What is Sports Franchising?

We all know that professional sports teams are run like a business across the globe. This means that these sports teams have professional marketing agents, an executive team, and a finance team and operate like a full-fledged organization. These professional teams are often referred to as sports franchises.

Football clubs in the English Premier League, basketball teams in the NBA, and cricket teams in the Indian Premier League are all referred to as “franchises”.

This is because the franchising model is prevalent across sports management. In this article, we will have a closer look at how the franchising model works when it relates to professional sports teams.

What is Franchising in Sports Management?

The franchising model in sports management implies the existence of a franchisor and several franchisees. The governing body which organizes and manages the sports league can be referred to as the franchisor. These franchisors are in control of the overall business of the league. They can control which teams are allowed to participate in the league.

The franchisor has the legal right to decide which teams are allowed to play in the league. They use this right and give other businesses the territorial rights to own and operate a team in a particular geographical area.

For instance, the New York Yankees have the exclusive right to represent the city of New York in major league baseball. Similarly, the Chicago Bulls have an exclusive right to represent the city of Chicago in the NBA.

These exclusive rights are valuable to franchises because they eliminate competition at the local level. It allows them to build a loyal fanbase from audiences who stay in that geographical area or have some affinity towards it.

Hence, it can be said that just like in business franchising, sports franchising is an agreement between a franchisor and the franchisee in which the franchisor grants the exclusive rights to represent a particular geographical area in a particular professional sports league in exchange for money.

Just like franchising in other businesses, the franchises have to operate within the guidelines issued by the franchisor and may also be required to give out a certain percentage of their revenue to the franchisor.

It needs to be understood that exclusive territorial rights form the basis of any sports franchising agreement. Other monetary terms and conditions are secondary and vary significantly between sports leagues.

Advantages of Franchising Model in Sports

In order to better understand the sports franchising model, it is important that we have a closer look at the advantages that it offers to both parties. The top few advantages have been mentioned below:

1. Established Brand Name: The job of the franchisor is to ensure that they establish a brand name for being amongst the best sports leagues for a sport in a geographical area. For example, the Indian Premier League is known for being the best league for cricket in India.

   Since cricket is a very popular sport in India and the Indian Premier League is owned and operated by the Bureau of Cricket Control in India (BCCI), it has immediate recognition from cricket fans. This is the reason that when franchises join the league, they do not have to do any brand-building on their own.

   There is a ready set of loyal sports fans and followers that the franchise can inherit simply by becoming a part of the league! This is the reason that franchises are willing to pay a huge sum of money in order to be allowed to participate in the league.

2. Easier Access to Financing: When an unknown franchise joins a relatively well-known league, they achieve almost instant recognition from all stakeholders. This also includes financial stakeholders such as banks, private equity firms, etc.

   The brand name of a big league is enough to get financiers interested in raising capital which may be required to own and operate a team. This can be vital for the financial performance of the entire league.

Disadvantages of Franchising Model in Sports

There are some known disadvantages of the franchising model as well. They have been listed below:

1. High Initial Investment: First and foremost, it is not easy to obtain a franchise in any major premier league in almost any part of the world. The supply of these franchises is tightly controlled. Whenever there is a franchise opportunity available, the franchisor often charges a very high price for the same.

   Many franchises have complained that the initial cost can be so high that it takes them a few years just to break even on the cost. However, the franchisors are still able to sell these franchises at a high price point.

2. Loss of Control: Another drawback of the franchise model is that the franchises witness a significant lack of control. The franchisor has the absolute authority to make rules about the manner in which the franchises will conduct their business.

   For instance, the NFL in the USA does not allow publicly listed companies to own franchises! The franchisor also has the right to change the rules at any time and the franchise will have no option but to comply.

The fact of the matter is that the franchise model is probably the best model for raising funds when it comes to sports management. This is the reason that almost every important league across the world uses this model in order to manage their operations.