Rarely do we talk about modern sports without evaluating how it is boosted by political incentives or market interests. However, these two dimensions don’t always align with each other. When they diverge, economic gains may have to be sacrificed to achieve political objectives. The Olympics Games, widely recognized as the world’s premier multi-sport event where countries demonstrate their athletic prowess, frequently falls short in financial returns. For instance, the Games were nearly canceled due to financial losses until the 1984 Los Angeles Olympics was saved by Peter Ueberroth, whose management allowed the Los Angeles Olympics to ultimately generate a net profit of $225 million. In contrast, the more recent Rio de Janeiro and Tokyo Olympics both again incurred significant losses.

How can a balance be struck between political and economic interests to maximize benefits for the Olympics and, more broadly, modern sports?

01 The State-Sponsored Sports System

China adopts a state-sponsored sports system in most sports, whereby the state organizes, mobilizes, and allocates national resources to achieve specific strategic objectives.

This approach was initiated since the founding of the country and formalized in public documents for the first time in July 2002 when China’s Central Committee of the Communist Party and State Council issued the Opinions on Further Strengthening and Improving Sports Work in the New Era, a document that emphasized leveraging the advantages of the socialist system and upholding and refining the state-sponsored sports system for outstanding results in major international competitions like the Olympics.

This means that once the nation sets a goal for certain sports, it pools its limited human and material resources in that sport to gain a competitive edge and consequently achieve that goal. The key challenge, then, is how to allocate these scarce resources effectively. Under the state-driven framework, the government is entrusted with this authority.

For many governments, such as that of China or Soviet Union, the success of sports initiatives is measured by political gains rather than economic returns. In these countries, the state-sponsored sports system has been prevalent.

In that sense, it is more strategic for a country to invest limited resources in less competitive sports, as the chances of winning are higher and therefore it may get more gold medals. This is why China chooses to focus its resources on raising athletes for less competitive sports like weightlifting.

This system has proven to be effective, with which China develops strong professional athletes to compete against less prepared opponents in these less popular sports. However, it can lead to an imbalanced allocation of resources, with high-profile sports like football and basketball receiving fewer resources as a result. Balancing these competing interests becomes a challenge.

02 The Market-Oriented Sports System

In contrast to the state-sponsored sports system, the market-oriented sports system, or the commercial sports system, operates according to the market, an approach commonly adopted for high-profile sports in developed countries.

In such a system, the focus is on:

1. Providing exciting games to capture and retain fans’ attention.
2. Actively branding oneself as a desirable commodity to create commercial potential and maximize profits.

Take the National Basketball Association (NBA) as an example. The NBA comprises 30 teams, each playing 82 games in a regular season. Teams with a certain number of wins advance to the playoffs, eventually competing in a knockout tournament to vie for the championship.

The NBA operates like a commercial enterprise, with its own management structure and complex regulations governing everything from labor agreements between players and the league to the minutiae of player conduct. Importantly, the NBA neither seeks government funding nor accepts its oversight.

According to public reports, the NBA generated over $10 billion in total revenue during the 2021-2022 season, setting a new record for single-season earnings.

The practices of the NBA, as well as those of American football, baseball, and ice hockey, demonstrate that commercial sports can thrive under market-driven operations, particularly in sports with high entertainment value. This approach not only works but also reveals tremendous untapped potential.

Unlike the national system, which prioritizes political outcomes, commercial sports focus on economic returns. The management teams of these sports entities and athletes share the same goal to grow and maximize the financial returns of the sports. With this goal in mind, commercial sports organizations must forge strong relationships with broadcasters, sponsors, and fans, as their aim is to increase their market visibility and traffic, which translate into revenue.

Top athletes naturally rise to the top once this mechanism operates. The national teams formed by these elite athletes become high-caliber “Dream Teams.” This is where commercial sports intersect with political sports.

03 A Dual-Track System

Having examined the state-driven sports system and commercial sports system, we explored the possibility of a dual-track system.

For sports with lower viewer appeal, the state system can offer the necessary resources. Meanwhile, sports with higher entertainment value can engage professional management teams to operate and fully tap into the potential of the sports geared by the market.

For a long time after China was founded, the country was considered a minor player in the global sports arena. It only won its first Olympic gold medal in 1984. To boost national pride with more gold medals at global sports contests, China expanded its state-sponsored sports system.

This approach yielded immediate results. At the 2008 Beijing Olympics, China won 48 gold medals, surpassing the United States for the first time and topping the medal table. This greatly enhanced the national pride and confidence of the Chinese people. However, as it has been 40 years since China won its first Olympic gold medal, and the country is now the world’s second-largest economy with the highest trade volume globally, the need to rely on gold medals to inspire national pride is gradually diminishing.

What China really needs now is to introduce deregulation and market operation into some sports, so that the state-driven system and market-oriented sports system are further separated and managed independently. Currently, more still needs to be done in this aspect, as shown by excessive political interference in some commercial sports, such as football. The Chinese government has made progress in its several anti-corruption campaigns against officials in football authorities. However, football, as a classic commercial sport with a massive fan base and immense commercial value in China, will be run with more transparency, efficiency, and profitability, if more market-oriented operations can be incorporated. For sports with high entertainment value, it should be managed according to the rules of the entertainment industry.

Essentially, what China needs is a dual-track system that keeps the advantages of the state-sponsored approach while deregulating over certain commercial sports. Only by allowing the market to operate where it should and letting it allocate resources, can China become a true sports powerhouse.

This article was originally published on yicai.com in Chinese.