Sports Oligopolies and Issue of Sports Team Ownerships

Sports Oligopolies

Introduction

In this paper I will discuss some opinions of mine concerning ownership of professional sports. I’ll be arguing how these owners engage in professional sports mainly because it’s a secure and lucrative venture. Sport for most people are perceived as the idea of meritocracy; that hard work and skill can lead to advancement and ownership in a given sport. In reality sport team ownership is largely based on enormous wealth and not merit. Secondly, I’ll be arguing how cross-ownership of sports teams should be viewed as bad because it can lead to a lot of negative effects like anti-competitive behavior which are bad for the fans but may be viewed as good for some team owners. Finally, subsidized stadiums and how receiving a publicly financed arena diminishes the incentive for owners to put a competitive product on the field.

Self-regulated Monopoly

A professional sports team is made up of athletes who are both players and business men/women who have acquired the skills and knowledge necessary to sell their product in a hypothetical open market as an occupation and livelihood (Flint & Eitzen, 1987). This doesn’t just pertain to the athlete but the owners of the sport that form the business also. These athletes and owners bounce back in forth between play and work. Throughout history, sport has been usually seen as a leisure activity. This happens even though the enormous professional sports industry reflects the ideology of contemporary American social and economic life. When looking at the concept of ownership, it expresses a complete range of economic relations, from entrepreneurial freedom of operation to being secure monetarily.

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The sport industry however is different than any other in the modern American political economy. The main goal as a business owner is usually to out-produce and out shine your competition in a given market. In professional sports, the team owners must inevitably compete and work with league opponents or it will literally have no one to do business with it. While many think the fans are the real consumers of the business, sport requires competition to provide a product in the first place. When you think about it this way professional sports benefits monetarily by preserving its own competition, and through that way it has become the only self-regulating monopoly in America (Flint & Eitzen, 1987). As a self-regulating monopoly, owners of the teams in a league ban together to admit and deny new team, divvy up local and regional media outlets, discuss national media rights, and control the rights of players through drafts, contracts, and trades. Outside of professional sports other industries are closely watched and monitored like the Federal Communications Commission monitors broadcasting and the Securities and Exchange Commission regulates the finance industry; however, the sports industry has been permitted to entirely govern its own business. In 1922, the U.S. Supreme court decision on monopoly in baseball has never been reversed for fear of the harm it may do to franchise owners. From this decision the self- regulating norm in baseball has been allowed to spread in other professional sports too. Some challenges have been faced in different leagues either by players unions or certain sports teams looking for better markets. Some examples of the teams who challenged the self-regulating monopoly are the NFL Los Angeles Rams and in the NBA the Los Angeles Clippers. Flint & Eitzen (1987) in their article on the topic, discussed the 1986 lawsuit by the USFL against the NFL; the court found the NFL to be a self-regulating monopoly set on destroying rival leagues, but by placing the costs at $3 made it clear that the court would not insist on changing this central fact of professional team sports (pg. 22). Many owners have testified in Congress that the main reason for acquiring an increasingly costly franchise was the antitrust exemption which guaranteed some security in the business. This points to the special circumstances that arise in professional sports. It seems that being part of a controlled market, which is a self-regulated monopoly, entrepreneurs have huge benefits. In addition to the self-regulating monopoly of professional sports franchises where owners control the markets, these franchise owners also have the economic advantage of rewarding tax subsidies and immense public subsidies.

Cross-ownership

Cross-ownership can be viewed as another negative problem in professional team sports. “Limiting the number of teams in a league allows teams to have a regional monopoly. This gives teams market power in terms of keeping competitors out of their market and limiting quantity for consumers” (Winfree, 2009). When looking at cross-ownership the effects can easily be viewed during league lockouts and collective bargaining agreements between owners and players. Professional sport team owners can indirectly benefit league stoppages; restricting productivity professional sports team can increase incomes in an oligopoly in certain situations. Owners can bargain for lower pay, fewer benefits, or other ways to increase their profits and if that doesn’t work they can still make money during lack of production. Owners may increase earnings by eliminating or reducing competition, even when they own the competition. The cause of lockouts are when revenues start decreasing and payrolls for athletes start increasing. When looking at cross-ownership even though it may not be the reason of a lockout it can certainly add to the span of the lockout and even alter the collective bargaining process. When teams in a league go through a lockout, but they own another team in another sport this can cause the cost of the lockout to decrease for owners. Winfree in his study (2009) explained that during the 2004-05 NHL lockout is the first league lockout in recent history where an entire season was lost (pg.3277). During this time the NBA, MLB, junior and minor league hockey teams’ attendance increased during the 2004-05 season. During this time during the NHL lockout of 2004-05 there were nine owners that had some stake in both a NBA and NHL team. There were two owners who owned both a NHL and NBA team, and two other franchise owners owned or had some interest in both an NHL team and a MLB team. In total there were eleven NHL team owners who had at least some interest in another major professional sports team that overlapped in the seasons. A lot of NHL teams also own a junior or minor league hockey team too. This just shows that during a collective bargaining agreement professional sport team owners can have an underlying incentive not to come to terms with the player association. This happened because the NBA and the MLB were seen as substitutes to the NHL because their seasons usually are going on around the same time. When dealing with large sport franchises there are some overlap between teams because the city may have both a NBA and NHL team or a NHL team and a MLB team. Out of 30 NBA teams 16 had a city with and NHL teams there also. An even higher amount of cities with and MLB team had a NHL team, total of 20 of them. Using a league lockout to increase short-run profits may look somewhat counter intuitive, but is unquestionably beneficial when two franchises are close substitutes, and revenue are fairly lower in the industry not going through a lockout. This substitution effect helped the owners with their collective bargaining by lowering the cost of the final salary cap decision. When the lockout started for the NHL 2004-05 season the initial proposal by the owners were $42 million per team ; However the final agreement somehow came down to $36 million  per team. This could partly be described by the extra revenues made by the owners through their other ventures (Winfree, 2009). In my opinion it would be best for the league to limit the cross-ownership so that the enticements of the owners are more closely aligned with the league. When deciding on where to build an expansion team the league should also take into account other sports leagues as part of the market characteristics. If a small market city only is able to have one professional sports team, the team’s revenue could be comparatively higher, and could compete with the larger market teams. In the MLB these substitutes are limited because of the anti-trust exemption; however, other sports leagues haven’t been charged with any of the anti-competitive behavior like the MLB. I believe other sports should consider anti-trust policy when it comes to cross-ownership so owners won’t profit off a long collective bargaining agreement. Both the players association and the professional sports teams who don’t engage in cross-ownership should be cognizant of these ownership incentives when handling league policy. Lastly, during the NHL lockout fans replaced the NHL for the NBA or MLB games. Since many of the NHL owners own a basketball or baseball team as well, those professional sports teams had an increase in revenue for those basketball and baseball teams. Those indirect benefits did reduce the negative impact of the lockout to some owners. This inevitably can effect beginning a lockout and extending the duration of a lockout. Fan welfare should be the main goal of the league, so I would argue that
owners should not be able to own teams in both leagues, similar to how the NFL use to be.

Subsidizing Sports Stadiums

The demand for professional sports teams is also significant to the local government since taxpayers have funded enormous amounts for sport stadiums and sports subsidies (Winfree, 2009). Sport subsidies are momentously amplified by the monopoly power that each professional sports league has over admission of new sport teams. The downfall of an oligopoly of owners in a professional sports league, is that they act in profit-maximizing behavior that can come with negative consequences. When it comes to stadiums for sports teams these structures act as the central physical capital that teams use to show their products. Stadium contracts and threatened team relocations have increased over the last couple of decades (O’Roark, 2001). Even though stadiums aren’t exactly considered as public goods; these structures have increasingly become publicly funded projects. This occurs usually as incentive for sports franchises to keep their team in a specific metropolitan area. However there are some evidence of how publicly funded stadiums can positively benefit the city from adding tax revenue and other externalities. The benefits for the owners to receive subsidies for sports facilities is that some federal legislation allows for tax-exempt financing of stadium building. This process really benefits the wealthy
team owners.

Without any federal antitrust policy in effect these team owners are allowed to take so many advantages that benefit themselves at the expense of the fans of the sport. Solutions to these problems would be to get rid of or change the governmental tax exemption laws. Add an antitrust policy to all sports so the owners cannot monopolize, and be able to control if a new franchises is admitted into the professional sports league.

References

• Bartik, T. J., Noll, R. G., & Zimbalist, A. (January 01, 1998). Sports, Jobs and Taxes: The Economic Impact of Sports Teams and Stadiums. National Tax Journal, 51, 2, 411.
• Flint, W. C., & Eitzen, D. S. (March 01, 1987). Professional Sports Team Ownership and Entrepreneurial Capitalism. Sociology of Sport Journal, 4, 1, 17-27.
• O’Roark, J. B. (January 01, 2001). Capital Structure and Team Performance in Professional Baseball. Journal of Sports Economics, 2, 2, 168-180.
• Winfree, J. (November 01, 2009). Owners’ incentives during the 2004-05 National Hockey League lockout. Applied Economics, 41, 25, 3275-3285.