Small Markets and Big Stars: A Conversation on Sports Team Ownership with Harvard Business School Professor Anita Elberse
A “supermax contract” in the NBA is designed to help teams keep homegrown star players by offering them significantly more money than any competitor. Under league rules, it’s the most money a team can offer — 35% of their salary cap. The deal is also beneficial to players who can lock-in a lucrative salary for a guaranteed five years. But is it always the right decision for both parties?
During an in-person event at Goldman Sachs, Harvard Business School Professor Anita Elberse hosted a discussion on her case study about the Milwaukee Bucks and their star player, Giannis Antetokounmpo, who in 2020 stood to close $250 million over five years by signing with the team.
Anita, whose research aims to understand what drives success in entertainment, media and sports, was joined by Marc Lasry, co-owner of the Bucks. The conversation was hosted by Nicole Pullen Ross, New York region head of Private Wealth Management and leader of Sports and Entertainment Solutions.
“We are living in the age of the superstar,” Anita said, as she facilitated a debate on factors that might determine whether a star like Giannis may or may not want to sign a supermax contract, such as geography, proximity to family and friends, culture and details of the deal. She also considered whether the contract made financial sense for the Bucks, a team, who at the time, would risk having to pay a luxury tax to retain their top player, limiting their ability to sign other top talent.
“Are smaller markets at a disadvantage?” she asked. “Most would say yes.”
Anita shared research showing how small- and large-market factors across sports (tennis, soccer, basketball, etc) can impact revenue and dictate how much a team can pay talent. For example, while revenue from national TV contracts is equally divided among NBA teams, revenue from local TV contracts varies per market size, thus giving an edge to bigger cities like New York and
We are living in the age of the superstar.-Anita Elberse
Los Angeles. Anita said evidence shows “even the best governance structures can’t fully overcome the problems that smaller markets face.”
Yet for the small-market Bucks, retaining top talent, like Giannis, was a necessary component of their core strategy – winning, according to team co-owner Marc Lasry.
“Giannis is a generational talent,” he said. “If you want to be successful you need to win, and if you want to win, you have to spend money.”
In 2014, Lasry purchased the Bucks alongside co-investor Wes Edens because he says he believed it was an asset that would appreciate over time, and it has. Season ticket sales, a barometer of success, have remained strong, and the team remains a playoff contender.
Yet, there are challenges to owning a professional sports team. For one, Marc says costs continue to rise, even as revenue, based largely on TV contracts and ticket sales, increases. “I would love to have a fourth revenue stream,” he said, referencing sports gambling or the sale of NFTs (non-fungible tokens).
Secondly, a team owner must represent a city and its fans who may have a lot to say about the prospects of their favorite sports franchise.
“People will come up to you and tell you what they think,” he said. “When you think about your brand, what you want people to recognize is excellence.”
Often that brand is closely connected to a top-notch stadium with amenities that elevate the fan experience and engage guests in new and innovative ways. The Bucks play at Fiserv Forum, which opened its doors in 2018 following two years of construction, making it one of the newest arenas in the NBA. However, it’s only one piece of the equation.
“You could have the greatest stadium, but if you’re not winning, no one is showing up,” Marc said.
Which is ultimately why the Bucks signed Giannis to a supermax extension in December 2020 — the largest contract in NBA history. Since agreeing to stay with the team, he has led the Bucks through a successful regular season and helped the franchise reach this year’s NBA Finals.
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