Deepak Badri – Nov 18, 2024
Ever since I was a little kid, I have been enthused by sports. At the time, I thought that when a team won the championship in one of the three big leagues — NFL, NBA, and MLB — there was a cash prize that went with the championship. This reward system is how it works for a lot of individual sports like tennis and golf, thus, I always questioned why it should be any different in leagues like the big three.
While there is a single prize that is split by the players, success impacts sports franchises’ financial situations in more indirect ways that should be considered. Some of these ways are much bigger than the direct cash prize received when winning the championship.
In all of the three leagues, there is a prize pool which is divided based on how far each team advances any time that qualifies for the playoffs is eligible for it. This pool is then divided between the players. Based on how much money star players make nowadays, those players are more likely to be in it for the success and championships rather than the extra money.
However, for those players who are on the team and don’t have big contracts, this money likely helps them substantially in comparison to the millions that the best players make. So, regardless of whether they are in the NBA, NFL, or MLB, the cash prize situation is quite similar. However, there are more monetary effects than just this cash prize.
If you have ever taken an introductory macroeconomics course, you are probably familiar with the multiplier effect, which states that initial spending can lead to a multiplied increase in economic activity. This applies to the prize pool discussion because winning raises sports franchises’ revenue in other ways — such as increased streams, sponsorships, and more. Specifically, winning championships is an easy way to draw attention to your franchise to get more tickets (essentially, free advertising). Brands are also going to want to build off that attention and partner with successful teams in order to boost their revenue. Conjointly, all of these factors boost the valuation of a sports franchise as they become more revered. While these effects of winning benefit the shareholders of franchises more than players for the most part, they are still a way that winning impacts sports finances.
Ultimately, winning has direct financial incentives for professional athletes and franchises. It is important, however, to note the more subtle benefits that are better in the long run for the financial prosperity of sports franchises.