The wake of the NBA’s decision to ban Donald Sterling for life and force him to sell the Los Angeles Clippers has left many people speculating about the legal future of the fight, but the more fun thing to think about is who would buy the team — probably worth well north of $1 billion — from him. Magic Johnson, the NBA legend Sterling insulted in the audio recordings that got him banned for life, is everyone’s sentimental favorite. And then there is Oprah, who may or may not be lining up with a few other rich people to make the Clippers hers, at least partially so.
Newt Gingrich, erstwhile Republican presidential candidate but lifelong Ideas Man, has a better solution. He wants to sell the Clippers to the public:
The right answer to the Clippers ownership challenge is to sell it to the people of Los Angeles. Green Bay, not billionaires, is the model
— Newt Gingrich (@newtgingrich) May 1, 2014
This thought is hardly new or unique to Newt, though it’s mostly bandied about by the type of lefty populists that don’t usually agree on much with former Republican House Speakers and presidential candidates. But it’s a good idea! As Gingrich noted, fans own the Green Bay Packers. And fans own F.C. Barcelona, one of the most valuable soccer clubs in the world. This is a model that’s been tried, and it’s one we already use in almost every other industry other than sports.
“There’s no obvious reason why public ownership – either public ownership by a community, or public ownership by a group of fans – there’s no reason why that shouldn’t work, and the reason for that is basically that we have public corporations all the time run by stockholders,” Victor Matheson, a sports economist at College of the Holy Cross, said. “And that’s the vast majority of companies in the United States, right? They’re not privately-held companies run by one iron-fisted owner. It’s actually fairly unusual that you have an entire industry dominated only by privately-held corporations like this.”
The fact that it would work isn’t the best argument for public ownership. Rather, it’s that public ownership would be better for fans — and the public.
There are two schools of economic thought on how to run a pro sports franchise. The first is to maximize profit. This is the way most sports teams in America run, and it’s the way most businesses run. Profit-maximizing clubs, as the name suggests, have a primary goal of making money. But a profit-maximizing club isn’t necessarily a winning club, which is why we have teams that make tons of money and increase in value even as they lose perpetually (you can form a long list of American teams that operate this way, and the team at the top would be…Donald Sterling’s Los Angeles Clippers).
But sports, as you might imagine, aren’t most businesses. While a private owner is likely to care about profits, the paying customers — the fans — care most about winning. And that leads to the second theory, called win-maximization, which Matheson explained as “where you’re trying to maximize your number of wins subject to not going out of business.” If that sort of sounds like the point of sports, it’s because winning is generally accepted as the point of sports.
Some privately-owned teams operate this way — look at Chelsea F.C. or Manchester City F.C. in the English Premier League, both of which operate in manners that are borderline financially insane in order to win trophies. But fan-ownership means fans wouldn’t have to blindly hope that their favorite team’s owner cares more about winning than he does about lining his pockets. Fans already feel that way, and they’d be in control. That’s obviously preferable for fans.
Even if you don’t care how many games the Clippers or any other privately-owned team wins, even if you hate sports, there are benefits to fan ownership. A fan-owned team has direct ties to its community, and so it’s next to impossible that the team could pick up and move to a new city if its current home decides not to give it massive public subsidies for a new stadium. That both avoids the ugly problems that occur whenever cities fork over hundreds of millions of dollars in subsidies and keeps teams from playing hop-scotch to new cities. A private owner would have moved the Packers out of Green Bay decades ago. Instead, they remain in a tiny town in Middle-of-Nowhere, Wisconsin.
The best example of fan ownership is the aforementioned F.C. Barcelona, the Spanish soccer giant that is, according to Forbes, the third-most valuable sports club in the world (the most valuable, Real Madrid, is also owned by club members). Barça has more than 170,000 members — or socios — who own shares in the team. To run the team, the socios elect a board, which in turn elects a club president. Sports Business Daily explained the benefits the model brings to Barça fans in 2000:
For his annual membership fee of about $105, he acquires the option to buy a ticket to all Barcelona home matches for another $200. That’s per year, not per game. This is possible only because the club is not run to make a profit, like nearly all the professional sports teams in the United States and around the world. “The idea of the club is to satisfy its socios at the lowest possible cost to them. Nothing more,” said Xavier Aguila, who serves as the club’s treasurer when he isn’t working as the president of a bank.
Such a philosophy is a radical departure from the unfettered capitalism that guides U.S. clubs. Fages suffers through disappointing losses like any fan, but he won’t have to worry about the most disappointing loss of all, the relocation of his favorite team. Unlike baseball’s Florida Marlins, his favorite franchise won’t be gutted by the whim of a hardened businessman. Unlike hockey’s Carolina Hurricanes, it will never have to struggle to gain a foothold in an uninterested community. His ticket prices won’t ever be summarily raised 20 percent, nor concession prices doubled to give investors a better rate of return. It’s a concept, most fans would agree, that’s worthy of examination.
And to illustrate the benefits fully, Barça recently announced a plan to spend $800 million to expand Camp Nou, the club’s iconic stadium. The project will be privately financed.
Fan ownership doesn’t always work. The billionaire ownership model brings some financial stability to American sports — Matheson noted that “outside the NHL, we haven’t seen a bankruptcy in professional sports in decades.” That’s not the case in Europe, where even iconic soccer clubs like Scotland’s Rangers F.C., which went public on the London Stock Exchange in 2000, go into bankruptcy. And while Barça and Real have been model clubs, other Spanish league teams are hardly so.
“All of the finances of the Spanish soccer league are probably even more terrifying than the finances of the real estate industry or the Spanish government,” Matheson said. “So you do have that sort of problem following this budget constraint, because fans all want one more win and they’re not always concerned with the bottom line.”
But following the Barça model to elect a board and a director to handle operations can work in a way that produces both a quality on-field product and a team that exists as part of a community (Barça’s motto is “More than just a club”) without trying to extort every last public dollar out of it. Fan ownership also provides an easy method to get rid of distasteful executives without the legal hurdles facing the NBA as it attempts to rid itself of Sterling.
Other than the Packers, American sports have rarely tried to replicate the fan-ownership model. The closest, Matheson said, is Major League Soccer’s Seattle Sounders FC, a team that has an individual owner who gives a season ticket holders’ group known as The Alliance the right to have a say in the direction of the team. The Alliance can hold a vote of confidence for the team’s management every four years.
It’s almost impossible, though, to fathom the idea of a publicly-owned NBA team. The NFL no longer allows public ownership — the Packers were grandfathered in — and as much as NBA owners might want to get rid of Sterling, there’s no way they’d approve a transaction that transferred Sterling’s ownership to, say, 30,000 Clippers fans. The American sports model already ensures that they can run the business their way with little real competition, and their profits and value increases are virtually guaranteed. Public ownership would threaten that, and so they won’t allow it.
And in the end, that might be the best argument in favor of fan ownership there is.