By Ken Reed
The Huffington Post
July 11, 2017
The only industry in the United States in which you as a business owner can do pretty much whatever you want is the sports industry.
The four major professional sports leagues in this country — MLB, NFL, NBA and NHL — operate as cartels, unencumbered by the checks and balances of competition or regulatory agencies.
Electric and gas utilities are monopolies but at least they face the constraints imposed by regulators.
In the few instances in which Congress allows companies to operate as monopolies, some type of government regulation to serve as a competitive proxy to protect consumers is put in place. That is, however, except for the pro sports industry. Our pro sports leagues are exempt from this regulatory oversight. MLB, NFL, NBA and NHL owners are allowed to undertake practices such as limiting competitive options, raising ticket prices and blackmailing cities into building new sports palaces for their franchises.
The birth of the American sports cartel system began when Major League Baseball (MLB) was given an antitrust exemption in 1922. Today, the NFL, NBA, NHL, and even the NCAA, also operate as cartels. Basically, Congress – with a helping hand from our court system — has given these massive sports entities carte blanche to do what they want when it comes to running their businesses. The result has been a plethora of actions throughout the years that haven’t been in the best interests of the sports themselves or each sport’s stakeholders.
The 1890 Sherman Antitrust Act stated, in brief, that business combinations formed with the intention of restricting trade are illegal. Major League Baseball, however, has been exempt from this law since the Federal Baseball Club of Baltimore v. National League et al Supreme Court ruling in 1922.
In essence, collusion in baseball became completely legal the day of that ruling.
“There is no industry like baseball in our country,” according to sports economist Andrew Zimbalist. “It has special status as a monopoly, and it is completely unregulated. Right now baseball exploits the hell out of the cities.”
And while the NFL and other pro leagues aren’t specifically covered under the 1922 Supreme Court ruling, Congress and the courts have treated these leagues similarly.
There are many beneficial aspects to this business freedom from the owners’ perspective. One aspect that is particularly popular with pro sports franchise owners is the ability to restrict entry into their industry regardless of how high demand is for new franchises.
Since owners are allowed to artificially limit supply, a bidding war results for the rare expansion franchises that become available in each league, as well as the existing franchises that threaten to leave their current cities.
As a result of the high demand, owners can – and do — blackmail cities (read: taxpayers) for plush new stadiums and arenas, filled with revenue-generating luxury suites and club seats.
“Monopoly sports league owners take advantage of their economic power to secure massive subsidies from local taxpayers,” said economist Stephen Ross.
Yes indeed.
When it comes to the exploitation of cities, the NFL might be king. For years, the open Los Angeles market allowed existing franchises to threaten moving to California unless local taxpayers ponied up for new stadiums.
Then there are the examples of NFL franchises leaving loyal fan bases to move to markets where politicians promised newer and bigger taxpayer-financed stadiums. Consider: the Baltimore Colts to Indianapolis (in the middle of the night), and the Cleveland Browns leaving a rabid fan base to move to fancy new digs in Baltimore.
The unfortunate bottom line is that sports cartels mean higher ticket prices, fewer sports entertainment options, and an ongoing transfer of wealth from consumers/fans/taxpayers to the franchise owners/monopolists.
Fans aren’t the only stakeholder group hurt by the government-sanctioned sports cartel practices of pro sports franchises, however. Consider MLB’s minor league system. Minor leaguers are bound to their organizations for six years before they can seek baseball employment elsewhere. This artificially constrains their salaries. It’s a non-competitive marketplace that once again benefits the franchise owners.
Former Senator Howard Metzenbaum said this system was “reminiscent of indentured servitude.”
In addition to the Sherman Antitrust Act exemption, another act of Congress, the Sports Broadcasting Act (1961), allows pro sports franchises to collude in the sale of broadcast rights. This makes the development of rival sports leagues and franchises almost impossible.
Sport is a major cultural practice in this country. The special treatment professional sports leagues receive from Congress and our court system allows a small group of wealthy owners — who may or may not care about sports, athletes or fans beyond an economic perspective – to control this cultural practice.
It’s unjust, and just plain silly, to allow one industry to operate without the constraints every other industry in this country has to deal with.
Cartels are one sports tradition that has to go.
Ken Reed is Sports Policy Director for League of Fans.
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