Mind Your Business - 17 November 2008
Franchises - Major League Baseball
How does the MLB work?
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) per year industry of professional baseball – yes, that figure was in billions! 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 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 to help make the leagues more competitive and generate an improvement in the standard and quality of the game as a whole.
In terms of structure, 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 in a season, which runs from April through to October. The winner of each division, plus a wildcard 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-games World Series final. The Boston Red Sox are the 2007 champions and the Philadelphia Phillies beat the Tampa Bay Rays to win the the World Series in October of this year.
Each team will play against all others in their league, with 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, etc.) 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 contributed to the $6.075 billion (£4.07 billion) revenue of baseball in the 2007 season, 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 this is 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?
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