Why hasn’t there been a new major sports league?

The market structure and incentives of US sports leagues

Every major US sports league today was founded in the 20th century. None of the ten largest leagues by revenue were created after 2000:

There have been over 65 well-funded attempts to create new sports leagues since the year 2000, with many billionaires and high-profile individuals including Thiel, Chernin, and Cuban backing various leagues that have all failed.

To put this in perspective, YC’s eight company first batch included Reddit (currently valued at $50B), Justin Kan and Emmett Shear (who went on to co-found Twitch), and Sam Altman.

The three leagues with even an argument for being not total failures are the NWSL, League of Legends Esports (LoL Esports), and LIV Golf. All have unique advantages over their counterparts, and yet none of them are profitable today or even on a very convincing path toward profitability.

• NWSL: subsidized by the US Soccer Federation, Canadian Soccer Association, and Mexican Football Federation during its early years, currently still reliant on investor money
• LoL Esports: loses hundreds of millions of dollars annually, exists solely as a marketing mechanism to get people to play the actual game
• LIV Golf: backed by the Saudi Arabia sovereign wealth fund, poaching top players from the PGA by offering exclusive contracts to only play in their league

In this piece, I examine how market structure and incentives explain the absence of new sports leagues in the United States over the past 25 years.

Following these explanations, I outline some first-order insights and strategies I would employ if starting a sports league.

1. Legal structure and precedent greatly benefit incumbents.

The MLB has a legal monopoly over baseball in the US. They are able to block the formation of competing leagues, control franchise locations, and maintain the minor league system without antitrust scrutiny.

While other major sports leagues like the NFL and NBA do not enjoy legal monopoly status and have had to fight challenger leagues, downstream precedent and cultural expectations for a single sports league per sport has been established and incumbents reap the benefits.

2. The winner-take-all market structure creates an impenetrable network effect.

Even the most concentrated industries outside of US sports leagues are effective duopolies:

• Airplane manufacturers: Boeing / Airbus
• Desktop operating systems: Microsoft / Apple
• Payment rails: Visa / Mastercard
• Beverage manufacturers: Coca-Cola / Pepsi

The empirical equilibrium of US sports leagues is a monopoly: one sports league per sport per sex. This is largely downstream of TV contracts, which generate 50-70% of all revenue for the NFL, MLB, and NBA:

Source

TV contracts create an extremely high barrier to entry. Contracts are typically decade-long agreements that lock up limited broadcast inventory, and networks need proven viewership data to justify selling advertising slots. New leagues can’t demonstrate this track record without games on TV, but can't get on TV without the track record.

Fans only want to watch the very best players. Without TV money, new leagues can’t match salaries, and cannot attract top talent.

LIV Golf attempted to solve this cold-start problem by bankrolling the salaries of top players out of pocket. The league only operated for one year before announcing a framework agreement to settle lawsuits and attempt a long-term partnership, but were on a credible trajectory. They are currently in a semi-cooperative state for an eventual merger.

3. The lack of historical precedent for successful venture-backed sports leagues creates high social capital barriers to entry.

Of the three leagues started most recently in the top 10 (MLS, UFC, WNBA), none raised venture funding. The MLS and WNBA were bankrolled by well-connected individuals, while the UFC was funded by private investors.

VC funds typically operate on a 10-year time horizon, when their investments are expected to be sufficiently mature to return capital back to LPs. Sports leagues require extremely high capital requirements (LIV Golf spent $5B+) and can take much longer than 10 years to find product-market fit. A $2 million seed check isn’t going to move the needle.

That leaves billionaire family offices and sovereign wealth funds capable of supplying sufficient capital, both of which require large amounts of social capital to even get in the door. The people who have the network to actually raise $100M for a non-existent sports league would rather do other things.

4. Older billionaires are more conservative, risk-averse, and optimize for immediate high status markers.

Many billionaires who are in a position to fund their own league are much older. The ones who didn’t inherit their wealth likely spent many decades as a much lower status individual. When they make it, they are not interested in being perceived as doing a low status activity amongst their billionaire peers for decades again.

It’s high status for billionaires to buy a sports team. They are able to parlay themselves into new social networks, while also usually being a profitable endeavor.

The higher ambition old billionaires simply buy more teams or start consortiums to buy more teams. Fenway Sports Group, run by John Henry and Tom Werner (both 75), owns the Boston Red Sox, Liverpool, the Pittsburgh Penguins, RFK Racing, and TGL's Boston Common Golf.

It’s high status to buy a sports team and invite all your friends into your box every week to watch a team you own play. It’s low status to try to build your own sports league that will very likely fail.

5. Younger billionaires are nerdier and don’t care about sports (for now).

Most of the younger billionaires made their money from the tech industry.

The ambitious younger billionaires are more interested in buying bednets, angel investing into the next generation of companies, space travel, and starting alternative institutions for biomedical research.

If the culture of young billionaires changes and the status of sports increases, the influx of young billionaires means that there will be more people willing to fund new sports leagues and ventures.

6. The talent of people working in the field to start new leagues is lower than their incumbent counterparts.

The executives and supporting cast that run sports leagues are generally well-compensated (Daryl Morey’s salary is north of $10M), with sufficient networking abilities to land the current jobs. Economically, this is the rational career choice for top talent.

People looking to start new leagues overwhelmingly reflect adverse selection, as they would accept high-paying and high status positions in the NFL/MLB/NBA/etc. if such opportunities were available to them.

7. Sports are no longer the most inherently interesting entertainment medium and a vestige of the past.

Sports have been a staple across cultures for generations. Radio and television enabled synchronous viewership regardless of physical proximity. These mediums were centrally controlled and offered few alternatives, meaning that sports and sports leagues were optimized to be sufficiently interesting to many people across all ages and cultures.

Just as there hasn’t been a single, centrally-relevant TV show since the early 2000s Friends era, the current media landscape caters to individual niches, better satisfying each person’s specific content preferences. Sports may be somewhat interesting to most people, but they would actually rather watch context-specific content: their favorite chess streamer, YouTube vlogger, or TikTok comedian.

8. Internet media economics and the unbundling of talent and cultural status are not congruent with new sports leagues.

E-sports leagues were touted as the next generation of sports: low overhead, marketable stars, and a global audience. Investors were racing to invest in professional e-sports organizations. Creative Artists Agency founder Michael Ovitz, Peter Thiel’s Founders Fund, and David Sacks invested in Cloud9’s Series A in 2017.

Sports leagues historically bundled two products: entertainment and cultural icon creation. Michael Jordan became a global icon because he was the best basketball player in the world. His cultural status was inseparable from his athletic dominance.

The internet, along with new media platforms including YouTube, Twitch, and TikTok changed this equilibrium. You no longer have to be talented in the underlying sport, you simply have to be entertaining and charismatic. The financial rewards for becoming a cultural icon are greater than those for becoming the best in digital mediums.. The top Overwatch streamer makes more than the best Overwatch player. xQc was a top Overwatch player who quit to become a full-time content creator, with a net worth north of $50M.

Sports leagues are competing against all other forms of entertainment, not just other sports leagues. Individual creators are producing equally compelling content at near-zero marginal cost without the overhead of the infrastructure to run a league.

If I were starting my own sports league, this is what I be thinking about:

• Align with long-term investors who have other incentives than financial returns. Such classes of investors include:
  • (1) The US government looking to invest in R&D platforms
    • Reframe the investment from “league-as-business” to “league-as-instrument.”
    • This would make sense for a robotics-based sports league, where the US is seeking to become a market leader.
    • This would create more jobs and can sell on the idea of trickle-down innovation, where investment in the league will lead to lower cost of production of robotics.
  • (2) Corporate R&D budgets
  • (3) Billionaires looking to buy goodwill or increase their social capital
  • (4) Saudis looking to increase their global influence
• Start with a team size of 5 or fewer.
  • Lower capital requirements
  • More marketable stars
• Offer franchise equity to the stars and key executives.
• If starting a sports league for an existing sport, go after individual sports for lower coordination overhead (tennis, golf, etc.) and don’t be afraid to overpay for the top 3 players.

Misc. Thoughts

• Sports are a metaphor for imposition of will. The sports that are experiencing quicker viewer adoption strip away the metaphor and return to more primal sensations (e.g. UFC). While physical imposition of will is deeply innate, I wonder if society is shifting more toward rewarding non-physical imposition of will: I will make content so interesting you will watch this (streamers/YouTubers), I am so interesting you will buy this (.
• If Elon wanted to start a new sports league, could he get a league to the top 10 in a decade? Probably, but it’s a very different problem much more akin to starting a competing Twitter. Elon clearly ran the numbers and decided that paying $44 billion was worth it over using that money to start his own social media platform.
• LeBron’s rumored plans to start a new basketball league also funded by the Saudi sovereign wealth fund is attempting to win non-US markets first before coming back to the US with market power. This may work given LeBron’s cultural status and the Saudi’s non-monetary incentives. The overarching question is: does LeBron’s social capital transcend context enough that association with his league confers high status universally (regardless of location or demographic) over the reputational risks of Saudi association?
• I would short the Thiel-backed Enhanced Games, but long cultural acceptance and drug testing changes of existing leagues. I don’t think an Olympic-type event is the best wedge for a new league. Why limit yourself to an event that occurs once every two years?

Prediction hash: 30e41da0cdaca96e5b1d4cf9c109c215061d8bfd38ccc2abb124e8d2dd16097a