Slate Money: The Sports Week Edition – July 16, 2016

Host: Felix Salmon
Guests: Jordan Weissmann, Cathy O’Neil

Overview

In this special edition of Slate Money, the conversation turns away from the “utterly terrible everything that is going on everywhere in the world right now” and instead focuses on the business and finance of sports. The episode explores three sporting themes:

1. The economics and labor models of UFC (Ultimate Fighting Championship)
2. Money, unions, and revenue sharing in the NBA and team sports
3. The economic rationale behind hosting and participating in the Olympics
   The hosts dig into how value is created and divided between athletes and owners, the perils of “amateurism,” and why cities keep clamoring for expensive, often disastrous, mega-events like the Olympics.

Key Discussion Points

1. UFC: From Martial Arts Curiosity to $4 Billion Juggernaut

(02:20–13:35)

• Origins and Growth:
  • UFC began as an experiment to pit different martial arts against each other. “Basically what these Americans who originated this, this promotion company were trying to decide was what is the most lethal of all martial arts?” (Cathy, 03:30)
  • In 2001, it was bought for $2 million by the Fertitta brothers and Dana White and transformed into a global powerhouse through aggressive branding and promotion.
• Business Model:
  • UFC primarily makes money through pay-per-view and a $10/month subscription service called Fight Pass, supplemented by limited TV licensing.
  • “The real moneymaker is this Fight Pass.” (Cathy, 07:36)
• Violence, Pay-Per-View, and Mainstreaming:
  • Discussion of why violent sports command such high prices on pay-per-view (“It’s not about the violence. Oh, it is about the violence” (Jordan, 08:06)).
  • Efforts to clean up the sport and go mainstream, e.g., international TV expansion.
• Labor Model and Revenue Split:
  • Fighters are treated as independent contractors, not employees, and often earn little: “They might have five or six fights a year…$8,000 per fight…like $45,000 a year as a professional fighter.” (Cathy, 11:48)
  • Recent exclusive sponsorship deal with Reebok severely limited fighters’ ability to earn from endorsements, fueling calls for unionization.
• Quote:
  • “It’s like if you’re an Uber driver, but you also get punched in the face a lot.” (Cathy, 13:20)

2. NBA and Team Sports: Labor Power and Revenue Sharing

(13:35–26:47)

• Contrast to UFC:
  • In all major U.S. pro leagues except UFC and WWE, athletes’ unions secure players 50% or more of revenue.
  • “The NBA is basically a throwback to the halcyon days of unionization…where labor has unbelievable amounts of control over capital.” (Felix, 14:51)
• Bargaining and Compensation:
  • NBPA ensures automatic profit sharing; collectively bargained salary and minimums promote parity for players.
  • Smaller team sizes mean “billions and billions of dollars…showered in some distribution on a very small number of players.” (Felix, 15:53)
• Salary Caps and Free Agency:
  • Caps on max/min salaries balance competition, but can suppress superstar earnings.
  • “It just feels a little wrong to me that LeBron doesn’t get more in the end.” (Jordan, 18:27)
  • Off-court endorsements often exceed salaries (“at that point your salary is basically an afterthought” – Felix, 18:07).
• Competition and Inequality:
  • Superstars “go play with their friends, basically” due to capped max salaries, leading to super teams (Cathy, 19:25).
  • Debate on whether team dominance is good or bad for the sport.

3. Global Sports Models: Why U.S. and European Leagues Differ

(20:44–25:43)

• Promotion/Relegation vs. Closed Leagues:
  • European soccer’s structure grew from hundreds of grass-roots teams, necessitating promotion and relegation for fairness.
  • U.S. sports are closed leagues—“If I started a baseball team tomorrow…nothing would ever happen.” (Felix, 23:15)
  • Antitrust laws and fixed-team arrangements ensure owners can profit regardless of on-field success.
• Owners’ Windfall:
  • All teams benefit from shared TV deals; team values can rise into billions regardless of revenue.
  • “You might earn an enormous amount of money off that…because TV contract money gets spread relatively evenly.” (Felix, 24:14)
  • “NBA even has rules to try to prevent [owners from underpaying players]. They have a minimum amount of money you have to spend on a team.” (Jordan, 25:06)

4. The Olympics: Expense, Amateurism, and Urban Justification

(26:50–39:21)

• Modern Olympics’ Ruinous Costs:
  • Olympics rarely make economic sense for host cities.
  • “There’s almost no economic justification for hosting an Olympic Games. It’s typically a really bad deal for a city.” (Jordan, 28:53)
• Athletes’ Harsh Realities:
  • End of the “amateur” ideal; most Olympic athletes receive little direct benefit or sponsorship.
  • “I would never recommend being an athlete in the Olympics.” (Cathy, 29:52)
• Contemporary Risks and Disasters:
  • Rio Olympics beset by unfinished infrastructure, the Zika virus, political turmoil, and economic recession.
  • “It’s so…It seems like they’re not even kind of getting the ancillary benefit.” (Jordan, 32:36)
• Olympic Village, Sex, and Scandals:
  • The hosts humorously note that one major “event” is Olympic Village hookups: “Really, it’s about a whole bunch of unbelievably hot 20-somethings having sex with each other.” (Felix, 39:03)

Notable Quotes and Memorable Moments

• On UFC’s Labor Model:
  • “It’s like if you’re an Uber driver, but you also get punched in the face a lot.” — Cathy, (13:20)
• On NBA’s Revenue Split:
  • “The NBA is basically a throwback to the halcyon days of unionization…where labor has unbelievable amounts of control over capital.” — Felix, (14:51)
• On Olympic Participation:
  • “It’s a country pride thing, really. It’s not an individual benefit.” — Cathy, (30:19)
• On Hosting the Olympics:
  • “These events never really pay for themselves.” — Jordan, (29:13)
• On Olympic Village:
  • “Really, it’s about a whole bunch of unbelievably hot 20-somethings having sex with each other.” — Felix, (39:03)

Section Timestamps

• UFC, its business and labor model: 02:20–13:35
• NBA and revenue sharing in team sports: 13:35–26:47
• European vs. American league structures: 20:44–25:43
• Olympics: economic impacts and Rio 2016: 26:50–39:21
• Olympic Village and closing thoughts: 39:00–39:30

Tone and Style

The conversation is lively and irreverent, with hosts frequently joshing each other and taking sport-agnostic, skeptical, or even “anthropological” views (as when Felix admits to being new to the NBA or confused by martial arts fandom). Opinions are informed and witty; personal stories and asides are used to frame serious points—e.g., athlete salaries, labor rights, and city finances. Despite the “lighter” sports theme, critical analysis remains front and center.

For Further Listening

• The episode closes with a quick “numbers round,” exploring bleak academic job prospects, Brexit’s financial fallout, and the French president’s hairdresser salary, before winding up on a celebratory note for Slate Money’s new producer.

A brisk, fun, and insightful dive into the business of sports—this episode blends sharp economic insight with plenty of good-humored banter.