Monopoly Sports Leagues Stephen F
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Penn State Law eLibrary Journal Articles Faculty Works 1989 Monopoly Sports Leagues Stephen F. Ross Penn State Law Follow this and additional works at: http://elibrary.law.psu.edu/fac_works Part of the Antitrust and Trade Regulation Commons, and the Entertainment, Arts, and Sports Law Commons Recommended Citation Stephen F. Ross, Monopoly Sports Leagues, 73 Minn. L. Rev. 643 (1989). This Article is brought to you for free and open access by the Faculty Works at Penn State Law eLibrary. It has been accepted for inclusion in Journal Articles by an authorized administrator of Penn State Law eLibrary. For more information, please contact [email protected]. Monopoly Sports Leagues Stephen F. Ross* TABLE OF CONTENTS I. Monopoly Sports Leagues Harm Taxpayers, Fans, and Players ........................................... 647 A. Taxpayer Subsidies .............................. 649 B. Insufficient Expansion ........................... 656 C. Inefficient Allocation of Players ................. 667 1. The Desirability of Competitive Balance ..... 670 2. Restraints Historically Imposed on Player Mobility Harm Competitive Balance ......... 671 3. The Leagues' Thesis: Player Allocation Will Be Distorted Absent Significant Restraints on Player Mobility ........................... 679 4. The Critics' Thesis: Restraints Have No Effect on Competitive Balance ............... 684 5. Rival Leagues' Imposition of Player Restraints ..................................... 689 6. Significant Player Restraints Are Not Necessary to Preserve the Minor Leagues ... 690 D. Preserving Opportunities to Watch Games on Free Television .................................. 695 E. Inefficient Management ......................... 698 II. Regulation is Not a Workable Means of Preventing the Harms Monopoly Sports Leagues Cause ......... 702 A. Regulation of Franchise Relocation ............. 703 B. Regulation of Expansion ......................... 706 C. Allocation of Players ............................ 711 D. Preserving Games on Free Television ........... 712 E. Inefficient Management ......................... 714 III. Are Baseball and Football Natural Monopolies? . 715 * Assistant Professor of Law, University of Illinois. The author wishes to give special thanks to Lawrence DeBrock, Judge Douglas Ginsburg, Kit Kinports, John Lopatka, Robert Lucke, Roger Noll, Jack Sidorov, Thomas Ulen, and Edward Weil for their time, effort, and detailed comments, and to Karl Yohe and Michael Prangle for research assistance. MINNESOTA LAW REVIEW [Vol. 73:643 A. Sports Do Not Fit the Economic Definition of Natural Monopoly ............................... 716 B. The Historical Record ........................... 717 1. Baseball ....................................... 718 2. Football ....................................... 721 C. The NFL's Arguments Against Competing Football Leagues ................................. 723 D. The Theoretical Argument of Ruinous Com petition ...................................... 725 IV. Monopoly Leagues, Rival Leagues, and the Antitrust Laws ........................................ 733 V. Implementing a Divestiture: Legislation Preferred, but not Essential ...................................... 748 A. Clear Sports Antitrust Doctrine ................. 749 B. Clearly Established Remedy ..................... 749 C. Legal Obstacles to a Judicial Remedy ........... 752 1. Baseball ....................................... 752 2. Football ....................................... 753 Conclusion .................................................. 754 A ppendices ................................................. 756 Politicians and the public often view sports as a luxury or pure recreation. Major professional sports are businesses, however, and their impact on the economy warrants national attention. The cost to taxpayers of subsidizing sports teams' facilities runs into the hundreds of millions of dollars annually.1 League decisions concerning the location of franchises have significant impacts on local economies. 2 The allocation of players among teams interests every fan who desires that the hometown team acquire the talent necessary to make the team a championship contender rather than an also- ran. Decisions on the broadcasting of games have a profound effect on consumers/fans. 3 Imagine, for example, the public reaction if next year's Super Bowl were available only on a pay- cable station! The economic policy of the United States, as expressed in our antitrust laws, provides that firms should compete in an open and free marketplace to supply consumers with the best possible product at the lowest possible price and to allocate society's resources efficiently.4 Professional baseball and, to a 1. See infra notes 22-28 and accompanying text. 2. See infra note 22 and accompanying text. 3. See infra Part I(D). 4. See generally Lande, Wealth Transfers as the Original and Primary 1989] SPORTS MONOPOLIES lesser degree, football are shielded from the antitrust laws. The Supreme Court expressly exempted Major League Baseball from the antitrust laws.5 The National Football League (NFL) achieved its monopoly status in 1966 when Congress enacted a specific statute permitting the league to merge with its one major rival, the American Football League 6 (AFL). Economic theories underlying the federal antitrust statutes suggest that monopolies result in higher prices, lower output, and a transfer of wealth from consumers to the producer/monopolist.7 Therefore, when economic or political considerations lead Congress to suspend application of the antitrust laws for particular industries, some form of government regulation designed to protect consumers from the harms that monopolists inflict almost always accompanies such exemptions.8 Major League Baseball and the NFL are glaring exceptions to this practice. They operate as monopolists with no significant governmental check upon their ability to exercise monopoly power. The results of these policy decisions exempting professional baseball from antitrust scrutiny and allowing professional football to achieve monopoly status through merger have been predictable. As lessees of stadiums built and paid for by taxpayers' dollars, sports monopolists obtain favorable contract terms that require the public treasury to subsidize stadium operations.9 Monopoly sports leagues grant fewer franchises than would exist in a competitive market. 10 To hold salary levels below the competitive level, leagues adopt restrictions on the mobility of players that limit the efficient Concern of Antitrust: The Efficiency InterpretationChallenged, 34 HASTINGS L.J. 65, 67-68 (1982). 5. Federal Baseball Club v. National League, 259 U.S. 200 (1922). 6. Act of Nov. 8, 1966, Pub. L. No. 89-800, 80 Stat. 1515 (1966) (codified as amended at 15 U.S.C. §§ 1291-1293 (1982)). 7. See Lande, supra note 4, at 71-80. 8. See generally P. AREEDA & D. TuRNER, ANTITRUST LAW 221-223 (1978) (reviewing application of antitrust analysis to regulated industries). Indeed, regulated firms have faced antitrust liability for conduct in areas beyond the scope of agency regulation. See, e.g., Otter Tail Power Co. v. United States, 410 U.S. 366, 375-77 (1973) (finding antitrust liability for monopolistic refusal to deal despite claim that required dealing was beyond power of regulatory agency to issue); United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 350-52 (1963) (finding that bank mergers valid under federal regulatory scheme remain subject to antitrust challenge). 9. See infra notes 24-35 and accompanying text. 10. See infra Part I(B). MINNESOTA LAW REVIEW [Vol. 73:643 allocation of players among teams." On the horizon, the distinct possibility exists that sportscasts will shift from free television to cable, forcing fans to pay for what they now receive for free.12 Finally, monopoly sports leagues tolerate inefficient and wasteful management practices by franchise owners that leagues facing the pressure of competition could 13 not endure. This Article argues that the government should break up both Major League Baseball and the NFL to provide for competing economic entities in each sport. The competitive market resulting from the divestiture will correct the harms that the monopoly sports leagues inflict on taxpayers and fans.14 Competing leagues would vie against each other for the right to play in public stadiums, driving rents up and tax subsidies down. Leagues would be more eager to add new expansion markets, lest those markets fall into the hands of a rival league. Because the competing leagues would bid on players, salaries would reflect more accurately the players' fair market value, and no one league would unduly restrict intra- league mobility of players. Teams thus could obtain more readily the right player for the right position. Leagues would hesitate to move prime games to cable for fear of losing their audience, as well as the loyalty of their fans, to a league whose games remained available on free television. The pressure of competition would force each league to maintain intelligent and efficient management. This Article develops in five parts its thesis that the government should break up the leagues and that the antitrust laws provide a workable structure to govern competition between rival leagues. Part I details the harm monopoly sports leagues cause in several different markets, and explains why a 11. See infra Part I(C). 12. See infra notes 225-28 and accompanying text. 13. See infra Part I(E). 14. This Article considers only major league professional