European Super League Sets Precedent for Disruption

10 mins read

Two days off between games is a rare thing and today we’ll divert our attention from whether the Raptors are tanking or whether they’re just setting up for the first ever 1-10 upset in league history. Wednesday’s lineup against Brooklyn should offer a more definitive answer to that question.

By now you may have heard of the European Super League (ESL) which by all accounts is a seismic shift in world football, away from the age old and time honoured traditions of pyramid football and its romantic ideas of relegation and promotion. The move is fueled by American owners of English football clubs who reportedly “can’t seem to wrap their heads around the idea of relegation” in pyramid football, a concept where the bottom three clubs in each league are demoted to a lower division, with the top three clubs (more or less) from the lower division promoted to the higher division.

I think they do fully understand how pyramid football works. What they can’t seem to accept is the responsibility clubs have to maintain the topology of the most popular sport in the world. The idea that when you zoom out it is one massive interconnected system which runs across the continent and fuels a level of excitement and hope that is unparalleled in sport. It is also a system which forces you to stay competitive or else massive revenues are lost. It is the ultimate anti-tank methodology where the idea of losing a game intentionally for any reason is unconscionable and more importantly, financially damning. The pyramid football league system is a beautiful concept that should be promoted and spread, not suffocated by unfettered capitalism.

There is little doubt that the 12 “founding” clubs will have trouble remaining competitive solely because of their balance sheets and brands, though the latter has been tarnished to some degree. It is the collective responsibility of playing your part in a setup that benefits world football that has been abdicated in the name of shareholder value. When a corporation’s sole responsibility becomes to maximize shareholder value without regard, this is the result. Yes, more people watch Juventus vs Real Madrid than Ajax vs Dortmund, so why would the revenue generated from the former be given to the latter? Why run a league like a ownership co-op when you can divert the majority of revenues to a smaller set of clubs that currently generate the most interest?

Management consultants analyzing the deal on its merits will no doubt be supportive of it. There are plenty of American precedents in the NBA, MLB and NFL that say that owners of a closed league do just fine, even though the product suffers, especially due to the amount of meaningless games. Arguments against a closed-league rely on equitable distribution of revenue for the betterment of all. There’s a heavy dose of socialism baked into this philosophy which has sustained football for well over a century, so it is interesting to see a completely capitalist takeover of football. Now, greed has always been present and profits are king. Given the shift to American and Middle Eastern ownership over the last two decades in football, this, as Arsene Wenger noted more than a decade ago, was inevitable. When shareholders demand growth and there’s no growth to be had, you squeeze. This is no different than Valeant’s price-gouging except you’re gouging the game instead of customers.

Could this ever happen in the NBA? Before we answer that we first have to acknowledge that relegation and promotion already happens in the NBA (or any other sport) at the player level, just not at the club level. You have players move from league to league depending on demand for their services which is based on performance. Clubs don’t have to go through that process because they have capital. They remain static in their league no matter their performance. Is this “fair”? Maybe, since the clubs put up the capital and banks supply it (JP Morgan is behind the ESL) and the financial risk arguably lies mostly with the club. The players are ultimately treated as depreciating assets ready to be discarded.

I don’t think this exact thing will ever happen in the NBA because talent is not concentrated amongst a select few and even when it is, winning is not guaranteed. The chances of the Lakers, Clippers, Knicks, Heat, and Bulls forming a league of their own sounds ridiculous because there is no formula for funnelling talent into a select few teams, not yet at least. This is unlike the unchecked markets of European football where you can buy whoever you want at whatever price you want as long as you have cash. There’s no salary cap, no draft, and “Financial Fair Play” is a joke.

What I do think is possible in the NBA is players breaking away and forming a new league. One of the major points of negotiation every time the collective bargaining agreement is up for renewal is the percentage of Basketball Related Income (BRI) that goes to the players. This has historically been approximately around 50%, and I can see this eventually turning into the inverse of the ESL. Why shouldn’t NBA players adopt the same mentality as European club owners? Why is there even a concept of club ownership? Why not run the NBA like a workers co-op? Right now the levers to balance player/owner power is the CBA, which can be argued to be a relic of the past.

The NBA is ultimately a vehicle to bring the players to the fans. It was required because players lacked capital and the ability to efficiently organize. Now with player capital increasing, distance between fans and players decreasing, streaming taking over, it would not be absurd to view profits taken by NBA owners as almost wasteful with investment levels back into the product low. Before you kill me for this, let me say that the time horizon I’m contemplating is 10+ years, but I do think it can happen. Unlike the harsh response that governments, regulatory bodies, and sport governing councils have had towards the ESL, I might prognosticate that the response to a player league may be overwhelmingly positive. Adam Silver isn’t the most popular guy, NBA owners are the top 0.01%, and there’s a societal shift towards equitable distribution of resources (whatever we think that means). It’s not outlandish.

We have seen more players show interest and have the ability to become owners since 2010 than we did in the 50 years preceding it. Why would we not extrapolate that into something more revolutionary? Why would not banks or hedge funds invest in the idea that just like how ESL clubs saw other clubs as inefficient and hurting the bottom line, current NBA ownership structures do the same? There is no reason but one major question needs to be answered. Venture capitalist Paul Graham says: “The success or failure of startups depends on the effect they have on users, not the effect they have on industries. Disrupting industries is incidental.” It boils down to what can a player-owned league offer to fans that the current system doesn’t. Once the answer to that question is clear, it is a matter of the free market doing its thing.

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