Sports are big business - the European Commission has estimated that trade in sports-related
activities now constitutes 3% of world trade - and they have become particularly big in terms of
the sale of broadcasting rights by individual teams and/or leagues. But the peculiar economic
characteristics of the industry make it hard to decide on the right competition/antitrust policies
governments should adopt. A symposium of articles in the latest issue of the Economic Journal
addresses the central policy issues.
In the introduction, Stefan Szymanski notes that as products, sporting contests for the
entertainment of spectators are unique. In most industries, the output of competitors negatively
affects the ability of a producer to sell its output and generate profits. But in sports, each producer
requires the input of its competitors in order to make a product at all. Because of this
'complementarity in production', competitors need their rivals and will frequently enjoy higher
returns the higher the quality of their rivals.
In individual sports like tennis or golf, this observation is of limited significance, since the
attractiveness of contests also depends on the complete commitment of each contestant to
winning. But in team sports, the owners of teams have an incentive to construct tournament
structures that may actually diminish the playing success of their own team in order to make a
more attractive contest. More importantly, from the perspective of economic policy, team owners
have argued since the foundation of professional team sports in the late nineteenth century that
collusion among the owners is necessary to make a more attractive product for the fans.
As businesses, the biggest team sports are located in the United States (baseball, basketball,
American football, ice hockey) and Europe (football), although Japanese baseball is also a
significant commercial undertaking. Commercialisation occurred much earlier in the United States
than elsewhere and as a result American antitrust analysis of sports is much more developed than
in Europe. One key issue that arose early in the legal treatment of team sports was the 'unit of
analysis' problem. When the courts consider a particular economic arrangement, should it treat the
participants in a league as a group of independent businesses engaging in a cartel or as a single
economic entity producing a single product - league competition?
An article by Richard Gilbert and Michael Flynn suggests that the logical economic treatment of
sports leagues is as joint ventures. They show that this approach provides natural answers to many
issues raised in competition cases. But their analysis is based entirely on the US experience where
teams only compete in one championship at a time. In Europe, teams typically compete in more
than one championship at once (league and cup, domestic and international) and players are
committed not only to their employers but also to representing the national team. In this context,
the economic analysis of restraints imposed by leagues and governing bodies is clearly more
complex and the development of a consistent economic analysis remains an important challenge
for researchers and policy-makers in Europe.
There are many other differences in the organisation of team sports between Europe and the
United States. In the latter, each league is an independent body, while in former, leagues typically
belong to governing bodies that claim jurisdiction over the entire sport. US team owners are
typically seen as 'profit-maximisers', while until recently in Europe, the view has been that teams
maximise success subject to a budget. US teams do not move between leagues, while in Europe,
leagues tend to be connected through systems of promotion and relegation. In Europe, the trading
of players between teams has been the norm, while in the United States, it has generally been
discouraged. In the United States, specific exemptions from antitrust law have been granted to
baseball, to the collective sale of national broadcast rights and to collective agreements between
player unions and the team owners, none of which (as yet) have been granted by the European
Union.
The effect of competitive restraints on competitive balance has been the main policy question
facing courts and legislators dealing with sports leagues. According to the proponents of
competitive balance, fans are attracted to a significant degree by the uncertainty of outcome
associated with a sporting contest. In addition, they argue that competitive balance will be
promoted by measures that redistribute income used to purchase playing talent or otherwise
manipulate the distribution of talent. Critics suggest that these arguments are little more than a
screen for anti-competitive conspiracies to extract monopoly rents from the fans or from the talent
themselves.
An article by Martin Cave and Robert Crandall deals with issues surrounding the relationship
between broadcasting and team sports. They show that the dramatic increases in revenues of team
sports in recent decades have been driven by broadcast income and they illustrate how market
power in broadcasting markets interacts with market power in sports markets. Their main
conclusion is that collective sale of broadcasting rights is not in itself anti-competitive but is likely
to become so when tied to exclusivity agreements and constraints on individual selling of matches
outside the collective package.
ENDS
Note for Editors: 'Symposium on Sports Economics' edited by Stefan Szymanski is published in
the February 2001 issue of the Economic Journal. The two specific papers discussed here are
'Sports Rights and the Broadcast Industry' by Martin Cave and Robert Crandall; and 'An Analysis
of Professional Sports Leagues as Joint Ventures' by Michael Flynn and Richard Gilbert.
For Further Information: contact Stefan Szymanski on 020-7594-9107 (email: szy@ic.ac.uk);
or RES Media Assistant Niall Flynn on 020-7878-2919 (email: nflynn@cepr.org).