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You are here: Home > Current Topics > Mind your Business > 16 May 2005 |
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Image: Barry Bonds, hero of the San Francisco Giants hits a winning home run in 2003 for the team that moved to California from New York in 1957. Copyright: Randall Hop, stock.xchng Imagine this - the Premier League buys Manchester United and decides to move it, lock, stock and barrel, to Surrey and renames it 'The Surrey Reds'. Absurd suggestion surely although there are some detractors of Manchester United who might argue that Surrey was closer to its natural fan base! Absurd it may be but that is exactly what has happened to a major league baseball team in the United States. The demise of the Montreal Expos is not unique. If you watch the film 'Escape from Alcatraz', starring Clint Eastwood based on a true story set in 1960, an inmate asks the new prisoner how the Brooklyn Dodgers are getting on - 'they moved to Los Angeles years ago' comes Eastwood's moody reply! In fact, the Brooklyn Dodgers moved from New York to Los Angeles in 1957; the move was made to help resurrect the financial position of the team and to provide it with a new home - the ballpark at Ebbets Field was old and unable to house all the fans who wanted to see the Dodgers. The owner of the Dodgers attempted to secure land in Brooklyn to build a new stadium but met with hostility from the Brooklyn authorities. As a result the Dodgers moved to Los Angeles where over 78,000 fans saw their first game - a 6-5 win over the San Francisco Giants, the former New York Giants, who themselves had moved to California at the same time. 
Image: The Montreal Expos - now no longer in existence. The Expos, like many of the other MLB teams only exists on the back of the success of the Major League Baseball franchise network; it is the brand name of MLB that sells the team rather than the association with the town or city concerned. Copyright: Liz Bogus, stock.xchng The case of the Montreal Expos is the most recent in the relocation of Major League Baseball teams to new cities. The Expos joined the National League in 1969. The Expos were the first venture for Major League Baseball (MLB) out of the United States. Throughout its history the team has had a mediocre level of success. It had a team of promise in the early to mid 1990s but since that time has faced growing financial difficulties. By the early part of the new century the pressure was on the Expos. Other cities in the US are always on the lookout for the opportunity to bring a Major League Baseball team to their cities and the flagging fortunes of the Expos made them a ripe target for cities such as Portland, Oregon in the north west of the United States. The support for the team in Montreal fell - using the team to generate income is a vital part of the business of baseball. As gate revenue and merchandise sales fell the financial position became worse. The team was eventually purchased by MLB Inc in 2002. Its future was in doubt at that time but it survived two more seasons, one of which saw the team play some of its home matches in Puerto Rico. The experiment of taking MLB to Puerto Rico was a partial success - attendances improved and so did the fortunes of the team. It narrowly missed out on reaching the play-offs with the eventual World Series winners, the Florida Marlins but this proved to be a temporary upturn. In September 2004, MLB announced that the Expos would relocate for the 2005 season to Washington DC and become known as the Washington Nationals. For fans in Montreal, the loss of their team was a bitter pill to swallow. Many felt that the support necessary to really make a financial success of a MLB team from MLB Inc was not forthcoming and they were constantly treated as the poor relation to the big teams in Los Angeles, New York, Boston and Chicago. 
Image: The Montreal Olympic Stadium - former home to the Montreal Expos. The dwindling support for the club left the franchise open to financial difficulties and the move to Washington for the 2005 season. Copyright: D. Lee, stock.xchng The Expos are not the only team looking over their shoulder; others may well find themselves in new locations with new names in the coming years. Baseball it seems, has little in common with the social and economic roots that soccer has with its location in the United Kingdom although the experience of Wimbledon (now the Milton Keynes Dons), Chelsea (having been bought by Russian billionaire, Roman Abramovich) and indeed Manchester United, sought by Tampa Bay Buccaneers NFL owner Malcolm Glazer, may suggest that the tide may be turning more to the dominance of business logic over historical sentiment. |
Image: Brad Penny of the Florida Marlins pitches against the Montreal Expos in 2003 - it was to be the Expos penultimate year of existence before MLB moved the franchise to Washington.
Title: Penny pitches. Copyright: Getty Images, available from Education Image Gallery
The term franchise can refer to a variety of different types of business relationship, for example, licensing, arrangements for distribution, agency agreements and so on, but is more popularly associated with the opportunity to buy a business 'off the peg' as opposed to the greater risks involved in setting up a completely new business enterprise.
A franchise involves two parties. The franchisee buys the right to use the trademark or trade name of the franchisor - the business that owns the right to use that trademark or name. The trademark/name is generally associated with an already successful business model and as such the franchisee is buying into that model. In so doing s/he is able to take advantage of the established nature of the business name in order to reduce the risks of operating whilst at the same time carry out business. For the franchisee, there is the chance to run their own business but to have the finance and experience of the franchisor behind them.
Franchising has become an increasingly important way of businesses expanding their brand as well as helping individuals take the often scary step into running their own business. In the UK there are around 327,000 people involved in franchised business activities. There are 718 franchise systems operating in the UK. (Data source: Nat West/British Franchise Association Survey, 2005(http://www.british-franchise.org/frinuk.asp)).
The franchisee puts up a sum of money to buy the right to trade under the franchisor's name. Some franchises will also have an arrangement where the franchisee pays an annual fee for various services provided by the franchisor such as training and equipment supplies, and may also involve the payment of a proportion of the annual profits or turnover generated by the business.
The franchisor, apart from granting the right of the franchisee to use the tradename, also provides a range of different services including training but also equipment, for example, point of sale display stands, logos, advertising packages, fittings and so on.
Image: The Body Shop has had a policy of expansion driven in part by developing franchise opportunities. Copyright: Ingrid Müller, stock.xchng
The franchisor has an overall say in the the marketing of products and over the quality control processes but other than that the franchisee is on their own and free to conduct their business as they see fit. The relationship, therefore, between the two parties is vital to the success of the franchise.
In the UK many of the popular high street names are franchises, most notably McDonald's, Prontaprint, Domino's Pizza, Cash Generator, Kall-Kwik, Timpsons, Lasertech, Interlink, Toni & Guy and Drain Doctor amongst others.
The average cost of buying into a franchise in the UK is £42,200 but in the United States, the cost of buying into a baseball franchise might be a little more expensive.
Image: Stamford Bridge, the home ground of Chelsea Football Club, has changed beyond recognition in recent years, and with the financial backing of Roman Abramovich, estimated to be worth £1.8 billion, has propelled the club to success on the field. This will enhance the opportunities to exploit Chelsea's brand name throughout the world. Is this the start of a road towards a business model that mirrors that of top class sport in the United States? Copyright: Mister Eels, stock.xchng
Major League Baseball Incorporated (MLB Inc) is the franchisor owning the brand MLB and all the logos, etc. that go with it. MLB Inc oversees the $3.7 billion (£1.95 billion) a year industry of professional baseball - yes that was billion! There are currently 30 franchises within MLB based in 27 cities in the United States plus one in Toronto, Canada. MLB, as is the case with other franchise systems, oversees the standards and rules, and regulates the industry but in addition also collects all the merchandise licensing fees, negotiates the rights to broadcasting and shares out revenues collected to each team. Local broadcasting rights can be negotiated by the franchisee, however.
This latter situation was agreed in 2002. Prior to this, any revenues generated at a ballgame went directly to the home team and none to the away side. This situation tended to penalise the less fashionable sides and meant the larger teams merely got bigger and better as they could afford to secure the services of the best players. Under the revenue sharing scheme, the top earning teams like the New York Yankees, have to share out some of their revenue to the smaller teams. The idea is that it helps make the leagues more competitive and generates an improvement in the standard and quality of the game as a whole.
In terms of the structure of the league, MLB is divided into two leagues, the American and National Leagues with three divisions in each league, the West, Central and East. Each team plays 160 games per season, which runs from April through to October. The winner of each division, plus a wild card place secured by the runners up playing each other, will play off to determine who goes through to the league final. The winner of each of these goes through to the best of seven game World Series final. The Boston Red Sox are the 2004 champions - their first World Series win for 86 seasons!
Each team will play against all others in their league and will play proportionately more games against those in their division. The success of the team determines, to some extent, the revenue that the franchise will be able to generate and that in turn is affected by the skills of not just the coaching team but also the management - just like the owner of a McDonald's franchise.
If the franchise can generate revenue (through selling replica shirts and merchandise, food and drink at the stadium, car park fees, creative links with business partners and so on) then it can be successful as a business enterprise even if it does not win anything (the division, league or World Series).
For the fans, however, who paid out $1.57 billion to watch their teams in 2004, the business of baseball is eating away at their enjoyment. If franchises can be bought and sold and moved to other towns and cities just to secure some business advantage is there any reason why they should become attached to the clubs who could be accused of having no heart?
This is the fine line that MLB must tread and in many respects is one mirrored by other franchise systems - they may provide an excellent way of securing business expansion but in so doing is the brand in danger of becoming weaker as diseconomies of scale, potentially, set in?
