Abstract
Sport leagues have been critiqued for their cartel-like behavior, monopsony power, and many occupational health risks to athletes. Athlete-owned sports leagues are an alternative way of organizing professional sport that may benefit athletes and the industry. This article examines the viability of athlete-owned leagues by reviewing theory and research on worker-owned firms and applying the findings to sports leagues with athlete ownership, with a focus on the Premier Lacrosse League. Five criteria are shown to affect the viability of worker ownership: heterogeneity of interests, capital-labor ratios, time horizons, motivation and efficiency, and conflict with capitalists. When applied to the sport industry, athlete ownership is likely in sports like beach volleyball and skateboarding but unlikely in sports like American football and soccer. Athlete-owned sports leagues have some benefits when compared with capitalist-owned leagues, but they will struggle in markets with incumbents.
Introduction
Celebrity lacrosse player and investor, Paul Rabil, launched the Premier Lacrosse League (PLL) in 2018 with the unofficial slogan, “We the players.” By giving equity and better pay to players the PLL upset incumbent Major League Lacrosse (MLL) by taking nearly 130 veteran MLL players for its first season. The athlete-owned PLL demonstrated that it could compete with a long-standing incumbent capitalist league and is reminiscent of other athlete-owned leagues in American sporting history. For example, in 1890, the Brotherhood of Professional Baseball Players launched a rival league called the Players’ National League of Base Ball Clubs, commonly known as the Players’ League. Designed to combat the reserve clause and salary caps of the National League, the Players’ League was a worker cooperative that shared profits and decision-making between financial backers and players. In the 1890 season, the best players left the National League and went to the new Players’ League (Zimbalist, 1992). Although debated, most observers agreed the Players’ League outdrew the National League; by one often-cited estimate, the Players’ League drew 913,000 spectators and the National League drew 853,000 spectators (Di Salvatore, 1999; Zimbalist, 1992).
The PLL and the Players’ League are not alone in showing the potential of athlete-owned leagues; athlete ownership has also existed in bull-riding, surfing, soccer, and basketball. Indeed, professional sport has many characteristics that seem suited to athlete ownership. Worker ownership is common in other professions, such as law, accounting, medicine, investment banking, and advertising (Hansmann, 1988; Pencavel, 2001). Athlete salaries are the largest cost for any team, as are the costs of labor in other industries where worker cooperatives have succeeded (Lambert, 2017). Athlete-owned leagues may also fix current issues in the sport industry, such as player safety and racial injustice. Although sport researchers assume, either implicitly or explicitly, that ownership is separated from labor, recent initiatives, such as Paul Rabil’s PLL, as well as others like Derek Jeter’s The Players Tribune and LeBron James’ Uninterrupted, show that athletes are seeking ownership in the sports industry and they are using these platforms to help other players. Research on fan-ownership and fan-governance in sport has shown how fans disrupt and change their sports (Garcia & Welford, 2015; Kennedy & Kennedy, 2007)—the same is possible for athlete ownership.
Thus, my purpose is to examine the viability of athlete-owned professional sports leagues. I define viability as the ability of athlete-owned sports leagues to work efficiently and effectively when compared with capitalist-owned leagues (sometimes called “privately-owned” leagues). Other types of league and team ownership exist in the world, such as member ownership in Germany’s Bundesliga; however, this article uses capitalist ownership as the comparison because it is the most common ownership type and because the following analysis shows that athlete-owned leagues tend to find capitalist-owned leagues as their rivals. The review focuses on ownership at the league level rather than at the team level because it is assumed that, due to owners’ interests in maintaining control, a whole league structure is needed to support athlete ownership. For example, to stop the public interfering with their decision-making, major leagues in North America do not allow teams to be publicly owned (with the exception of the Green Bay Packers), so they are very unlikely to grant ownership rights to athletes. I review research on worker ownership in economics, law, management, and sociology and examine this research considering the characteristics of the sport industry. Readers can look forward to a theory-based analysis of athlete ownership, which identifies important characteristics of the sport industry and provides practical recommendations for starting and sustaining worker cooperatives in professional sport.
The next section starts by defining worker ownership and identifying instances of worker ownership in the global economy and the sport industry. The third section reviews the status of professional athletes in today’s sport and identifies problems that could be resolved with athlete ownership of leagues. The fourth section describes the PLL as a contemporary example of a league with athlete ownership and identifies many opportunities and challenges faced by the league. The fifth section identifies the main characteristics that are theorized to make employee ownership most viable and considers whether sport shares those characteristics. The sixth section concludes regarding the viability of athlete-owned professional sport leagues.
Worker Ownership
Most theorists define owners as the people who share two formal rights: the right to control the firm and its assets and the right to appropriate the firm’s residual earnings or profits (Ben-Ner & Jones, 1995; Hansmann, 1988). A cooperative is a firm collectively owned by either its customers or its suppliers. If it is owned by the suppliers of labor, it is a workers’ cooperative. Workers exercise ownership by making decisions regarding the firm and its assets and by receiving profits. In terms of control, ownership gives workers the right to make crucial decisions about the assets of the firm or the structure of the workplace. Some workers, including athletes, have used unions to win the actual right to be included in decision-making, but this is not the formal right associated with ownership—it is contingent on bargaining power, national labor laws, and collective action.
There are many ways worker cooperatives can be organized. For example, the literature distinguishes between labor-managed firms—where workers exercise democratic ownership and have one vote per person—and participatory capitalist firms—where firms include workers in one or more participatory schemes and share profits or shares in the company (Doucouliagos, 1995). In labor-managed firms, workers usually sell their equity back to the firm, or to new employees, when they retire, so ownership stays with the workers. Worker cooperatives can also employ workers who are not owners. Examples include law firms that hire receptionists, manufacturing companies who hire additional workers to meet fluctuating demand, and athlete-owned leagues that hire management staff. Usually only one class of worker is involved in ownership. However, nothing about worker ownership forces workers to weigh in on the day-to-day decisions of a business. Worker-owners typically hire managers the same way as capitalist-owners hire managers to operate their firms.
Examples of long-standing, successful cooperatives include the John Lewis Partnership (1928–), the Israeli kibbutzim (1909–), and the Mondragon cooperative system (1956–). In the United States, Publix, a Florida-based supermarket chain with US$34 billion in sales and 190,000 employees in 2017, is the biggest employee-owned company (Fotsch & Case, 2017). Currently, about 10% of Americans hold equity stakes in their workplaces and there are around 10,000 companies with Employee Stock Ownership Plans or something similar (National Center for Employee Ownership, 2015; Walsh et al., 2018). New Zealand’s 40 biggest cooperatives generated 17.4% of the country’s GDP in 2017 (Gray, 2018). There are least 25,000 worker cooperatives in Italy and around 210,000 people are employed by cooperatives in Spain (Pérotin, 2015). In France, there are 2,600 worker cooperatives and, in the United Kingdom, about 500 to 600 (Pérotin, 2015).
Worker-owned leagues have also existed in professional sport. The Players’ League was operated cooperatively with financial backers and players sharing profits and making decisions. Professional surfer Ian Cairns started the Association of Professional Surfers (ASP) in 1982 and ceded the name and assets to surfers and surf brands in 1984, making it a partly athlete-owned organization (Booth, 2001). A group of 20 bull riders each contributed US$1,000 to start Professional Bull Riders (PBR) in 1992 (Johnstone & Cartwright, 2009). The Women’s United Soccer Association (WUSA) gave its top 20 “founding players” equity and a player representative on the Board of Governors (Straus, 2003). Most recently, the PLL was founded by athlete Paul Rabil and his brother Mike in 2018, and it gives equity to players.
The Status of Professional Athletes Today
Using the definition of ownership developed above, most athletes do not have a formal right to control the firm or receive its profits, although in some situations, athletes have unionized to win the actual right to influence decisions and to earn a portion of revenues. Marxist theory can be used to examine the difference between ownership and labor and to explain why worker ownership is likely to have different outcomes compared with unionization. According to Marx (1977), labor is the key force that creates valuable products and services, but laborers do not have access to the means of production. Means of production—the non-human elements necessary to produce a product or service—are owned by capitalists (Marx, 1977). In the sport industry, the means of production include stadia, league infrastructure, broadcasting rights, and team brands (Beamish, 1988). Although athletes are the key reason spectators watch sport events, athletes do not have access to the means of production, which are nevertheless necessary to showcase and sell their incredible skills. Thus, athletes must sell their time, abilities, and efforts to owners for the opportunity to turn their skills into valuable, marketable events and brands (Beamish, 1988; Marx, 1977). By selling their time to capitalists, athletes are more like factory workers than professionals or team owners, with the only difference being athletes are paid substantially more than most workers because their labor is so much more valuable to spectators and hence capitalists. Occasionally, athletes invest their earnings in professional teams or leagues, such as David Beckham (Major League Soccer) and Venus and Serena Williams (Miami Dolphins). I do not consider this as athlete ownership because current workers are not the owners; instead, the athlete has become a traditional capitalist.
Owners in North America, Europe, and Australasia developed a series of control strategies throughout the history of professional sport to ensure athletes were profitable employees. William Hulbert created the National League in baseball using territorial monopolies and a restricted number of franchises. He reasoned this would limit demand for players and reduce salaries (Zimbalist, 1992). Arthur Soden, owner of the Boston Baseball Club, and part of Hulbert’s league, proposed the reserve clause, which held players to teams for as long as owners wanted, stopped athletes from being able to negotiate with other teams, and, consequently, depressed their salaries (Scully, 1974; Zimbalist, 1992). Major leagues in the United States copied baseball’s reserve clause. The retain-and-transfer system served a similar function in English soccer, as did restrictions in rugby league clubs and county cricket (Taylor, 2000). In Australia, New Zealand, and North America, leagues limited athletes’ free agency using zoning, salary caps, individual caps, amateur drafts, and internal drafts (Dabscheck, 2004; Taylor, 2000). Thus, in the standard model of professional sport, owners designed sport leagues to limit athletes’ mobility. Some of these strategies are justified as improving competitive balance between teams and promoting talent development through academy systems; however, they all also limit athletes’ free agency and often limit their pay.
Popular and academic discourse has linked the current model of professional league ownership to a series of issues. First, economists have repeatedly shown that North American owners use monopsony league structures to extract economic rents from athletes by paying them less than their value (Krautmann et al., 2009; Scully, 1974). Although different calculation methods have raised debate about the exact magnitude of these rents (Bradbury, 2013; Krautmann, 1999), most economists agree that early career athletes, who are not yet eligible for free agency, are underpaid (Krautmann et al., 2009). Second, owners’ control has sometimes been linked to health, safety, and fairness issues in professional sport. More than 3,000 retired football players filed a lawsuit against the National Football League (NFL), accusing it of concealing information about Chronic Traumatic Encephalopathy and being negligent toward players (Korngold et al., 2013). And the public criticized Major League Baseball (MLB) for lobbying for the “Save America’s Pastime Act,” which stripped minor leaguers of minimum wage and overtime protections (Blum, 2018). Third, Black owners are underrepresented in the ownership groups of many leagues where Black athletes are overrepresented as employees. Disparity in the racial composition of ownership versus employment might contribute to racial injustice in sports leagues, such as when National Basketball Association (NBA) owners introduced a “dress codes” in 2005 or when NFL owners neglected Colin Kaepernick and Eric Reid following their 2016 national anthem protests (Moore, 2018). Issues of exploitation, safety, fairness, and racial injustice might be resolved if athletes owned the leagues they played in.
Example: The Premier Lacrosse League
Paul Rabil, one of the most well-known lacrosse players in the United States, co-founded the PLL with his brother Mike Rabil, a professional investor, in 2018. Before starting the league, Paul Rabil played for 10 years in MLL, which would eventually become the PLL’s main rival, playing the same type of lacrosse (outdoor) at the same time of the year (summer). His vision for a new league structure was influenced by working on the MLL Players’ Council, which he restarted in 2015 (Dasilva, 2018a). The MLL did not have a players’ union, so the Players’ Council served as a substitute to negotiate for improved working conditions (Flanagan, 2017). At the time, MLL rookies were paid less than US$1,000 per game, the maximum salary was US$16,000 a season, and pay was contingent on making the active roster on game day (Flanagan, 2017). Players did not have health insurance or other benefits. In 2017, an MLL spreadsheet listing players’ name, addresses, telephone numbers, email addresses, and Social Security numbers was leaked and made public (Rapaport, 2017). The same year a player was fined his game check for tweeting that the visitors’ locker room in Boca Raton was a tent without showers (Reiter, 2018). The Players’ Council made some progress, most notably by winning a version of restricted free agency for players with five seasons of experience (“Major League Lacrosse Announces New Player Movement Policy,” 2016). However, through the Players Council experience, “Rabil felt like he had a pulse on the players’ frustration with low and stagnant wages, poor playing conditions, sparse attendance, [and] a questionable media deal that limited viewership” (Dasilva, 2018a, p. 1). At the same time, broader labor disputes were being felt in many parts of lacrosse. Female lacrosse players broke away from the United Women’s Lacrosse League (UWLX) to create the Women’s PLL in 2018 (Foy, 2018). And unresolved negotiations between the Pro Lacrosse Players Association and the National Lacrosse League (an indoor or “box” lacrosse league) led to a cancelation of the first 2 weeks of the 2018–2019 season (Stamp & Foy, 2018).
Subsequent discussions between Paul and Mike Rabil around a new league structure included other athletes. Two notable athletes were Tom Schreiber and Kyle Harrison, who went on to hold upper management positions in the PLL while also playing in the league. However, Rabil also depended on major investment groups and venture capitalists for funding, such as the Raine Group, Chernin Group, Creative Artists Agency, Blum Capital, and Joe Tsai owner of Alibaba, Brooklyn nets, New York Liberty, and San Diego Seals (Caron, 2019). Therefore, like other team-sports leagues with athlete ownership (e.g., Players’ League), the PLL was not completely owned by athletes and instead depended on outside investors to raise enough money to start and operate the league.
The team of athletes and investors initially aimed to collaborate with or purchase the MLL. However, MLL owners declined to cooperate, leading Rabil to announce the new PLL in 2018 with the unofficial league slogan of “we the players.” The PLL’s minimum salary was US$25,000, plus health care benefits, and equity in the league (Dasilva, 2018a; Reiter, 2018). The PLL has not shared the details of their player equity model; however, it seems as though the league allocates a portion of the equity pool to athlete-employees in the capitalization table of the company, like how Silicon tech companies give a portion of equity to early employees (Rabil, 2018). The capitalization table is a record of the equity-based transactions of a company and it represents how much of the company is owned by different people (i.e., founders, investors, employees). Although it is unclear how much of the capitalization table is allocated to players, the PLL had initial investors as well as a second group of Series A investors, which suggests that athletes were left a minority portion of equity ownership, and consequently, have restricted opportunities for formal control over the league via voting rights. Therefore, the PLL is more like a participatory capitalist firm than a labor-managed firm because athletes can share in the growth of the league but do not have the same decision-making power as if they owned the league outright.
All organizations with worker ownership must determine how equity is distributed to workers as well as what happens to equity when workers retire. For example, labor-managed firms sometimes buy equity back from retires and sell it to new employees as a way of keeping ownership with current workers. I am not aware of any information released by the PLL detailing how equity is distributed. However, if it follows the start-up model, it is possible that players really have stock options rather than equity, which means they have the option to purchase stock in the future at a fixed price. This would allow athletes to purchase stock and realize capital gains on that stock due to the leagues’ growth, which is consistent with how Rabil has described the equity plan. For example, in a podcast episode he described pioneers in other sports who “have been paid, on a relative scale, lower wages at that time, who have seen their leagues naturally grow and seen their successors take on multi-million dollar deals and have no part in that” (Rabil & Harrison, 2020). The equity plan is a way to reward those pioneers by giving them an opportunity to cash in if the league increases in value. However, this also suggests that athletes will be able to keep equity after they retire and that future players might not be offered stock options because they will already be benefiting from the league’s growth. Consequently, the proportion of current athlete ownership in the PLL is likely to be diluted over time as equity-owning athletes retire and new athletes are hired without equity.
According to the PLL, however, the player equity plan also aligns the interests of the leagues with the interests of the players. A press release stated, the PLL has established a first-of-its-kind equity model for the league’s players to participate in the long-term growth and success of the league. Players will be personally invested in the league’s growth—an environment in which the league’s owners and players are completely aligned. (“Lacrosse Superstar Paul Rabil Launches Premier Lacrosse League,” 2018)
Supporting this goal, the equity plan is tied to many other league strategies that give athletes more autonomy, decision-making, and market power than is common in other leagues. First, although most leagues hire non-athletes to do all the work associated with running league business, the PLL also has players working in upper management positions. An example is including current player, Kyle Harrison, as the Director of Player Relations, where he can bring a players’ perspective to matters concerning athletes (Dasilva, 2018b). Second, the PLL gives athletes ownership of their digital assets (photos and highlights), which leagues usually keep for themselves (Roberts, 2019). The idea is for PLL athletes to have the means of production to promote themselves, grow the league, and share in the profits of that growth. Third, the PLL does not have teams with city affiliations and, instead, depends on its athletes to create connections with fans. Rabil explained, “a sports fan follows athletes on a 4-to-1 basis over teams and a 6-to-1 basis over leagues,” so “We’re making a bet on our players” (cited in Powers, 2019, p. 1). For example, the PLL outfitted several players on each team with microphones and earpieces for every game to collect on-field talk and so commentators could interview players immediately after they scored goals. Many observers and spectators praised the move, and it was quickly adopted by other leagues like MLB (McCarthy, 2019). Fourth, the PLL seems to support Black athletes’ right to protest. PLL athletes had the opportunity to wear Black Lives Matters patches on their jerseys and wear Black Lives Matter warm-up shirts during the 2020 series (“PLL Opening Day,” 2020), and when PLL athlete Romar Dennis was asked about using the league as a platform to support the Black Lives Matter movement he said, The league itself is extremely progressive, and Mike and Paul [Rabil] are not afraid to take hard stances to denounce homophobia, racism or sexism. . . I think you’ll see a lot of support for the Black Lives Matter Movement. (Cited in Rice, 2020, p. 1)
Collectively, the PLL’s strategies are tied to athletes having ownership of the league so that they are invested in the league and the leagues’ success. Rabil described the strategy like this, “Everything that we’re building in the Premier Lacrosse League is about the players first” (Rabil, 2018). However, not everything about the PLL is consistent with promoting player welfare. Most notably, fighting is allowed in the PLL and even encouraged through reduced penalties (Rabil, 2019).
The PLL’s athlete-centric structure and pay had an immediate impact on the incumbent MLL. MLL owners, knowing Rabil’s plan, preempted the announcement of the PLL in 2018 by increasing their salary cap by 51% (while also increasing the league schedule by two games) (“Major League Lacrosse Takes League to Next Level by Investing in Players,” 2018). Even so, the PLL took around 130 players from the MLL for its inaugural season. Then, in 2019, the MLL cut three teams, re-acquired the league’s media rights, and created a new logo (Williams, 2020). In 2020, the MLL changed from a distributed club model to a single-entity structure, which gives the league more control over teams and athletes (Williams, 2020). The MLL’s main advantage over the PLL is that it can leverage its city-based structure to make connections with fans and consumers. The PLL, on the other hand, is a touring league. Like NASCAR, rugby sevens, and the UFC, it takes all teams to a different city every weekend and plays three games over 2 days in a festival-style event. The touring schedule may have advantages for controlling costs and pooling resources but the main disadvantage is that teams are not based in a specific city, so they are unable to generate awareness or interest as a representative of a city or its people.
The PLL seemed to meet or exceed expectations during its first season. The league announced a partnership with NBC in October 2018, where NBC would broadcast the league’s 14-week season. A direct-to-consumer live streaming platform, PLL Pass, sold three times more than anticipated (McCarthy, 2019). NBC also announced that a Week 2 game averaged a Total Audience Delivery of 412,000 viewers, making it the most-watched outdoor pro lacrosse event in history (McCarthy, 2019). During the PLL’s 2019 season, the league counted an average of 12,262 attendees over each weekend of three games, although it is likely that many attendees were double or even triple counted because they are able to attend more than one game using two- or three-game passes. Approximately 12,556 attended the championship game between the Whipsnakes and the Redwoods (PLL, 2019). PLL also attracted many sponsors and partners over two seasons, including Adidas, Gatorade, Capital One, Ticketmaster, Vineyard Vines, Progressive, Sun Chlorella, Mendi, and DraftKings (McCarthy, 2019; Santana, 2020; Young, 2020). The league has engagement of 10% to 12% across its social mediaplatforms, whereas other leagues, including major leagues, average 1% or less (Caron, 2019). The PLL built on its 2019 success by adding a seventh team in 2020 (Pickman, 2020). Finally, it persisted during COVID-19 by hosting a shortened bubble tournament with games again broadcast on NBC channels (Santana, 2020).
The PLL’s two first seasons appear to be successful, supporting the viability of athlete ownership in professional sport. The PLL has challenged the incumbent MLL, forcing the league to raise its salary cap and pay lacrosse athletes more. The PLL also appears to embody many athlete-centric policies and practices. However, the PLL relies on institutional investors and venture capitalists so, although athletes have equity in the league, it is more accurate to describe the PLL as a participatory capitalist league rather than a fully labor owned and managed league. Moreover, the PLL has not been forthcoming in explaining how the player equity model works. Therefore, I turn to the theory on worker ownership to further elucidate the viability of leagues with athlete ownership, like the PLL.
Criteria for Effective Worker Ownership
A review of the theory and data on worker ownership shows five key industry characteristics that make worker ownership viable (see Table 1). Worker ownership is more likely if
The Viability of Athlete-Owned Sports Leagues.
worker-owners have homogeneous interests,
firms have high labor to capital ratios,
worker-owners have moderate time horizons,
firms benefit from motivation and efficiency enhancements, and
conflict between workers and owners promotes and fosters worker-owned alternatives.
This section elaborates on each of the characteristics and decides whether sport leagues satisfy the criteria. A summary of the findings is represented in Table 1.
Worker-Owners Have Homogeneous Interests
Hansmann (1988, 2013) developed a cooperative theory of the firm to explain varying ownership structures, such as worker ownership. According to Hansmann (1988), most firms are owned by persons who are also patrons. While this is obviously true for consumer and producer cooperatives, it is also true for conventional investor-owned firms, which are owned by people who transact capital, and could, therefore, be described as capital cooperatives or lender cooperatives. The question is, why is ownership assigned to some patrons (i.e., investors) rather than others?
According to Hansmann (1988, 2013), some classes of patrons are better positioned than others to gather information, monitor production, and make collective decisions. Worker-owned firms suffer from an immediate disadvantage because there are many owners involved in decision-making. It is often more efficient to have suppliers of capital own the firm because suppliers of capital make decisions cheaply and efficiently. This is because suppliers of capital have homogeneous interests—they all want to maximize profits. Thus, Hansmann (1988, 2013) argues homogeneous interests are a key criterion for determining which class of patrons owns the firm. If ownership includes people with many different interests, then the firm will suffer from many conflicts that hinder decision-making and cost the business. Supporting Hansmann’s (1988, 2013) predictions, worker cooperatives are usually found in industries where workers are homogeneous (Pencavel, 2001). Thus, Hansmann’s (1988, 2013) theory raises important questions about whether athletes will be able to effectively own a league if they have divergent interests. Athletes’ interests differ in two important ways that will affect league governance: They differently contribute to overall performance and they have different time horizons.
Reward allocation
As athletes differently contribute to overall performance, the most important decision for athlete-owned leagues is how to allocate rewards to athletes with varying abilities and motivation. Kremer (1977) theorized how cooperatives would allocate rewards among members. In his model, members vote on a wage schedule as a function of output. If the median member has less than average ability, the cooperative will vote to redistribute wages, which will dull incentives. Consistent with Kremer’s (1977) model, many cooperatives have equal wage policies or policies that equalize wages at different levels of seniority.
Equal wage policies pose an immediate problem for professional sport because consumers desire superlative human performance and the whole industry is organized around finding, developing, and broadcasting workers with uncommon abilities giving uncommon effort. Redistribution will take away incentives for great athletes to try their hardest. Indeed, researchers have shown athletes respond to increasing marginal rewards by playing better (Ehrenberg & Bognanno, 1990; Sunde, 2009). Redistribution also makes it impossible to attract top athletes from other leagues in the first place. Thus, according to Kremer’s (1977) model of reward allocation, athlete-owned sports leagues appear hamstrung—destined to field weak competition between mediocre athletes.
The competition mechanism
However, Hansmann (1990) noted worker ownership can thrive if “individual worker productivities are sufficiently easy to measure so that some relatively objective, and hence uncontroversial, method of pay that is based on that measure can be employed” (p. 1786). Usually, such objective criteria are absent or unobservable at a reasonable cost. But not in sport. Competition provides an ideal ranking of on-field skill and effort because the first-place athletes usually demonstrated more skill and effort than the second-place athletes, and so on, and variations due to chance are accepted as part of the competition. If rewards can be distributed based on competition, then athlete-owned firms can incentivize the best athletes to try their hardest, avoiding the problems of redistribution that afflict other worker-owned firms.
The competition mechanism works best in individual sports where athletes’ performance determines their ranking. Anecdotal support for the viability of the competition mechanism in individual sports comes from PBR and the APS, which were the longest surviving athlete-owned leagues. Both leagues were individual sports, organized in a tour-model, with prize money distributed based on competition rankings. However, the competition mechanism can also be used in small team sports. Consider the BIG3 basketball league founded by Ice Cube and Jeff Kwatinetz in 2017. The BIG3 is a capitalist league, but it uses profit-sharing mechanisms that could be used in athlete-owned leagues. Athletes are paid a base salary of US$100,00 and then earn a portion of league revenues based on their team’s end-of-season rankings. Ice Cube explained the revenue sharing system like this: You come in first, you get first place money. You come in eighth, you get eighth place money. So that’s the real prize—this league growing, getting to a place where that revenue sharing is nothing to sneeze at. And you know we’ll definitely see the league grow just from that. (“BIG3 Basketball Wins With 3-on-3 League,” 2018)
In other words, Ice Cube believes the competition mechanism will fairly distribute revenues and motivate athletes to grow the league. He is likely right because competition mechanisms have been shown to make athletes try harder and play better in other sports (Ehrenberg & Bognanno, 1990; Sunde, 2009).
Therefore, the competition mechanism can distribute rewards efficiently in individual and small team sports. But what about large team sports like the PLL where athletes contribute differently to a team’s performance? The competition mechanism is unable to decide which players within a team deserve the most rewards, so redistribution problems might remain in team sports where players have different roles, abilities, and effort. Moreover, how can athlete-owned leagues distribute rewards from less tangible work, such as leadership and teamwork?
Marginal revenue product
Effective reward allocation in large team sports depends on objective measures of individual athlete productivity. Neoclassical economists use marginal revenue product (MRP) to conceptualize a workers’ value to the firm. A workers’ MRP is equal to his or her output (marginal product or MP) multiplied by the revenue earned from his or her output (marginal revenue or MR). MRP is usually very difficult to calculate because it requires detailed data on workers’ performance; however, sport happens to be one of the few industries where such data exist. Athletes’ performance statistics are also directly related to team wins and, in turn, team revenues, making sport one of the few industries where objective measures of productivity can be used to measure workers’ MRP.
Scully (1974) pioneered MRP analysis in baseball, and although his method has seen heated debate in sports economics, and although the metrics he used are now understood to be limited for measuring productivity (see Bradbury, 2013; Krautmann, 1999; Zimbalist, 1992), the basic idea could be used to allocate rewards to players in an athlete-owned league. Scully (1974) used performance data to estimate players’ contribution to wins (MP) and then regressed wins and revenues to estimate the value of a win to a team (MR), which gives an estimate of the player’s contribution to revenues. Athlete-owned leagues could use performance data to estimate players’ contributions to wins (MP) and use this to allocate league profits to players. Professional sports teams already use athletes’ past performance to calculate contract offers. Athlete-owned leagues may even have an advantage over their capitalist counterparts because they can distribute more rewards after competition, meaning they can allocate pay to observed performance rather than predicted performance. An interesting example of an MRP-based model of reward distribution is Athletes Unlimited, a professional softball league started in 2020 (Hays, 2020a). The league distributes rewards to athletes based on a scoring system that includes team performance, individual performance, and a player vote for Most Valuable Player (Hays, 2020a).
Unfortunately, MRP analysis is imperfect for distributing rewards in athlete-owned leagues because it is practically impossible (albeit theoretically possible) to measure all the ways athletes contribute to team performance and league revenues. For example, MRP analyses do not yet measure teamwork, leadership, character, sitting on the bench, or any other intangible skill. Rewards distributed without accounting for these skills may disincentivize productive behavior like being a good leader or teammate. Although measures for these variables might be developed, it seems likely that MRP will remain inadequate for measuring sports where athletes’ performances are complicatedly interdependent, such as association football or American football. The PLL might face similar difficulties, although it is to say without knowing more about their salary scale and performance bonuses.
To summarize, in large team sports where individual productivity is easily measured (such as baseball or cricket), leagues can use a variation of the Scully method to distribute rewards reasonably efficiently. However, leagues will have difficulty distributing rewards efficiently in team sports where individual productivity is hard to measure (such as association football, rugby union, or American football). Athlete-owned leagues will also need to use other criteria to reward intangible skills. Thus, athlete-owned leagues in certain large team sports should expect to have high decision-making costs and may encounter redistribution and incentive issues (Hansmann, 1988, 2013; Kremer, 1977). Consequently, athlete ownership is less viable in large team sports like association football, rugby union, or American football.
Different time horizons
Another source of heterogeneity that exasperates collective decision-making costs is when worker-owners have different time horizons for when they need income. For example, forest workers’ cooperatives were plagued by disputes between workers who had short-term commitments and workers who had long-term commitments (Pencavel, 2001). Those with short-term commitments voted for policies maximizing short-term returns, whereas those with long-term commitments wanted to maximize the overall value of the firm. Time horizon differences are worse in professional sport because athletes’ career lengths vary dramatically.
To see how athletes’ time horizons influence decision-making, consider athletes’ existing decision-making apparatus—the players’ association. Anecdotal and empirical evidence suggests that athletes favor their own time horizons when collective bargaining. Collective Bargaining Agreements (CBAs) typically favor athletes who are already part of the players’ association and they tend to favor senior players rather than junior players (Winfree, 2017). For example, the Major League Baseball Players’ Association (MLBPA) has largely ignored the plight of minor leaguers and rarely advocates for policies that benefit rookies; in fact, early-career MLB players are paid just 19% of their MRP (Krautmann et al., 2009). Many reasons have been given for why young athletes are underpaid, one of them being senior athletes exploit young players by collectively bargaining for contracts that pay more to seniors and less to younger players, irrespective of performance (Berri, 2008). Exploitation by senior athletes is not the whole story—owners certainly benefit most from underpaying athletes—but different time horizons may explain why players’ associations have not prioritized fair pay for rookies.
Clashing time horizons are a challenge for athlete-owned sports leagues. Athlete-owned leagues will most likely limit ownership rights to athletes who make it to team rosters. They may even institute some type of vesting schedule, where athletes only gain ownership rights after playing several games or seasons. The PLL appears to follow this model by providing equity options to players based on seasons played. By making ownership conditional on playing, athlete-owned leagues will tend to give more decision-making power to senior players than junior players, which will cause imperfect reward allocation. However, given this is already the case for many professional sport leagues, it should not limit the viability of athlete ownership relative to capitalist ownership.
Worker-Owned Firms Have High Labor to Capital Ratios
Financing is another challenge for worker ownership. Worker-owners have two ways to raise capital: they can combine their personal wealth, or they can borrow capital from the market. As most firms’ capital needs far exceed the combined wealth of workers, worker-owned firms must borrow on the market. However, some scholars have suggested worker-owned firms have difficulties borrowing capital (Lambert, 2017; Pencavel, 2001). According to Craig and Pencavel (1992), working for a worker-owned firm is also inherently risky compared with working for a typical capitalist firm because some or all of worker-owners’ savings are tied to the fortunes of the same organization that pays their income. In other words, worker-owners “must not merely have the necessary resources . . . to purchase membership in the organization, but they must also be sufficiently tolerant of risk to subject both their labor income and their wealth to the vagaries of the [same] market” (Pencavel, 2001, p. 43). Consequently, workers demand a higher rate of return for their investment, which creates a higher cost of capital for the firm.
Because of these limitations, worker-owned firms are more likely to be viable in industries that have low capital intensities. Furthermore, according to Rousseau and Shperling (2003), workers are more likely to have ownership rights when a firm’s competitive advantage depends on human assets more than physical or financial assets. Therefore, some theorists predict worker ownership is more likely in industries with high labor to capital ratios (Lambert, 2017). Most sport fits this criterion and they depend on human assets more than physical assets. An exception is auto-racing, where technology and vehicles are an expensive component of competition. Outside of auto-racing, however, there is reason to believe that athlete-owned sports leagues can prosper, if they can raise sufficient capital.
Start-up costs vary for sports leagues. Bull riders founded PBR on US$20,000 (20 riders paid US$1,000 each) (Johnstone & Cartwright, 2009). A lawsuit filed by PRO Rugby owner, Doug Schoninger, estimated a first-year cost of US$6 million for a relatively small league of five teams with two executives and no other front office employees (McCarthy, 2018). The Women’s United Soccer Association (WUSA) lost close to US$100 million in only three seasons of existence (Howard & Crompton, 2018). The AAF’s business plan called for US$200 million over 3 years. They spent US$30 million getting to kickoff and, due to liquidity problems, requested US$250 million from Tom Dundon for three more years of operation (Kercheval, 2019). These figures put the start-up cost of a sports league somewhere between US$20,000 and US$280,000,000.
Higher start-up costs are likely to place a substantial burden on athlete owners. Athletes have overcome this burden by sharing ownership with financers as is the case for the PLL, which has received start-up and Series A funding from a range of institutional investors and venture capitalists. Another example is the Players’ League, which was owned and governed by players and “contributors.” After paying expenses, salaries, an insurance fund, and prizes, the first US$10,000 of team revenues was given to contributors, the second US$10,000 to players, and any other profits were split evenly (Di Salvatore, 1999). In short, athlete-owned leagues can raise capital by sharing ownership with financers. However, this is likely to introduce other difficulties to league sustainability—for example, the Players’ League folded because its financial backers were lured to the rival National League. Similar conflicts may emerge in the PLL. Consequently, athlete ownership is more likely in leagues with relatively low start-up costs and low capital to labor requirements.
Worker-Owners Have Moderate Time Horizons
For businesses to grow and be sustainable, they need to be led by people willing to invest in their future. In contrast, worker ownership may lead to underinvestment. The underinvestment hypothesis predicts worker-owners fail to invest in long-term growth if workers’ claims over residual earnings expire when they stop working for the firm because they will not see as much benefit from long-term growth and are less likely to choose policies that reinvest earnings. The data on underinvestment is mixed. Studies on French employee-owned firms (Estrin & Jones, 1998) and Italian wine cooperatives (Maietta & Sena, 2008) show no evidence supporting the underinvestment hypothesis. However, even if underinvestment is not an issue for other worker-owned firms, it is likely to be a problem for athlete-owned leagues because athletes have very short careers and new leagues often take a long time to turn profitable.
Consider, for example, a prospective American football player who knows the average career length for a player in his position is 2.4 years. If he has accurate expectations about his career, he will see the first 2 years of his contract as his most likely time to earn substantial income. Thus, he is unlikely to support policies that reinvest earnings into future growth of the league because he is unable to appropriate those earnings for himself. The PLL might have solved this issue by allowing athletes to keep equity after they retire so they can earn capital gains from the future growth of the league. However, this raises other issues, such as the dilution of athlete ownership over time as players retire and take equity with them. Other solutions that maintain worker ownership exist. Athletes Unlimited players receive profit participation for 20 years, meaning players who participate this year receive a share of profits generated for the next 20 years (Hays, 2020b). The intent is to reward the players who helped build the property and it should incentivize athletes to invest in the league (Hays, 2020b). However, such plans still require athlete owners to delay some of their income into the future, which is only possible if they believe the league is sustainable for a long time. Therefore, in short-career sports, leagues that keep ownership with current athletes may suffer from underinvestment.
Motivation and Productivity Enhancements
Worker ownership is most likely in industries that benefit from motivation and productivity enhancements associated with workers owning the firm. Control over work and profit-sharing—the privileges that come with ownership—have demonstrated impacts on workers’ motivation and performance (Doucouliagos, 1995). The research on this topic is too vast to review here, but some key points can be identified. First, the benefits of workplace democracy are considered so important that human resource management scholars have developed a whole literature around translating workplace democracy into typical capitalist firms. One tactic, called high-involvement work processes, is “associated with high levels of worker control over how they carry out their work or do their job, either at individual or at higher levels” (Boxall & Winterton, 2018). High-involvement work processes have direct and indirect positive impacts on employee motivation, satisfaction, well-being, and learning (Boxall et al., 2015; Boxall & Macky, 2014), while improving employee retention and firm productivity (Paré & Tremblay, 2007).
Worker ownership is hypothesized to affect motivation in the same way as worker involvement is hypothesized to affect motivation in capitalist firms. Workers who control the conditions of their work feel more committed to the organization (Pierce et al., 1991). Workers who receive shares of profits see how effort benefits them, rather than an employer, so they better identify with the goals of the organization (Ben-Ner & Jones, 1995). In sum, worker owners see their goals as synonymous with the organizations’ goals (Rousseau & Shperling, 2003).
How will ownership affect athletes’ motivation and, consequently, performance? Economists who have tried to identify shirking in professional sport have found inconsistent evidence, probably because players already have incentives to try their hardest, even after signing long-term contracts (Berri & Krautmann, 2006; Maxcy et al., 2002). Therefore, athlete-owned leagues should not be expected to have better performing athletes than existing capitalist leagues. However, leagues may use athlete ownership to motivate players to be productive off the field. For example, the PLL uses player equity to motivate athletes to promote themselves and the league on social media and in other public spaces. By rewarding athletes for the league’s growth, PLL leadership is hoping athletes will do everything in their power to grow the league, in addition to playing their best.
Worker-owned firms also have productivity advantages compared with capitalist-owned firms. In a meta-analysis of 43 published studies, Doucouliagos (1995) found profit sharing, worker ownership, and worker participation were all positively associated with productivity. Correlations were stronger among firms owned and controlled by workers than among capitalist-owned firms adopting participation schemes, which suggests worker ownership is associated with productivity advantages. However, studies on productivity used in meta-analyses like this have methodological limitations (see Pencavel, 2012). Better evidence comes from studies attempting to fit separate production functions to worker cooperatives and conventional firms. Craig and Pencavel (1995) studied the relative productive efficiency of worker cooperatives and capitalist firms in the Pacific Northwest plywood industry. At given outputs, estimated production functions showed coops’ output to average between 6% and 14% more than capitalist firms of the same size. Fakhfakh et al. (2012) studied the comparative productivity of labor-managed versus conventional firms using a large representative sample of firms in France. In several industries, they show conventional firms would produce more with their current levels of employment and capital if they adopted worker-owned firms’ way of organizing production. Therefore, worker cooperatives are at least as productive as capitalist firms, and they may even be more productive in some instances (an exception is legally mandated worker ownership, such as codetermination in Germany, which has negative effects on productivity, Doucouliagos, 1995).
How do these findings apply to sport leagues? Production functions for a sports league are likely to differ from production functions in manufacturing because sports leagues produce intangible commodities like entertainment, so the advantages found by Craig and Pencavel (1995) and Fakhfakh et al. (2012) might not translate to sport. It is necessary to exclude manufacturing and focus on data from the service sector because the service sector is most like the sports industry. Fakhfakh et al. (2012) analyzed firms from two service sectors in their French study: business services and consumer services. Business service firms would have produced significantly more had they adopted the worker-owned firms’ way of organizing production, but consumer service firms saw insignificant benefits; therefore, as sport is a consumer service rather than a business service, scholars should expect athlete-owned leagues to use inputs as efficiently as capitalist leagues, but no more efficiently. In sum, the existing research can be interpreted to suggest athlete-owned leagues are viable but would not receive any special productivity boasts compared with capitalist-owned leagues.
Conflict Between Labor and Capital
One topic discussed in the sport literature but not the general literature on worker ownership is marketplace conflict between workers and owners. On one hand, athlete ownership seems more likely when athletes are trying to resist exploitation or unfair treatment. For example, Paul Rabil created the PLL to challenge incumbent MLL and its poor pay and working conditions. The Brotherhood of Professional Baseball Players announced the Players’ League after the National League instituted a pay category system called the Bush Plan, which was essentially a salary cap (Di Salvatore, 1999). In a manifesto delivered to the public, the Brotherhood wrote, “We believe it is possible to conduct our national game upon lines which will not infringe upon individual or natural rights” (cited in Di Salvatore, 1999, p. 274). Similarly, Ian Cairns positioned the ASF as the antithesis of the existing surfing league—International Professional Surfing (Booth, 2001).
On the other hand, competition with capitalist leagues also limits the viability of athlete-owned leagues. The National League owners, for example, attacked the rival Players’ League with every resource they had. They sought injunctions against players who left (Di Salvatore, 1999). They scheduled games to play on the same day and in the same cities as the Players’ League and gave away free tickets to lure spectators to their games (Di Salvatore, 1999). Their leader, Albert Spalding, also happened to own Spalding’s Official Baseball Guide, which called rival players “conspirators” with “desire for self-aggrandizement,” “influenced by special pleadings, false statements and a system of terrorism” (cited in Di Salvatore, 1999, p. 281). The National League eventually bet the Players’ League by enticing its financial backers to switch sides. According to Hoch (1972), capitalists across the sport industry conspired with the National League against the Players’ League. The same happened in basketball in the 1950s, when the owners of sports arenas replaced free-standing, player-controlled teams with a capitalist run league (Hoch, 1972). MLL is clearly competing with the PLL and many observers have commented on the inability of the lacrosse market to support two leagues, especially given their seasons overlap (Williams, 2020).
As can be seen in the examples above, conflict between athletes and owners plays an important role in athlete-owned sports leagues. Athletes who are exploited by owners’ monopsony power see athlete-owned leagues as an alternative. Therefore, athlete-owned leagues are more likely in sports where athletes and owners have serious, prolonged conflicts. However, capitalists also want to keep control of labor force, so they will compete fiercely to prevent athletes from establishing their own leagues. It will be very difficult for an athlete-owned league to emerge and survive as the rival of an established league. The ideal situation for an athlete-owned league is where athletes feel exploited but there is no strong incumbent to compete with.
Conclusion
The purpose of this article was to examine the viability of athlete-owned sports leagues. The first main conclusion is that worker ownership is more likely if
worker-owners have homogeneous interests,
firms have high labor to capital ratios,
worker-owners have moderate time horizons,
firms benefit from motivation and efficiency enhancements, and
firms operate in a suitable market context.
Applying these conditions to the sport industry leads to the second key conclusion: Athlete-owned leagues are unlikely in certain sports, but possible in others. Athlete-owned leagues are unlikely in large team sports with imperfect measures of player productivity, short careers, and large capital requirements. We will probably never see an athlete-owned league in association football, American football, or rugby. Athlete-owned leagues are possible in smaller team sports with accurate performance metrics and longer careers if leagues can find ways to allocate rewards and raise capital. We might yet see another Players’ League in softball or an athlete-owned league in beach volleyball. Athlete-owned leagues are most viable in individual sports because rewards can be allocated using the competition mechanism and athletes have longer careers. It is likely we will see versions of the ASF or PBR in other sports, especially emerging sports where capital costs are low.
These conclusions are based on a series of important findings regarding the theory and data on worker-owned firms considered from the perspective of the sports industry:
The competition mechanism will reduce decision-making costs by serving as an objective measure for distributing profits to individual athletes and teams. However, the Scully method is an imperfect measure for distributing rewards within a team: If athletes contribute differently to performance and if athletes’ contributions cannot be measured easily, their incentives to play may be blunted. As a consequence, athlete-owned leagues are most viable in individual sports, somewhat viable in team sports with accurate and encompassing measures of productivity (baseball and cricket), and nonviable in team sports with inaccurate measures of productivity that neglect relevant intangibles (association football, rugby, and American football).
Athlete-owned leagues require risk tolerant athletes and (most likely) substantial outside financing. However, most sports have low capital to labor ratios, which makes them suited for worker ownership.
Short careers will cause short time horizons, which may lead to under-investment.
Athlete-owned leagues should be just as efficient and productive as conventional leagues. They may even motivate athletes to work harder, especially off the field.
Exploited athletes are most likely to start their own leagues. However, they will face fierce competition from capitalist leagues as athlete ownership threatens capitalists’ monopsony power.
Supporting these conclusions, the two longest-standing athlete-owned leagues were the PBR and the ASP. Both were in individual sports. Both used the competition mechanism to allocate rewards to athletes. Both emerged out of discontent with the current state of their sport and without a strong incumbent to challenge, and they both had relatively cheap start-up costs. These are ideal situations for athlete ownership. On the other hand, the most recent league with athlete ownership, the PLL, is a team sport, facing a long-standing incumbent, so it does not have the ideal situation for athlete ownership. Therefore, the PLL is likely to face extra challenges. But if the PLL succeeds over the coming years, it will show that athlete ownership is viable even when conditions are imperfect, which will prompt more actors in the sport industry to consider the benefits of athlete ownership.
Footnotes
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
