Draft or Free Agency|
Using High Profile Athletes to Maximize Revenues|
Professional sports teams are one of the most intriguing operations in the economic climate. Fans want nothing more than for their team to win games and more importantly championships; however, this is not the goal of the majority of owners. Sports teams require a large amount of capital up front in order to purchase one, and because of this, owners are looking to see returns on that investment in the form of revenue and profit for their team. Throughout the course of their tenure as sports executives, owners must make pivotal decisions in regards to talent for their team. Fans will not go to see a team without any winning potential, and thus owners invest a large amount of money in enlisting the talents of high profile superstars.
The interesting decision that comes from this dilemma is how to approach the superstar market. Every year, the National Football League (NFL) and the National Basketball Association (NBA) hold entry level drafts for rookies. These drafts are full of talent that owners can pursue. In both the NFL and the NBA, there are salary caps for how much teams can spend on the initial contract of these rookies, and they must also work within the salary cap space of their respective league. These salary restrictions would seem to mark an interesting capability of maximizing the profit generated based on the extra revenue created by these high profile athletes, while also minimizing their cost to the team, as their talent in the professional leagues is still unproven. However, teams, such as the New England Patriots, are notorious for trading out of the first round in order to save some money if they cannot find the talent they want since first round picks often command a high salary.
Teams such as the New England Patriots often pursue other markets then the rookie draft in order to gain the talent needed to spark fan interest in their team. These teams sign veteran free agents, proven in both their ability in the league as well as their ability to generate significant hype surrounding their free agent signing. High profile athletes who have entered the free agent market often require significantly higher yearly salaries, with the exception of the first few picks in the NFL draft, who tend to make much more than other rookies.
Without a doubt, both signing high profile rookie talent as well as signing a coveted free agent is an aspect of both of these leagues, and peaks fan interest in the team for the following year. The question remains whether or not owners like Robert Kraft are pursuing an economically sound strategy that enables them to raise profits by signing talent that it is already proven in the league, or if fans genuinely desire the fresh faces of college superstars. In the course of this paper, a definition for superstar athletes will be developed for both the NFL and the NBA, and each will be applied both to draft prospects as well as free agents to determine the number of high profile athletes available in the market for a given year. This will then be worked into separate revenue models for the two leagues in order to determine if there is a proper course of action for league owners to consider when selecting their talent for the next season. It is my hypothesis that a team who opts to sign a high profile free agent, one proven in the league will create a larger added revenue because of that signing than the teams who sign high profile rookies. This is because talent in both of these leagues is unpredictable, and fans want to see their team perform well. A team who signs an established veteran will prove to fans that they are willing to spend money in order to achieve success, which will in turn generate much higher fan interest and thus a better revenue margin for the individual teams. II. Literature Analysis...