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Franchise Model

Franchise model is the way professional sports leagues in North America are organized: a fixed set of franchises, each fielding one team, with closed membership and no promotion or relegation [1]. The franchises hold exclusive territorial rights, and new teams enter only by a vote of the current members [1]. The opposite design is the open league, where results decide which clubs move up or down between divisions [1].

Key points

  • A league is a closed group of franchises; a place is bought or awarded, not earned by results [1].
  • Each franchise usually has an exclusive territory, so it has no local rivals [1].
  • Teams are separate corporate entities, yet they operate under league auspices [1].
  • Closed leagues are often expected to show better competitive balance, and one rugby league study found that [2].
  • The model is contested on economic and legal grounds [3][4].

Origin

The “franchise system” was introduced in baseball with the formation of the National League in 1876 and was later adopted by the other North American leagues [1]. It developed in North America, while the tiered system with promotion and relegation developed in Europe [1]. The economic effects of closed and open league designs are studied in sports economics [5].

How it works in sports media

Member teams are corporate entities separate from their league, yet they operate only under league auspices [1]. Franchises in a closed league are not threatened by relegation [1]. Critics argue that treating the league as one business mainly lets it monopolize the product market, the player labor market and the media markets [4].

The law treats the arrangement carefully. In American Needle v. NFL (2010), the Supreme Court dealt with an unincorporated association of 32 separately owned teams, and asked whether their joint agreement was concerted action under the Sherman Act [3].

Examples

  • NFL: a league of 32 separately owned teams [3].
  • Major League Soccer: technically a single business entity rather than an association of franchises, though each team has an owner-operator [1].
  • Relocation: it was announced on October 7, 1957, that the Brooklyn Dodgers were moving to Los Angeles [6]. Relocation is one way a franchise changes city while staying in the league.
  • Australian National Rugby League: a closed league that showed superior competitive balance to the open English Super League in one comparison [2].

Common questions

What is the difference between a franchise model and promotion and relegation?

In the franchise model the league is closed and membership does not change with results. In the European model, clubs move between tiers according to results [1][5].

Does a closed league make competition more balanced?

It is often assumed so, and one study of the Australian NRL against the English Super League found that the closed league had superior competitive balance. It is one comparison in one sport, not a general rule [2].

Are the teams in a franchise league separate companies?

Yes. The teams are corporate entities separate from the league, though they operate only under league auspices [1]. The NFL’s 32 teams are separately owned [3].

Related terms

Read more on Play of Values

Sources

  1. Wikipedia contributors. (2026). Professional sports league organization. Wikipedia. Link
  2. Read, D., Smith, A. C. T., & Skinner, J. (2021). A comparative analysis of competitive balance between a closed and an open league in rugby league. Journal of Sports Economics, 22(8), 871–892. https://doi.org/10.1177/15270025211022243
  3. American Needle, Inc. v. National Football League, 560 U.S. 183 (2010). Link
  4. Kesenne, S. (2015). The single entity status of a sports league. Journal of Sports Economics, 16(8), 811–818. https://doi.org/10.1177/1527002514556614
  5. Szymanski, S. (2012). Economics of league design. In S. Shmanske & L. Kahane (Eds.), The Oxford handbook of sports economics (Vol. 1, pp. 3–17). Oxford University Press. https://doi.org/10.1093/oxfordhb/9780195387773.013.0001
  6. Ellsworth, P. (2005). The Brooklyn Dodgers' move to Los Angeles: Was Walter O'Malley solely responsible? NINE: A Journal of Baseball History and Culture, 14(1), 19–40. https://doi.org/10.1353/nin.2005.0042

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