. Badenhausen (2014) explored the top 50 of the world’s most valuable clubs in 2014 on behalf of Forbes Magazine. He discovered an 8% increase in team values in comparison to the previous year. In 2014, a team of the top 50 is worth $1.34 billion on average. Whereas the three clubs on top of the list are European soccer teams, all in all 42 teams are based in one of the Big 4 US leagues. NFL teams build the strongest category with 30 franchises. The reason for this is simply that, on the one hand the NFL has the most lucrative TV and sponsoring deals and on the other that the league distributes all revenues almost equally between the clubs.

4.3 Previous and Actual Expansions of US Sports to Europe

On this basis, it can be concluded that the NFL, NBA, NHL, and MLS have strong market positions and are growing on a solid basis in the United States. This has been and always will be the primary market for these leagues. However, they are constantly seeking for internationalization strategies to explore new markets or opportunities for expansion. Thus far, diverse concepts have been implemented throughout the world more or less successfully. The following chapter is divided into three parts which examine different forms of expansion of said leagues within Europe.

Firstly, all leagues except the MLS organize international games in other countries. Thus far, the Major League Soccer did organize matches against European clubs, but they were all played on American soil. The NBA stages so-called Global Games. This concept includes several pre-season and two regular-season games. In the 2014-15 season, the five pre-season games were hosted in Germany, Turkey, Brazil, and China. The two regular ones took place in London and in Mexico City. Including the Global Games 2013, the NBA has organized worldwide competitions in 43 different cities (NBA.com, 2014; Scheitrum, 2014). Currently, the NHL does not host games in Europe. However, hockey games had been performed in Europe until 2011, just before the NHL lockout, in form of the NHL Challenge Series and the NHL Premiere Games (NHL.com, 2011). Hence, it is not unlikely that NHL games may return to Europe one day. The NFL International Series consists of three season games, which are all played in London. The league already announced the lineup for 2015 and would like to extend its engagement in Europe, especially in the United Kingdom (Patra, 2014). According to Bühler & Nufer (2014) the aim of these international games is to gain foothold in European countries.

Secondly, the NFL even founded its own league in Europe. The NFL wanted to use its established name to enter new markets and attract customers. In addition to this main goal, the new league was also used to develop players. The best-known players are Kurt Warner, Brad Johnson, and Adam Vinatieri. It started in 1991 as the World League of American Football and was renamed several times. In the beginning, the World League covered teams from North America and Europe (Campbell Jr. & Kent, 2002). After only two years, the NFL changed the concept, because the current strategy was not as successful as they had hoped for and the league actually generated financial loss as well. It was renamed to the World League and exclusively contained European teams. The league lasted for 15 years and was discontinued in 2007. At that point it was called NFL Europa and consisted of five clubs from Germany and one from the Netherlands (A. Bühler & Nufer, 2014). All in all, this league’s expansion was not as successful as desired for several reasons. It was a financial loss for the NFL and they could not overcome the entry barriers to establish a European League in the long run. However, the NFL Europe experiment did not fail completely, because it has created a solid basis of American Football fans in the participating countries and increased the awareness for this sport.

The third form of expansion is not a real, active internationalization strategy by these leagues but rather a consequence of general globalization. Markovits & Rensmann (2010) call this phenomenon the Nowitzki effect and the Beckham effect. The latter explains the case that a superstar decides to play in a country or league in which his respective sport is struggling. In the best case, the sport then receives a significant growth of interest in this country. For instance, if LeBron James decided to play in Germany, it can be assumed that basketball would gain more popularity in this country. The Nowitzki effect is essentially the opposite of the Beckham effect. It defines the case of an unknown athlete who “excels far away from home in a sport that is hugely popular in the country where he now resides but has been secondary in his native land” (Markovits & Rensmann, 2010). Usually, this results in an increasing popularity of the respective sport in the athletes’ home country. There are many examples of athletes who caused this effect. Nowadays, this phenomenon is able to occur even more frequently. On the one hand, new media technologies offer an immense amount of new opportunities to follow the athlete’s career. On the other hand, the percentage of foreigners in US leagues is higher than ever before.

In conclusion it can be noted that US leagues can use many different internationalization strategies. Indeed, it is very complex and difficult to decide which concept is the best and when would be the optimal time to implement it. In Europe, the dominance of European soccer makes the realization even more complicated. One of the key factors for success is to increase the popularity, enthusiasm, and awareness for the league within the addressed country.

4.4 Economics of US Sports in Europe and Germany

Most sports regard Germany as an interesting target of expansion. Especially US sports are continuously trying to find a way to enter the German market. However, American professional leagues have not been pushing aggressively towards this goal. Thus far, the main focus has been to optimize league structures and maximize profit on the domestic market. Considerations about expansion that extends beyond the already established international games and worldwide broadcasting, are treated very carefully. As a result, league officials often express their positive attitude towards expansions, like the inclusion of European teams into US leagues for instance, yet they do not initiate market research measures or present concrete plans. Therefore, secondary literature on the current Economics of US sports in Europe is scarce.

According to Lafton (2009), in 2009, 25-27% of NBAs merchandise revenues were generated through overseas sales and it is highly probable that this percentage has increased since then. Just a few years ago, the NHL earned $20 million through international activities and this was the lowest revenue within the major leagues (Lafton & Mickle, 2010). Last year, 1.59 million Germans watched the Super Bowl XLVIII and it actually reached a market share between 21.1 and 31.5 % (digitalfernsehen.de, 2014). To summarize, these are pretty impressive numbers and they show the huge potential of US sports on the global market.

At this point it is beneficial to introduce some statistics about the general interest of Germans in typical US sports and the economic volume of the sports-related consumption. In a recent study, the Sportfive GmbH & Co. KG explored the interest and level of awareness for different sports based on the Allensbach Media Market Analysis. According to their results, 6.98 million people are interested in American Football, 15.55 million in Basketball, and 19.91 million in Hockey (SPORTFIVE GmbH & Co. KG, 2014). Soccer is the most popular sport, with 45.50 million people interested. However, the majority is mainly interested in European soccer (ib.). Taken as a whole 29.7% of the German population, in other words 24 million people, spent money on passive sports consumption in 2010 (Alfs, 2014). As can be seen from Figure 3, the amount of expenses differs according to gender. It also shows a continuous decline of investments with increasing age.

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Figure 3 Percentage of Germans spending money, because of their interest in sports, differenced by age and gender (Alfs, 2014, p.141)

Preuß et al. (2012) have documented that these consumers achieve a total turnover of about € 26 billion. Adults above the age of 16 spent € 25.1 billion. Children under the age of 16 expended € 914 million.

The three biggest sections are entrance fees (€ 10.4 billion; 40%), catering/accommodation/bar visits because of pay TV (€ 5.2 billion; 20.1%) and media & information technology and pay TV (€ 4 billion; 15.5%). The remaining expenditures amounting to € 6.4 billion consist of merchandising, transporting, donations, and betting. (Preuß et al., 2012)

5 Web-Surveys

It has been shown that previous research has failed to adequately consider the real potential of popular US professional sports leagues on the European and especially the German sports market. Therefore little effort has been devoted to develop effective expansion strategies for these leagues with regard to these markets so far. For this reason, the author has carried out two online surveys in the United States and Germany to gain quantitative data. Further, an expert was interviewed to collect additional information. This chapter begins by describing the methodology of these surveys. Subsequently, the results and limitations are shown. Finally, conclusions are drawn and recommendations for further research are given.

5.1 German Survey

First of all, this survey wants to explore the general interest in, as well as the awareness and consumption of the NBA, NFL, NHL and MLS by German citizens. Another important goal is to present various possible expansion concepts, for example a European team playing in these leagues, more games in Europe, and better access to live games on modern media for viewers. Another important goal is to get reliable results about the German’s attitude towards these issues. It shall also provide an examination of, if any, significant coherences between different factors. For example, are there significant correlations between people, who are generally interested in a league or even prefer the US league to the German league and their attitude towards different expansion strategies? Is there a significant relation between the regular informing about the proceedings in a league and watching live games? All in all, this study was carried out in order to gain information about the different expansion potentials of the NBA, NFL, NHL, and MLS in Germany and if there are coherences between various aspects.

5.1.1 Methodology

The elicitation of the primary data was done through an online survey, which was carried out between December 2014 and January 2015. The survey aimed exclusively at German students, who are generally interested in sports. The selection of participants was chosen, as most of the students are between 16 and 30 and this should be one of the main target groups for US leagues. This assumption is based on two determinants: First, drawing on earlier work by Alfs (2014), people between the age of 16 and 35 are more likely to spend money on passive sports consumption than any other age group. Second, in the last couple of years, a development with regard to globalization, electronic technology, and media has occurred that has resulted in an increased awareness for and contact with US sports by the younger generations (see Appendix 1).

Overall, 118 students participated in the web survey and 102 finished it. The age ranged from 18 to 35, with an average age of 23.21. The participants, who completed it, are 79 (77.5%) male and 23 (22.5%) female. Hence, 16 students dropped out during the answering process. This corresponds to a dropout rate of almost 14%. A reason, for this high number of dropouts, could be that many participants realized that they do not know enough about the addressed US leagues to answer all questions properly.

The questionnaire consisted of 24 questions, which broached the following issues: the general interest for US sports and leagues, differences in terms of interest for the German and US leagues, the extent of various types of passive sports consumption of US sports, the attitude towards International Games as well as league expansions, and sociodemographic characteristics. It included 22 closed and two open questions. The closed ones were mainly designed in the shape of a five-step Likert scale, which offered answer options of “Strongly Agree (1)” up to “Strongly Disagree (5)”. It was further possible to choose “Prefer not to say (6)”. The two open question, were included to give the participants the opportunity to explain their attitudes towards a possible expansion of professional US leagues to Europe and what needs to change to increase their interest in US sports. The sociodemographic questions included gender, age, level of education, and time spent on passive sports consumption per day.

For the implementation of the online survey the author used the program qualtrics. The data cleansing and evaluation was done with SPSS and afterwards the results were entered into Excel to represent them graphically. The data was evaluated in terms of frequencies, percentages, correlations, and significance.

5.1.2 Results

To begin with, it is necessary to gain information about the level of interest in and the consumption of US leagues, especially because this is an important factor in order to evaluate the potential of possible expansion forms. Figure 4 illustrates the general interest in the four leagues, which are considered in this paper. It can be seen that the NBA arouses the most interest with 57.6%, while only 14.4% have no interest in this league. The NFL also awakens some interest with at least 31.6%. By contrast, the NHL and MLS are far behind with only 8.0% (NHL) and 6.3% (MLS) while over 50% are not interested. The results of this question are significantly correlating with the answers to the question whether the survey participant is a fan of the respective league, or a franchise of this league. The highest correlation coefficient is 0.806 (NBA) and the lowest is 0.661 (NHL). This means that people with interest in a league are often fans at the same time.

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Figure 4 I am very interested in this league. (own diagram; see Appendix 3)

Further, explanations for the different levels of interest can be concluded from Figure 5, which shows the number of individuals who prefer the US leagues towards its German counterparts and also from Figure 6, which illustrates the increase of interest in the NBA, NFL, NHL, and MLS in recent years. From the data in Figure 5 it is evident that 67.3% prefer the NFL over the German Football League (GFL), 55.1% are biased towards the NBA, and at least 25.9% favor the NHL over the German Hockey League (DEL).

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Figure 5 I have more interest in the US league of a sport than in the German league. (own diagram; see Appendix 3)

There are several possible reasons for which German students favor one of these leagues. Commonly, people want to see the best of the best and without a doubt, the NBA, NFL, and NHL are the best within their respective sport, especially because all sport stars play for franchises of these leagues. The complete opposite case is the MLS, as soccer is dominated by European clubs. Another factor that is closely linked to the previous one, could be the difference between German leagues and their US counterparts. For instance, the NFL is, from a purely sportive point of view, drastically better than the GFL and hence, if someone wanted to see great American Football, there is no alternative to the NFL. This could explain why almost everyone with at least a little interest in American Football watches the US- and not the German league. In case of basketball and hockey the German leagues are pretty solid and offer games on a good athletice level. Yet, if someone wanted to see more athleticism and faster matches, there is no alternative to the NBA and NHL (see Appendix 1). The percental difference of 29.2% between these two US leagues, can be explained by referening to the general interest in these sports on the one hand, and on the other by the fact that the NBA franchises and super stars are much better known than the ones of the NHL. Furthermore, as was pointed out in Chapter 4.2, Germany experienced the Nowitzki effect which resulted in an increase of interest in the NBA. However, in the future this might also be the case with the NHL, because a few promising German players of today started to play in this league. The fact that only 7.5% prefer the MLS over the much stronger Bundesliga, further supports this argument.

The increase of interest in US leagues (Figure 6) is almost identical to the percentages of the general interest. Overall, it is only a little bit higher: 69.6% (NBA), 53.0% (NFL), 21.1% (NHL), and 14.9% (MLS), but the ranking order stays the same. A reason for this increase in the last couple of years could be the fact that more German athletes have started to play in these leagues. Furthermore, the increased media and TV coverage which was enabled through new electronic technologies could also be an important aspect.

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Figure 6 My interest for this league increased in the last couple of years. (own diagram; see Appendix 3)

As a result of the new media development it is now much easier to watch live games and to get informed about the latest occurrences in a sport. In case of the NBA, 53.5% of the participants regularly inform themselves and 27.2% frequently watch games. 24.8% read news about the NFL and almost the same amount (19.3%) watches matches on a regular basis. Once again the NHL and MLS are far behind these numbers. Only 10.6% (NHL) and 3.5% (MLS) keep up to date and under 2% watch live broadcasts. The correlating coefficients between both factors are 0.805 (NFL), 0.722 (NBA), 0.619 (NHL), 0.638 (MLS) and all correlations are significant on a level of 0.01. As a result, people who regularly inform themselves about a league often also watch live games and vice versa.

The students were also asked whether they thought that the offered possibilities to watch US sports are sufficient and whether the kick-off times prevented them from watching more games. Due to the low interest in live matches, it is not viable to present reliable results for the MLS and NHL. In case of TV coverage, 66.7% (NBA) and 67.1% (NFL) of the participants think that the reception possibilities on Free and Pay TV are not sufficient. Furthermore, 51.6% (NBA) and 42.2% (NFL) of the German students said that the starting times negatively influence the number of viewed matches. These results are closely related to the ones of one of the open questions of the survey. Every study participant was given the opportunity to outline the changes necessary to increase their interest. The most frequently mentioned issue is the broadcasting of more live matches and easier access. Further aspects are better kick-off times, broader news coverage, and more German players and European sports starts (see Appendix 3).

In addition, the attendees were asked about their attitude towards the number of games played in Europe and potential European teams. In this case, the NHL and MLS are not evaluated as well, because the overall interest is too low and the dropout rate during these questions was very high. Both other leagues definitely arouse interest, though. Whereas 44.7% think that the NFL should play more games in Europe, even 46.4% support this hypothesis for the NBA. With regard to possible European-based franchises, Figure 7 and 8 show the responses (in percent) and therefore enable a comparison between the attitudes towards more Global Games. From the data in these Figures it can be deducted that the students prefer more games over a franchise. In measurable terms this means that approximately 30% think an NBA team would make sense. In case of the NFL only about 26% think this expansion strategy would increase their interest in this league. Another important result is that there are no significant differences between establishing a completely new franchise and moving an existing one.

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Figure 7 NBA: Attitude towards different expansion strategies (own diagram; see Appendix 3)

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Figure 8 NFL: Attitude towards different expansion strategies (own diagram; see Appendix 3)

Another opportunity to increase the interest in and awareness for the US leagues could be the authorization for European teams to qualify for the playoffs. However, the feedback for this kind of expansion was rather negative. At least 37.6% of the German students think this would be a good idea for the NBA, while 49.5% disagree. Regarding the three other US professional leagues, the accordance was under 30%, while over 60% dislike this expansion approach. In case of the MLS, a further starting point could be the inclusion of MLS teams into the qualification process of the UEFA Champions League, which would result in a worldwide expansion of this tournament. German students are a little skeptical towards this strategy, as 32.3% would welcome this expansion, while 49.5% do not support this concept. The various levels of interest and different attitudes towards potential expansion are also reflected in an open question. The students were asked, how they evaluated possible expansion to Europe by US sports and professional leagues and the answers are almost equally divided between positive and negative ones (see Appendix 3).

A completely different source of income is merchandising. Nowadays, 46.1% of the participants own NBA merchandise articles. The numbers for the other leagues are 22.8% (NFL), 10.8% (NHL), and 3.9% (MLS). This once again reflects the percentages of general interest and fandom of these leagues. The participants were further asked whether they preferred merchandise articles of a European-based club over the ones of US teams. In answer to that, between 31.5% (NBA) and 18.6% (NHL) favor products of a European franchise. Accordingly, the majority would still purchase the ones of US franchises. A possible reason could be that national pride does not play a significant role in this case.

Finally, the participants were asked whether the purchase of merchandise articles was more likely, if it provided them with limited access to live broadcasts. This strategy is based on the concept of price bundling and the main goal is to increase interest of a consumer up to a level that convinces him to purchase a pay TV membership after the expiration of his free access in order to watch games on a regular basis. According to the results of the study, this could only work in terms of the NBA and the NFL. In case of the NBA, 41.2% would buy a merchandise article, if it guaranteed them said additional benefit. At least, 32.0% of the German students would buy NFL products. Surprisingly, this percentage is even a little bit higher than the general interest in this league. Both other leagues seem not attractive enough for a successful implementation of this marketing measure.

5.2 US Survey

This survey has similar objectives to the German one. Mainly, it shall examine the interest in these leagues and the attitude towards a European expansion for each of them. The participants were asked about the same extension possibilities as the German ones. As a result, it is possible to compare the answers of both studies and therefore to discover differences and similarities. This is especially interesting with regard to the NBA and NFL, as rumors about more International Games or a franchise in Europe are constantly circulating. In addition, it is also appropriate to see whether people consider MLS teams good enough to compete with European teams in the UEFA Champions League.

5.2.1 Methodology

The online survey was carried out in January 2015. It aimed exclusively at US students who are generally interested in sports. The sample selection was made for the same reasons as the German study and furthermore, as aforementioned this allows a comparison between the results.

62 people altogether participated in the survey, whereof six dropped out during the answering process. Accordingly, the dropout rate is 9.8%. This is a considerably lower rate than in the German study and this could result from two factors: Firstly, the US survey consists of fewer questions, which generally results in a lower dropout risk. Secondly, US students grow up with these leagues. Therefore, they have greater interest in and a better knowledge of these sports. For these reasons, it is easier for them to complete the questionnaire. All in all, 56 persons completed the survey. 47 (83.9%) were male, and 9 (16.1%) were female. Age of the participants ranged from 18 to 34, with the average at 23.14.

The US survey consisted of 14 questions which, as already mentioned, were quite similar to the German ones. For instance, it included questions regarding the interest in the NBA, NFL, NHL, and MLS, as well as the attitude towards different expansion possibilities. Further, sociodemographic questions were asked to gain information about age, gender, level of education, and time spent on passive sports consumption per day. According to the German study, the answer possibilities of the closed questions were designed in the shape of a five-step Likert scale, which offered answer options from “Strongly Agree (1)” up to “Strongly Disagree (5)”. Further, it was possible to choose “Prefer not to say (6)”, but in comparison to the other survey, this option was used rarely. American students also had the possibility to explain their attitude towards a European Expansion by these professional leagues in an open question. The author used the same programs as in the case of the German study to collect, organize, and evaluate the data.

5.2.2 Results

First of all, it is important to evaluate the general interest in the different US professional leagues by US students. As can be seen from the following bar chart (Figure 9), 87.1% are interested in the NFL. The NBA (59.7%) and the NHL (51.6%) also draw a lot of interest, while the MLS (19.4%) is far behind.

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Figure 9 I am very interested in this league. (own diagram; see Appendix 5)

With regard to the number of regular season and playoff games staged in Europe, the participants generally have a positive attitude towards this kind of expansion, except in the case of the NFL. In case of this league only 28.8% think that more matches should be played abroad, while 49.2% (NBA), 47.5% (MLS), and 44.1% (NHL) support this concept for the other leagues. Possible reasons for this phenomenon could be various interest levels, but also the number of season games. The basketball and hockey league play about five times as many matches as the NFL and maybe that is the reason that the American Football fans do not want more games to be staged somewhere else.

Further, the US students were asked whether their interest would increase if a league establishes one or more European-based teams. This included two varying strategies. The first possibility is the establishment of completely new franchises in Europe and therefore an increase of the league size. The second is a relocation of existing franchises and the league size would remain the same. The results can be seen in Figure 10 and several conclusions can be drawn from the data.

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Figure 10 My interest would increase if one or more teams get introduced to this league (own diagram; see Appendix 5)

Firstly, a higher percentage of the US students agree to the expansion model of more International Games than to a European-based team, except for the NFL. In this case, 35.1% argue that their interest would increase, if a completely new franchise got established in a European country, while only the aforementioned 28.8% support more games abroad. Secondly, the relocation of an existing franchise to a city outside the United States is not an option. Only 22.8% have a positive attitude towards this idea for the MLS. The percentages for the three other leagues are even under 20% and not a single person Strongly Agrees to this concept in case of the NFL. Thirdly, the concept of new teams based in Europe gets at least some support. Especially the NFL (35.1%) and the MLS (36.8%) seem to be predestined for it. However, in the case of the MLS it is rather unlikely that this will happen, because there is already a soccer over-saturation in Europe. The two other leagues at least achieve 26.3% (NBA) and 28.1% (NHL). However, there are always 36.8% or more against a European-based franchise, independent from whether that entails moving an existing or establishing a completely new one.

A further expansion strategy would be to enable European teams to qualify for the playoffs of US professional leagues. The feedback for this concept is quite positive. The greatest acceptance with a share of 50.9%, is with regard to the NBA. Nevertheless, the other leagues do not rank far behind (NHL: 45.5%; MLS: 41.8%; NFL: 36.8%). However, this strategy is almost impossible to implement for the NFL and MLS: On the one hand, from a sportive point of view the German teams are definitely too weak in case of the NFL. On the other hand, the European soccer clubs are too good in comparison to MLS franchises. As was pointed out in Chapter 5.1.2, another option would be the implementation of professional US soccer teams into the UEFA Champions League, and unsurprisingly, 62.5% of the US students support this idea.

Finally, the last section is devoted to a merchandising concept in terms of a price bundling. This concept involves the same approach as in the German study. The idea is to provide a buyer of merchandise products with time-limited access to live broadcasts. As Figure 11 illustrates, this seems to be a good strategy that could be realized from time to time. Especially in the case of the NFL, 67.3% of the US students would buy merchandise items because of this special offer. This method seems also suitable for the NBA (47.3%) and the NHL (49.1%). Merely the MLS does not appear to be the perfect platform for this marketing instrument, because it would only influence the purchasing behavior of 32.7%.

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Figure 11 I would buy merchandising articles, if this would get me limited access to live broadcasts (own diagram; see Appendix 5)

5.3 Limitations

It is important to mention that the studies have several limitations and therefore the results must be interpreted with caution. Firstly, the sample size is not big enough to transfer the conclusions to the total population of these countries without hesitation. Secondly, the surveys only focus on students with interest in sports. As a result, on the one hand all determined percentages of the studies are likely to be higher than in the case of also including people with no interest in sports. On the other hand, the results could also differ, if individuals with other education levels were included. Thirdly, as can be seen in Table 4, the percentage distributions of gender and age of the sample size are not proportional to the ones of the overall populations and this might result in a bias of the outcome. However, generally more men than women are interested in sports and as can be seen from Figure 3 (see Chapter 4.4) between the ages of 16 and 45 is when the most money is spent on passive sports consumption. Therefore, despite all these limitations, both surveys represent the main markets roughly.

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