Monopoly Unchecked

Posted by on Monday, January 27, 2020 in National Football League, Sports Econ Blog.

Interview with HBO’s “Real Sports with Briant Gumbel.” NFL Economic Structure / NFL Financials. 

Between us (I wont quote you…it’s just to get me thinking on some things):

  1. Would you say that American sports leagues are unchecked monopolies, not subject to oversight or regulation (like most monopolies)?

Yes, the NFL is an unregulated (if not legislated by the Sports Broadcasting Act of 1961) monopoly cartel. A cartel is a group of competing firms that collude to act as a monopoly (one seller) and monopsony (one buyer).  I have argued that it is a “natural cartel” because its product necessarily involves the joint production of a contest/game and any team is therefore only as strong as its weakest opponent.

Monopolies and cartels violate antitrust law because they damage the social welfare. Natural monopolies are allowed, if they are regulated, because their product is more efficiently produced by one firm. (utilities and media) The same regulation argument would apply to sports leagues as “natural cartels.”

League of Ordinary Gentlemen. … Posted by John Vrooman on Thursday, March 8, 2018 in National Football League.. Interview with Crains Business NY. NFL Economics Stat Pack. Clearly there are threats to the NFL’s business model as it now stands.

  1. If you think the leagues have been abusive (monopoly rents, etc), do you think a big reason why that’s the case is because they’re monopolies?

Yes. Competitive markets are efficient because they convert individual greed (profit max motive) to “social harmony.” (Adam Smith’s invisible hand”). Monopolies are considered inefficient because the raw profit motive is unchecked and therefore it leads to suboptimal social welfare: higher profits for owners but higher prices for fans and fees networks and lower wages for players than would be available in competitive markets.

Greed and abuse are regulated by competition (or the threat of a rival league competition) and unbridled monopoly greed and profit seeking is unchecked for a monopoly.

See the attached graph for prima facie proof of monopoly power.

  1. If monopolies are a necessary evil for this kind of thing (maybe it wouldn’t be good to have 12 football leagues or 10 teams in the capital city or whatever), are there countries that have found a way to regulate them or provide oversight beyond what’s done here and have those curbed so-called “abuses” of public money and the like?

A closed monopoly league would not rationally duplicate any existing monopoly market because two monopolies are always more valuable than one duopoly market, regardless of market size. In contrast, competing rival leagues will expand into occupied markets because they don’t care about damaging the profits of the original team. That’s the efficiency power of competition and why currently existing dual markets are all remnants of rival league mergers in the past.

A notable exception can be found in the open leagues of European Football where the top leagues teams are composed of quality clubs promoted form lower tiers in the league pyramids. For example, there are six Premier League clubs located in greater London because the English Premiership is populated by a promotion-relegation process that rewards team quality over the specific interest of individual monopoly clubs.

The pro-rel scheme also limits the tanking epidemic that now plagues NA sports leagues. If a team tanks it is simply relegated. In theory a team can be progressively promoted from the bottom to the top of the open pyramid structure of European football.

Posted by John Vrooman on Monday, September 11, 2017 in Major League Soccer.. Interview with ESPN FC.. What’s the optimal size of the league for the number of teams? In terms of supply and demand and market support, should it keep expanding?

Posted by John Vrooman on Tuesday, January 5, 2016 in National Football League.. Interview with NBC. What addressable market does Los Angeles have for NFL football, both in terms of viewership and attendance? Attachments: Market size. Alternative futures.

Thanks as always for the assistance. Really appreciate it.

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