When Start-Ups Come to the Sports World

With sports betting legal and demand for live content surging, leagues are launching left and right. Most will fail, but what will they leave behind? History tells us: a lot
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New leagues are springing up to challenge stalwarts in a variety of sports. (Illustration by Sinelab)

New leagues are springing up to challenge stalwarts in a variety of sports. (Illustration by Sinelab)

Compared to the familiar rhythms of his 15-season NBA career, life in the startup world has thrown many new challenges at David West. There are speaking engagements to attend and strategy meetings to schedule, investment decks to pitch and potential business partners to vet. "I bought these cell boosters to make the signal stronger at my house in the woods," says West, 39, who retired to Raleigh in August 2018 after winning back-to-back titles as a backup big man with the Warriors, "because I'm on the phone all the damn time now."

As COO of the embryonic Historical Basketball League—slated for tip-off in June 2021—West is the face of a righteously radical, if profit-driven, mission. Even as calls to pay college athletes have grown louder, and the NCAA has endured lawsuits, union drives and legislation—including in California, which has mandated that, starting in '23, student athletes be allowed to profit off their likenesses—the organization has kept its market stranglehold. In '15 economist Andy Schwarz wrote in a six-page "theoretical document" to sports and entertainment lawyer Ricky Volante that the only way to topple the cartel of amateurism was to create direct competition. The memo went on to lay out the vision that led them to cofound the HBL.

The result: The HBL will guarantee five-year scholarships for players, who will be required to study at a two- or four-year college or even vocational institution in one of eight team cities up and down the Atlantic Coast, from Philadelphia to Atlanta. "Some kids aren't made for the books," West says. "But we can teach their asses how to weld or film." The actual league schedule, meanwhile, will run between Memorial Day and Labor Day, for which players will earn salaries ranging from $50,000 to $150,000 while left free to sign sponsorship deals, pull video game residuals and otherwise profit off their personal brands.

In an effort to develop talent for the next level, the games will largely follow NBA rules. "We're going to stay away from gimmicky," West says. "There won't be a four-point shot." And yet, like any smart startup, the HBL has brainstormed countless ways to fill its blank basketball canvas. "We feel like we can come up with some innovations to make our league, our game a little bit more intriguing," West says. Maybe that means having backboards light up after each swish. Maybe it means hiring a maverick coach who uses wacky lineups; West fantasizes about fielding a five-man unit of athletic 7-footers whose offense essentially boils down to passing and shooting over the heads of smaller defenders in a high-speed game of monkey-in-the-middle.

"Then you get a handball coach from Europe to teach the right techniques," West says. "All this is possible in a new league."

If the whole thing sounds audacious, it is. "We want to be disruptive," West says. But the HBL is hardly alone. Fueled by Silicon Valley cash, the insatiable demand for live programming in our infinite media landscape and the legalization of sports betting, the industry is enjoying a veritable gold rush.

Even as the major leagues remain billion-dollar behemoths, more entrenched in their market share than ever, there has never been a more opportune time for fledgling sports outfits with Some Big Idea to snag a slice of the constantly growing pie. A recent report from PricewaterhouseCoopers, citing revenues from media rights, gate receipts, sponsorships and merchandising, projected the North American sports market to grow from $71.1 billion in 2018 to $83.1 billion in '23.

Currently backed by 20 investors contributing at least $50,000 apiece—mostly from individual entrepreneurs but also three venture capital funds—as well as an "athlete advisory board" featuring Terrell Owens and Mitch Richmond, the HBL is just one of many examples. The Alliance of American Football may have flamed out earlier this year, but Pacific Pro Football, a four-team California league founded by Tom Brady's agent, Don Yee, aims to launch in 2020. a Premier Lacrosse League (PLL) game drew 412,000 viewers across NBC platforms (including streaming), a record for outdoor lacrosse, less than two weeks into its inaugural campaign this June. BIG3 concluded its third season of three-on-three basketball over the summer. WWE owner Vince McMahon is simultaneously leading the XFL reboot, also due for a '20 kickoff, and losing viewers to Turner's new All Elite Wrestling.

"More of these start-up leagues seem to be popping up, trying to find some positioning somewhere along that massive sports dial," says David Carter, executive director at the USC Sports Business Institute. "But there also seems to be the same amount that are sustainable, which is next to none."

Carter is not wrong: Most new leagues are destined to fail, either too bold in their missions or too meager in their bank accounts. But history also teaches us something else: Unencumbered by tradition, these upstarts are laboratories for new ideas that will challenge the big-time leagues. Even if their bubbles burst, they can still change the sports landscape.

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Long before he began mapping out the future of the HBL, Schwarz was a nine-year-old bummed out about moving across the country. It was the summer of 1976 and his father, John, had suddenly sold his film processing lab in New York City, predicting (wisely) that videotape use would soon replace the work that he did for the television industry. "That part of his scheme wasn't harebrained," Andy says. "Working for a startup tennis league in California maybe was."

Then, as now, disruption was all the rage in the sports world. The fourth edition of the AFL had caused enough headaches among NFL owners to finalize a merger in 1970; the ABA and World Hockey Association brokered similar agreements with the NBA and NHL, respectively, by the end of the decade. The World Football League went out of business in '75, though not before poaching three members of the undefeated '72 Dolphins, including fullback Larry Csonka. One year later, World Team Tennis was in its third season—boasting superstars like Billie Jean King and Chris Evert, who'd all opted for colorful courts, mixed-gendered competition and better pay for women—when a Harvard MBA named John Schwarz wrote a blind letter to the WTT commissioner and wound up with a job at league HQ in Newport Beach.

Decades later the start-up landscape is much different. All the above outfits succeeded in two key ways: moving into underserved geographical markets and luring underpaid labor away from the monopoly leagues, which had no incentive to raise salaries until legit competition came along. These are much tougher ambitions in 2019; major league brands are too entrenched, paychecks too huge. "Recognize this key fact about sports incumbency: It's like the Omar line, 'If you come at the king, you best not miss,'" Schwarz says, spinning the classic quote from The Wire. "If you come at the king, you best be prepared to outpay them for more than a year."

Fortunately for today's aspiring startups, several other factors are working in their favor. There are the absurd amounts of cash flooding the industry, anticipating the rise of sports gambling. And there's the proliferation of streaming services like Twitch, DAZN and ESPN+, which has created an insatiable demand for live sports (to say nothing of esports). "They don't need to be on broadcast TV to launch anymore," Carter says. "The access to potential customers is greater today than it was a generation ago because of the media alternatives."

But new leagues have always needed more than airtime to stand out. The ABA's first commissioner, Lakers legend George Mikan, threatened to quit unless owners approved the use of red, white and blue basketballs; the WHA once considered crimson-colored pucks. "A lot of these legacy leagues are multibillion dollar businesses," says Paul Rabil, a pro lacrosse player who cofounded the PLL. "You don't necessarily need to fix what's not broken. We need to do things differently to capture new fans and generate interest."

The PLL has tackled this problem in myriad ways, from using a shorter shot clock and quarter-length than rival Major League Lacrosse, to miking up players so they can conduct interviews after scoring goals. The United Arab Emirates--based T10 Cricket League has pioneered 10-over at the professional level, shaving match times to a tidy hour and a half. Two current aspiring gridiron outfits in the U.S., meanwhile, including the Marshawn Lynch--affiliated Fan Controlled Football League, will let spectators call plays live by voting on their phones.

Then there is the XFL. The initial version of the spring league famously went hog wild with its rule book, banning fair catches and instituting the infamous "opening scramble" instead of a pregame coin toss. That helped attract a windfall of curious viewers at first but the league collapsed due to low ratings after one season. XFL 2.0, however, is adopting a more clinical approach. Commissioner Oliver Luck learned about the importance of R&D from his father, a chemical engineer at DuPont. So the league made donations to a pair of Mississippi junior college programs in exchange for testing potential rule changes at a December 2018 scrimmage; examples ranged from a 25-second play clock to a CFL-style fair catch halo to a ban on three-point stances. The XFL also enlisted two other fledgling football outfits, Your Call Football and the Spring League, to conduct similar experiments in early 2019.

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The key is avoiding being perceived as the dreaded G word and alienating traditionalist fans. "It's really important when you're launching as a sports property to put on a brand of the sport that people can respect and relate to," says Jon Mugar, founder of the Basketball Tournament, a winner-take-all ($2 million last year) open bracket. "The last thing I wanted to do was be seen as gimmicky."

That was his concern when he received an email in August 2016 from a Dayton middle school principal and Mensa member named Nick Elam, which included a 67-page PowerPoint proposing a new idea.

Mugar was swayed though, by what became known as the Elam Ending. With four minutes left in each game, the clock is shut off and a target score is set—eight points more than whichever team is leading. With no clock, the thrill-sucking scourge of constant fouling is eliminated. Elam was honored with an Indiana Innovation Award this October; fellow recipients included the creator of an online training tool to prevent opioid overdoses and the founder of "the world's first all-electric wearable jet pack."

***

Last July, Volante and West traveled to Daytona International Speedway to attend the SEAT conference, an annual hive mind of sports and entertainment execs. Volante, the HBL's CEO, spoke on a panel about health and wellness, presenting data on how the NCAA disproportionately exploits black athletes, and then joined West for an HBL-specific fireside chat that drew an audience of 700. Neither was well received by the numerous Division I administrators in attendance, several of whom later complained to organizers.

"Let's just say we were not welcome," Volante explains. "The mean mugs we were getting. . . . "

As a rule, invoking the incumbent's wrath amounts to a death sentence for start-up leagues. The USFL discovered as much thanks to the hubris of our sitting President—who pushed for a fall schedule—and no newbie has dared challenge the NFL's autumn supremacy since. Once the major leagues consolidated their power in the 1970s and '80s, locking up broadcast TV rights, it became all too easy to lean on their superior revenue and, as Schwarz puts it, "bleed the upstart into bankruptcy" by overpaying for top talent.

Even in vanquishing challengers, though, the big dogs have learned some new tricks. The ABA pioneered the slam dunk contest and popularized the three-point shot (which it had adopted from the defunct American Basketball League). The WHA toppled the NHL's reserve clause and opened North American hockey to its first wave of European talent. Seeking to stop players from defecting to the PLL last year, MLL owners voted to increase its salary cap by 51%, an overdue fix similar to what WTT once inspired for female tennis players. Even the original XFL left a lasting legacy in the SkyCam, not to mention that its nicknames-on-jerseys gambit that presaged MLB's Players' Weekend. And you might laugh now, but if the NBA ever adopts the Elam Ending, you'll know whom to thank. With more startup leagues trying out more ideas, many of them will filter up to the big time before long.

All of which makes the HBL's grand experiment so fascinating. Sure, student athletes could be paid tomorrow if the suits at NCAA headquarters in Indianapolis so desired, thereby rendering the HBL mission moot. But that would mean fundamentally changing a billion-dollar profit structure. "They've staked their entire antitrust defense on the idea that if they pay athletes, people won't watch," Volante says.

To reach its end game, though, the HBL has tougher obstacles to clear than mean-mugging athletic directors. There are apparel and shoe sponsors to sign, logos and team names to announce. Coaches to hire, investors to vet, players to woo. West recently met with a tech company to discuss wearable cameras. Schwarz has hopes for an HBL video game.

Above all, radical missions mean nothing without the capital to back them up. That's why LaVar Ball's Junior Basketball Association flopped after one season, in 2018. And why the HBL recently decided to push back its debut from 2020 to '21, when it projects to have enough runway to cover two years of $20 to $25 million in annual operational costs.

There is also the matter of finding a new name for the league. "Some people hear Historical and see David West and think that it's a league of retired players," West says. The HBL had initially planned to partner with HBCUs, hence the original name. But as its mission grew, so did the desire to find something a little more . . . modern. The Progressive Basketball League gained traction before being nixed. "A decade from now, we're not progressive anymore," Volante says. "At some point, we're the norm."