The magic elixir for women’s sports

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“I think there is a potential to establish viable leagues that are profitable, that pay reasonable amounts to female athletes – they haven’t found the magic elixir yet, but I think it’s possible.”

We live in a world where gender identity and gender equality have become dominant issues in our society more than ever before, and naturally these questions extend to the world of sports. An issue that has been gaining increasing media scrutiny via the WNBA and the recent dissolution of the CWHL is the tremendous financial gap between women and men competing in the major league sports, especially hockey and basketball.

Per puckreport.com, in 2019-2020, NHL players had a minimum salary of $650,000 USD. In comparison, the CWHL folded after only two years of paying players stipends from $2000-$10000 USD. In basketball, where the WNBA is financially supported by the NBA, the Wall Street Journal reported that the new partnership will pay women an average of $130,000 USD; this compares to the men’s 2019 minimum of $582,000, an amount that is reserved for players without any previous experience. It is also worth noting that the WNBA operates at the expense of losing nearly $10 million USD per year, reported by the Associated Press.

In a world where gender equality is at the forefront of public discourse, this tremendous gap in professional sports is tough to swallow. After all, women playing their sport at the highest levels go through the same rigours as men; they train for years, enduring the same financial costs as men and going through similarly competitive varsity programs only to make a fraction of the income. Through the lens of today’s social consciousness, this is clearly unfair. To unpack some of the economic and historical factors as to why this is the case and to look at how this gulf can be overcome, I talked to University of Regina economics professor, Shaun Augustin.

Augustin’s speciality at the University is sports; he teaches the University’s class on the topic, so he was a natural fit for the inquiry. When I posed the question, “from an economic perspective, what are the primary barriers to making women’s sports profitable?” His answer was surprisingly straightforward.

“The biggest barrier is consumer demand. – It’s about absolute versus relative quality and how fan’s perception of absolute versus relative quality impacts demand.”

For the non-economist, Augustin uses the comparison of major league versus minor league sports.

“If you think about the AHL and the NHL, the demand for AHL hockey isn’t as great as NHL hockey because fans know even if there isn’t a huge qualitative difference, they know that the players aren’t as good relatively speaking as the NHL players.”

This is a comparison that can be extended to the perception of men’s and women’s sport.

“Fan perception of women’s quality relative to men’s quality of play matters. It impacts their willingness to pay and go watch games.”

This is not to say that Augustin or any other economist thinks that women’s sports have less quality than men’s sports; in fact, this is as much a sociological and marketing problem as it is an economic one. Augustin puts this very succinctly.

“It really boils down to: How successful can the women’s leagues be at generating consumer demand to attend games or watch it on TV? It’s about changing people’s hearts and minds about the quality level.”

There are biological realities about men’s sports and women’s sports. In basketball, men can jump higher, in hockey, men can shoot harder, and in track and field, men can run faster. However, this does not mean that the product will be less entertaining. Augustin uses tennis as an example.

“We know that men are more powerful players and faster players, but on the skill level that is not quite as evident. The entertainment that women’s tennis generates is arguably just as good as men’s tennis. Millions of people watch women’s tennis and like it just as much as men’s tennis.”

Tennis is an excellent case study in the potential of women’s sports to be economically successful. According to CNBC, the top 100 female tennis players earn 80 cents to the dollar that men’s players do. While this is still an obvious and problematic pay gap, it is a far-cry from the hundred-fold difference in professional hockey. Furthermore, viewership in professional tennis is notoriously close; some women’s majors have outdrawn their men’s counterparts.

This is tied to the public perception surrounding tennis. When people tune in to watch the Women’s U.S. Open Championship, they do not see themselves watching an inferior version of men’s tennis, they are watching a different sport. For Cougars hockey coach Sarah Hodges, the same is true of hockey.

“It is a different game and its played differently, but I think the athletes are equally talented and more talented in some areas as the men because its different. We play a more skilled game – there is a different skillset.”

Even if the solution for women’s major league sports is fan perception of quality, that creates two more problems. How can women’s sports get the exposure necessary to change that perception? How can women’s sports continue to improve without the financial means to practise and compete?

One answer is in the WNBA. The WNBA is financially supported by the NBA; the Wall Street Journal reports that NBA teams hold over 50 per cent ownership in the league. This support allows the league to incur short term losses ($10 million USD per year) in order to promote the sport and sustain reasonable salaries for the players. This is possible because the NBA is wildly profitable; Forbes reports that eight of the league’s teams have an individual worth over $2 billion USD. According to Augustin, the NBA’s willingness to invest bodes well for the future of women’s basketball.

“Sports franchises and leagues aren’t in the business of charity – these owners are here to make money; they are trying to be profit maximizers. I would see them applying that kind of thinking to this.”

However, as an economist, Augustin notes that if these short-term losses extend to the long term, the WNBA may go the same way as the CWHL.

“If they cannot change hearts and minds of fans to go out to more games – then they will eventually wrap it up. They will not be willing to subsidize it forever.”

So, should the NHL adopt the same strategy?

For Augustin, the answer is yes.

“I think it’s the only viable strategy – that being said, the NHL jumping on board isn’t a guarantee of success.”

The biggest reason the WNBA loses money is because of the increasingly competitive player salaries. This is a crucial issue for women’s sports because the long-term goal is fair pay, and in the short term, the minimum is a living wage. We have seen the player’s association in the WNBA successfully lobby for increased wages, and women’s hockey has recently adopted a player’s association as well to help grow the sport and lobby for equality. From an economic perspective, these artificial price floors need to be carefully implemented.

The biggest problem right now is the size difference between the developmental pipeline and professional league. In both women’s hockey and basketball, there are numerous varsity programs supplying elite players, but there are limited professional spots. In hockey for example, the men have the NHL, ECHL, AHL, as well as the many overseas leagues, while the women have five teams in North America and a similarly small number of leagues in Europe. This means that there is an excess of labour, which drives down the salaries for players. The resulting market equilibrium is a wage that is far too low for women’s hockey players to survive, which is where player’s associations need to step in. As an economist, Augustin acknowledges that this is important, but it is a fine line.

“I think there can be some value in players’ associations organizing women’s sports and trying to establish basic levels of compensation as well as work conditions – as long as they don’t try to make themselves on par with a comparable men’s league.”

Augustin says that this is because of an economic concept called marginal revenue product. Players are valued based on how much they can contribute to a win, and how much that win contributes to revenue. At women’s sports current state of viewership, especially hockey, this number is very small.

As a case study, Augustin compares women’s sports to the early days of men’s sports, where financial stability and profitability were far from guaranteed.

“They all started without players’ associations. In the early days of those sports leagues, the financial viability of those franchises was always in question.”

“They suffered very similar problems with men’s sports that women’s sports are facing today: is it interesting enough to the general public that they are going to go watch these sporting contests and are they going to be willing to spend hard earned money on a luxury item?”

The answer was not always yes. In the history of the NFL for example, 49 franchises have gone defunct and in hockey, an entire league (the WHA) collapsed under financial strain. Augustin sees women’s sports at a similar economic crossroads.

“Women’s sports are in sort of a similar infancy stage in my opinion. The idea of their athletes being paid significant sums doesn’t jive with the demand.”

“Their demand for compensations can make the cost structure so unsupportable that it can kill the sport altogether. They need to go in with open eyes and be realistic about what they can negotiate for.”

For women’s sports then, it is about walking the line between reasonable and livable wages and crushing the league under the burden of unsustainable losses (remember that the WNBA loses $10 million per year). Augustin makes a comparison in men’s sports.

“A men’s example of that would be MLS or CFL. They are examples of men’s sports that don’t have the same kind of consumer demand.”

“What they negotiate in the collective bargaining agreements are much less lucrative than the other leagues.”

According to the economics, women’s leagues in the major sports won’t reach pay equity in the short term, but reasonable wages in line with smaller consumer demand sports is a reasonable target to strive for. This is because perhaps the biggest enemy of women’s sports becoming profitable is an uncontrollable one – time.

Augustin explains that major leagues evolved from their financially unstable beginnings to the juggernauts they are today largely through consumer product partnerships. Consumer product companies, most famously the major beer companies, used targeted sports audiences to advertise and that drove revenue in the major sports leagues, which allowed them to reach the status they have today. This is particularly evident in the modern NFL, where Super Bowl commercial spots can run upwards of $5.25 million USD for 30 seconds.

While the NFL is an extreme example, many modern low-draw or niche sports have found similar advertising catalysts to drive success, and they have done it in shockingly short amounts of time. Two examples of this are “extreme sports” and “esports.” In extreme sports, the X-games became profitable and popular largely due to partnerships with energy drink companies that drove revenue in a target market. Similarly, esports has been profitable by marketing gaming peripheral products to their audience. There can be similar advertising catalysts in women’s sports, the problem is discerning what they are. Augustin explains,

“While it’s important to get bums in seats for women’s sports, that’s a starting point. The grassroots of this is to develop consumer demand to watch on tv – that’s what will grow enough revenue to make it reasonably profitable.”

Another solution that has been proposed is a shorter season or tournament model. For Augustin, this too is a potential solution.

“We live in modern times with modern men’s sports – but that isn’t the history of the sport. They’ve had shorter seasons in the past.”

“In a short season or tournament, it controls cost. You don’t have to pay the players an equivalent of a year’s salary.”

While it is difficult to accept that women’s major league sports do not currently drive enough consumer demand for athletes to compete as much as their male counterparts, they need to start somewhere. The biggest problem many leagues have faced in the history of sports is trying to do too much too soon. Again, men’s major leagues became the juggernauts they are today in a matter of one-hundred-years.

So, what can we do right now? For Augustin, it comes back to product differentiation.

“What WTA (Women’s Tennis Association) did right is that they didn’t try to market themselves as a competitor against men’s tennis; they tried to market themselves as something different and unique.”

This is true, but tennis is competing against a sport that is on the lower side of consumption to begin with. Can women’s leagues really compete against men’s leagues in the major sports? Augustin says maybe, using soccer as an example.

“Lot’s of people follow the Canadian women’s national team. – if that can be successful, can that translate to a professional league?  I think the answer is yes, but they need to work at it, and they need to find some sources of revenue to make it work.”

“They haven’t found the magic elixir yet, but I think it’s possible.”

As an economist, does he think that there will ever be true gender equity in major league sports?

“For the most part the history says no – I think there is a potential to establish viable leagues that are profitable, that pay reasonable amounts to female athletes, but will they be as high level as men’s, probably not.”

“Getting fans to get over that absolute quality difference is probably too big a gap to get across, but can you get it big enough that its viable financially and economically, I think so.”

Part of the problem comes back to time. Men’s leagues have had a 100 year head start, and they are still growing. According to an article by Forbes, NBA revenues grew by an average of 13 per cent in 2018. On top of this, the major leagues are also increasingly working to market their products to women. This means that women’s leagues are competing for viewership and working to change quality perceptions in all parts of the gender spectrum. That being said, the WNBA is a beacon of hope for women’s major league sports.

Despite losing money, the WNBA is growing rapidly. Women in the WNBA are making reasonable salaries. They will average $130,000 USD in 2020, up 83 per cent from 2019. Viewership is also on the rise, with reported increases of 30% from year to year. Most importantly, the NBA continues to support them. As Augustin suggests, this means that the investors believe that the league will be profitable going forward. They are setting a standard for gender equality that will hopefully drive fair compensation in other women’s sports for generations to come.

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