Thursday, July 5, 2012
Posted by D. Daniel Sokol
David D. Haddock, Northwestern University - School of Law and Department of Economics, PERC - Property and Environment Research Center, Tonja Jacobi, Northwestern University - School of Law, and Matthew Sag, Loyola University Chicago School of Law have written on League Structure & Stadium Rent Seeking - The Role of Antitrust Revisited.
ABSTRACT: North American sporting teams receive enormous public funding for new stadiums after threatening to depart their hometowns, or by actually moving to a new town. Whereas English sporting teams neither receive massive public grants for stadium building, nor move towns. We argue that these differences are caused not by any inherent cultural or political cross-Atlantic variations; rather, it is the industrial organization of sports in the two countries - the structure of league control - that enables rent seeking by American sporting teams but not by their English counterparts. We support our claim with cross-country time series data contrasting American professional football and baseball stadiums with English soccer grounds, and by contrasting data regarding the stadiums of geographically flexible NFL teams with those of functionally immobile major collegiate football teams.
North American sports leagues are cartels: they control entry of teams, then collaborate to maximize effective rent seeking, stave off competition and keep prices high. In most of the world, entrance into leagues is based on competitive merit via a system known as promotion-and-relegation, whereby the worst performing teams in one competitive tier are demoted to the next lower tier at season’s end, and an equivalent number of top teams are promoted from the division below. The fluidity created by promotion-and-relegation severely undermines the credibility of a team’s threat to leave town, and creates alternative entry points into the league. This open entry mitigates pressure to engage in intercity competition over scarce team slots, and thus relieves the pressure to transfer wealth from the public to private sporting team owners through stadium funding.
The stadium rent seeking issue illustrates shortcomings in antitrust law in remedying problems at the intersection of market and political organization. While it is clear that stadium rent seeking stems from a competition problem in the U.S., it is not clear if there is an antitrust solution - it is questionable whether antitrust law can recognize or remedy this damage to taxpayers. Although the anti-competitive structure of American leagues provides the platform for stadium rent seeking, the harm that results is arguably a political injury and not an antitrust offense. Nonetheless, we argue that imposition of a promotion-and-relegation system would be the least intrusive means for the U.S. and Canada to limit sporting league cartel behavior to its proper functions, such as arranging schedules and defining homogeneous rules. The uncertain availability of promotion-and-relegation is a solution under antitrust law makes it all the more imperative for Congress to address this costly injury.