A Necessary Evil

The recent disclosure of Lionel Messi's deal with Inter Miami has sent shockwaves through the sports world, raising questions about the future of sports contracts and the very structure of sports organizations. Messi reportedly turned down a $1.7 billion offer from the Saudi Arabian league to join Major League Soccer (MLS). The deal includes not just a salary but also a share of Apple TV+ MLS streaming revenues, royalties from Adidas on his apparel, and an option to own a share of an MLS team once he retires. This groundbreaking agreement has led many to wonder what's stopping other sports icons like LeBron James, Mike Trout, and Pat Mahomes from demanding similar deals.

While this may seem like a win-win situation for both Messi and the MLS, it's essential to tread carefully. The deal not only challenges traditional sports contracts but also questions the very fabric of how sports organizations are run. It suggests that we can do away with bureaucracy and that a collective ownership model is the way forward. But is it really?

To understand the implications, let's consider the intellectual contrast between German sociologist Max Weber and economist Milton Friedman.

Weber argued that bureaucracy is the most orderly and rational way in which human activity can be organized. He believed that systematic processes and organized hierarchies are necessary to maintain order, to maximize efficiency, and to eliminate favouritism, therefore making bureaucrats a necessary evil in society.

Milton Friedman, on the other hand, was a staunch critic of bureaucracy. He believed that bureaucrats often have objectives misaligned with those they serve. For instance, politicians’ primary goal by default is to stay in power, because if they lose it then they cannot enact the change they aim to see in society. In places like the US, they are often enabled by political action committees (PACs) rather than the electorate, which make campaign contributions to the politicians that better align with their commercial interests. These contributions are what allow political actors to run more effective campaigns that will deliver their message to the right voters, and at a frequency that can often convert “non-believers” into advocates.

Similarly, there is evidence showing that governments are terrible at running businesses, such as the post office or fire departments, on average costing tax payers nearly twice as much relative to private enterprises. This obviously poses a conundrum: should we maximize public administration for efficiency or for stability? Governments are the most resilient organizations known to men, but they’re also notorious for corruption, inefficiency, and, you guessed it, bureaucracy.

So, what gives? Is bureaucracy a necessary evil, or is it something we can do away with? To answer this question, we need to look at another dimension of power.

Historically, authority has been exercised in one of three ways, which one could argue have been an evolution of one another:

1. In ancient times, authority was displayed through divinity and folklore. Kings and Queens were believed to rule due to their proximity to God, therefore their followers didn’t question their desires and intentions.

2. Then came the hero figures, like Napoleon Bonaparte, who ruled through charisma and heroic acts. Their followers believed in them not because of divine powers, but rather because of their magnetic personalities.

3. And, finally, came bureaucracy. This form of authority, which is the one we live with today in most parts of the world, is based on empirical evidence and collective knowledge spread throughout a “web” of public servants and layers of authority. This hierarchical form of organization ensures things move slowly through its ranks and that decisions are made for the greater good, not just for a charismatic individual. While it oftentimes fails to live up to its promise, it still is the least worst form of human organization known to humanity, having given countries and businesses alike stability due to its conservative method to decision making.

Eliminating bureaucracy would be revolutionary, but risky. It can destabilize an entire society or company, as the desires of a few can outweigh the needs of many. This is why democracies have senates—to ensure that minorities have a voice. And here, the same principle applies to for-profit organizations.

In the business world, the shareholder model has been incredibly successful, driving explosive economic growth, massive creation of jobs, and the birth of the middle class. But it has also created the existing societal structure of working 9-5s and workers feeling disempowered to enact change.

All this is to say that there are trade offs with every model and formats of exercising authority. Whenever we're unhappy with an existing structure, there are other options that will certainly come with other sets of drawbacks—oftentimes unpredictable ones.

Now, if we bring this discussion back to sports, it’s easy to see why the Messi contract was a win-win all around: the MLS has not been as successful as its domestic counterparts, and had been in much need of an infusion of excitement to drive viewership; Apple TV+ needed a way to attract more subscribers to its MLS season pass offering, and; Adidas could not afford to lose the greatest player on Earth, therefore it needed to back Messi up. But if we look at other leagues, such as the NBA, the case for a similar deal becomes less apparent.

Basketball today is a hugely popular sport around the globe thanks to the NBA. It has managed to grow across continents, stimulate economic activity in poor nations, strike broadcasting deals with local TV stations and spread the love for the game to every corner of the world, largely because of a mix of four factors:

• Bureaucrats putting the financial success of their teams ahead of the financial success of each individual player (which often meant striking a balance);

• Sports apparel companies advertising their athletes as ideal versions of their customers;

• Media conglomerates striking major deals to distribute this product across audiences, and;

• The occasional superstar player, like Michael Jordan, coming in and displaying the beauty of the sport through their mastery of the craft.

Not one single individual was able to do it alone—decisions were done cautiously, meticulously and oftentimes they didn't benefit the fans or the players, but were necessary to keep the business going.

The moment you takeaway this sort of bureaucracy and put it in the hands of the players themselves, individual incentives will bring in a new set of issues of their own. For example, why should a player approve of the salary cap? Their main goal should be to make as much money as they possibly can as fast as they can because all it takes is one bad injury to end their career.

In this hypothetical situation, players would be incentivized to accelerate salary growth, making the sport more expansive to run, in turn leading tickets to sky rocket, business units—like the Basketball Africa league (BAL)—needing to shut down, broadcast deals becoming so expensive that streaming costs would need to go up, and many more second, third and fourth order effects that in the end would harm fans, the business as a whole, and, at last, the players themselves.

The Messi deal is a watershed moment in sports history, but it also serves as a cautionary tale. As we look down the barrel of a new era of sports contracts, we cannot forget about its potential pitfalls. After all, the tension between the individual and the collective is necessary for the overall good. And sometimes, that wisdom resides in the very bureaucracies we love to hate.

PPA