Business Economics Assignment
Every organization and every event needs to be structured properly for successful completion and evaluation. Whether it is business or sports, the appropriate structure and the framework is to be adopted properly with the correct attainment of features. MLS is Major League Soccer which is a professional league of Soccer in United States and Canada. The league is one of the sports league in USA and it comprises of 19 teams among which, 16 teams are from US and 3 teams are from Canada. The League is founded in the year 1993 and this league is affiliated and sanctioned by US Soccer Federation. The teams can play in other major cups also like US Open Cup, Canadian Champion ship, CONCACAF Champions league. Instead of the initial financial and operational problems in the first few years and there were some major transformations at that period. After the changes, MLS has expanded in terms of financial and structural attributes and with the specific objective by the owners, the evolution has been incurred perfectly (Cairns, et al, 1990). Instead of the different owners for the different teams, MLS works as a single entity and each team is owned and controlled by the league’s investors. These investors or operators control their teams just like the owners control their teams in other major leagues and thus t he organizational structure and the different business and economical attributes are also different for the MLS. Here the different business proposition and attributes with the economic and management perspective are discussed and analysed and those will help to understand the restructure the future strategies or different future framework for MLS (Cairns, et al, 1990).
Organizational structure of MLS
MLS follows a unique structure among all the leagues present in North America. MLS is operated by single body structure. All the clubs who have joined with MLS are considered as the part of business entity. There is only a single ownership present for the existing clubs within MLS. All the existing clubs under the league are operated and controlled by the league itself. The existing clubs under the league can operate independently and they can organize their operation independently. The activities which are done by the front office are considered as the accountability of the club. The Board of Directors are also considered as the accountability of the league. The major shareholder group or the owners belong to the league itself. The company is recently adopting the expansion strategy by adding more clubs under the league. There is a culture among the league to share the revenue and profits among the clubs of the league. Presently, the league consists of 19 clubs out of them 16 clubs belong to USA and the remaining 3 belong to Canada. Though the clubs get the opportunity to run the daily operation independently but the control lies in the hand of the league itself. In case, the contracts between the players are required to be reviewed and even in case of establishing new contracts the league will take every decisions. The player’s contracts are made centrally and the clubs cannot take any decisions regarding this. The Major League Soccer maintains a franchise model in which the clubs under the Major league Soccer are accountable to provide franchise fees to the league. Generally, the North American clubs enjoy more liberty than the European clubs but, Major Soccer League is known as the one vital exception. The player Union consists of the labours of five different leagues and those are “The National Football League Players Association”, The National Basketball and Hockey Association”, “The major league soccer association” and finally the “Major League Basketball players Association” forms the labour Union. The economic and financial integration are happened by the collective bargaining agreement (CBA) among the players of the clubs and the leagues. The CBA process lasts for five years and the process of re-negotiation among the players and the league owners can create a hindrance in the progress of the organization. The organization structure can be observed from the view point of productivity and the productivity of the league comes from two distinct bases and those are, the team base and the league base. First the club owners used to develop the skills and strengths for their players but any individual club is unable to produce long term profits. The second stage of organizational production function then consists of the league structure and performance (Demmert, 1973).
Literature on sports economics in respect of MLS
There are two dimensions present in the sports economics which signifies the level of competition in the sports market or the rules and regulations adopted by the sports market. The first dimension is related to the labour market where the movement of the players are highly regulated and the second dimension is the regulation implemented in the finance market. The finance market refers to that market which signifies the revenue collection either individually or collectively (Kesenne, 2010). The central body has the power to collect and distribute the revenues among the existing clubs. The two-dimensional model can provide four possible outcomes.
Source: The sport business future (Aaron C.T. Smith)
The revenue collection may be done by the competitor team and can be retained by them without distributing the revenue amount. The two dimensional framework which can raise four different types of possibilities can be shown by the above diagram. The 1st quadrant in the above diagram represents the free market where the finance market and the labour market are unregulated in nature (Cairns, et al, 1990). The home team is responsible for collecting the revenue but for example, the television promotions can be managed by the individual clubs. The quadrant two represents the unregulated type of labour market and the regulated type of finance market. Whatever the revenue will come can be used to redistribute those among the poorly structured clubs and teams but in this system the players would have the choice to choose the clubs where they want to play. The quadrant 3 represents the regulated labour market and the regulated finance market and this is considered as the mostly regulated and tight market scenario. Quadrant four finally, represents the unregulated finance and restricted labour market. The player’s contribution should be equally distributed and the talent of the players will also be equally distributed among the participating team (Rascher, 2012).
The sources of revenues are generated in the North American context from different broad sources and those are selling of the tickets, second source is the facility based revenue which signifies that with the improved facilities the demand of the games would be increased and thus sports expenditure would also increase. The concept of transfer payment does not present in the context of North America and most of the leagues encourage prohibition of selling the players for cash (Cairns, et al, 1990). The ticket sales along with the fees for media rights, television and broadcasting rights etc are the major sources of the revenues of the company. The leagues have evaluated new form of earning revenues including the premium ticket selling, by introducing the luxury boxes and by introducing the club seats. The club seats refer to the special seating arrangement which is arranged in a special area of the club. The premium tickets are sold almost two to four times more than the normal ticket prices. Sponsorship is another source of obtaining revenue by the league (Sloane, 2006).
In the sports economics it is argued about which objective a firm or a lunge should follow. One objective is the profit maximization objective which is considered as the basic objective of any economy. The second objective is the utility maximization objective which is required for the long term development of an organization. For determining the price of the tickets the league depends on the long term objectives of the business. The wages that are required to offer to the employees also depend on the broader objective of the organization. Most of the economists have observed that American leagues are dependent on the utility maximization approach. For satisfying the needs and requirements of the stakeholders of the leagues the leagues follow the profit maximization objectives as the profit maximization is the prime objective of any organization (Ferguson, et al, 2001). For the clubs under MLS winning the match will always signify a prestigious issue. Every league will prefer a wealthy and prestigious franchise house. The clubs are therefore needs to apply a equilibrium market structure where the prices and the wage level would be fixed in accordance to both the profit maximizing objective and the utility maximizing objective. The economic effect of the sports lies in the broader sense and many economists have argued that, the introduction of new stadiums are not able to generate the economic welfare to the local areas but in the broader sense the soccer can introduce economic welfare on the country basis.
Business Management within MLS
The Major League Soccer is one of the major games or sport activity within US as stated before and this league is followed by a numerous number of people within the region. The average attendance is also higher than the attendance in NBA and other sports. The league has been profitable from the time of demonstrating single entity ownership structure within the league. The umbrella marketing and media and advertising scenario has also helped to demonstrating profits for the company. The league has developed the infrastructure for the stadiums and the play grounds and with them, more advertisement or ownerships has expanded. The league is now being shown in ESPN network with a long term seal signed and MP and Silva is also appointed with a partnership right for the television broadcasting. The league is also being sponsored by Adidas and many more company and also most every team has a separate sponsor for them. These also help to increase the profitability and the business structure for the Major League Soccer. The teams are operated separately and for each team, there is an operational or business partner present within the league. Few teams have acquired also breakeven in the year 2012 and according to Forbes, the teams will be also more profitable due to the increase in soccer and the league within the people. The league also control costs by introducing the share revenues among the franchises and holds player contracts despite of players being contracted by the individual teams. The business strategy of the league is more concentrated into holistic marketing rather than individualistic marketing. The Major League Soccer is a private business entity and it does not publish the revenue or the share details to the public (Demmert,1973). So the public disclosure and the business strategy are more concentrated with the single entity ownership business approach and this will include the future consideration and policies for profitable league operations.
Assessment of organization performance and structure in MLS
IN the other major leagues like La Liga, BPL, Bundesliga etc. the organizational structure is more into perfect competition status and the owners of the clubs are also into individualistic approach. The leagues are bounded by the owners and their funding as the owners also find high risks attached with the operation of the clubs (Dietl and Lang, 2008). If an owner wants to direct the risk or the liquidity to other options, they are limited. No individual club owner is economically viable to approach or invest in other forms of business with the up growing risks attached to the club in those leagues other than selling the club. Thus specific league status and to safeguard the investors into the leagues, a different framework or process ne implied and applied with the leagues. The hold u risks and the cost to the owner are sometimes great and thus the leagues are also affected by the owners and stakeholders decisions (Szymanski and Ross, 2007). Therefore, classical form of the leagues can be more implemented and addressed as the value chain would be more under unified ownership and the owners can distribute the risks with associated teams for getting better performance and better stability within the leagues. An alternative business organization and organizational structure of vertical integration can be implemented within perception. The value chain can be more admired with the forward integration for the activities like team development into cup run or championship production. The back ward integration can be also seen as the introduction of the league owners into the leagues (Dietl and Lang, 2008).
In the Major League Soccer of US, there is a single entity for commencing the league strategies and objectives and for doing that, voting is taken. The democratic issues within the League are more into accessible and adoptable rather than the other leagues. The participants are the club owners and they are more into owning the league rather than owning the single club. In this organizational structure, the risk is less and the clubs can be more prosperous with the perfect competition and endeavours attained by the owners (Downward and Dawson, 2000). This business consideration is unique and the owners do have the risks distributed within the clubs equally. There are also proper policies and rules to distribute the wealth or salary among the players. Apart from the designated player, core players or key player policies, all the players are in the same league or in the same salary caps. The team owners are also responsible for structuring the league with the financial and management processes and thus these improvements are to be observed within the Major League Soccer in US. There are also proper training and development activities which are integrated within the Major League Soccer and these helps to improve or emerge new young players within the soccer world. There is additional advertisers or fundraisers present in the league to introduce funds for the development and achievement of the league (Vrooman, 1995).
Discussion and conclusion
The above discussion of the events is examined by different frameworks and different techniques to understand the impact of the Major League Soccer in US with the appropriate relevance to the structure of the league. As seen from the discussion, the structure and organizational framework is different from the other major leagues and the league organization and proposition is also different from the others. The Major League Soccer is organized on the single entity and the owners own the league rather than the clubs individually and this activity is better in some points of organizational strategies (Dietl and Lang, 2008). The major change or difference is in the light of structure and strategies with the business orientation. The clubs are also been equally judged and synchronised by the owners and the league organization committee is responsible as the central authority for the teams and the players (Downward and Dawson, 2000). This structure implies the appropriate distribution of power and risks. But it is also responsible for the delaying of decisions or strategic implementation of the policies. As per the voting or decision taking rights, the single entity league structure is more adoptable and suitable to justify fair chance and structure of the leagues. But the salary caps or the decisions are to be more lenient or at par with other major leagues and the players and the clubs are to be more adjustable with the requirement. Other than that, no permanent restructuring is needed to be emphasised within the Major League Soccer.
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Business Economics Assignment No.1
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