Fans of the World, Unite!

A (Capitalist) Manifesto for Sports Consumers

Stephen F. Ross, Stefan Szymanski

• Publisher: Stanford Economics and Finance
• Year: 2008
• ISBN:
  9780804769778
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

Fans of baseball, football, basketball, and hockey have long been exploited and oppressed by the monopolistic practices of team owners. The time has come for a revolution in the organization of major U.S. sports!

Fans of the World, Unite! is a clarion call to sports fans. Appealing to anyone who is in despair due to the greed and incompetence of team owners, this book proposes a significant restructuring of sports leagues. It sets out a rational program for a revolution that will serve the best interests of the fans and of the sport itself. But Stephen F. Ross and Stefan Szymanski are no Marxists: they show how a revolution in the organization of sports might even benefit the owners. By harnessing the power of markets, sports leagues can be made both more responsive to the needs of the fans, and more efficient.

Ross and Szymanski have spent many years evaluating the ways in which leagues work across the globe. Drawing on their extensive study of leagues, the authors boil down their plan to two major reforms. Borrowing from NASCAR, they propose that team owners should not own sports leagues as well. Rather, league ownership should be separate. Their second proposal is drawn from soccer: introduce competition through a promotion and relegation system. In this type of system, the worst teams in the league are kicked out at the end of the season and replaced by the best performing teams in the next division down. This gives poor performing teams incentive to step up their game, and allows fresh blood to enter the leagues if the poor performers fail to do so.

The main goal of these reforms is to align the financial interest of those who own the league with the best interests of the fans and the sport. Having laid out the problem and the solution, the authors skillfully address practical implications of introducing their scheme, suggesting how leagues might at least make some changes, if not all of those suggested.

The time for change has come! Armed with this book, and with fairness on their side, fans can set forth to begin a revolution.

1

How Sports Fans Are Exploited

A Sports Fans’ Manifesto

(with apologies to Thomas Jefferson)

When in the Course of Human Events, it becomes necessary for the millions of dedicated sports fans, who have given over countless hours of their lives and countless millions of their hard-earned dollars in support of the teams and the sports they love, to dissolve the political relationship of virtually total discretion given to those who own and control professional sports teams and clubs, and to assume, as have consumers of almost all other important goods and services, a greater equality of power, a decent Respect to the Opinions of Mankind requires that they should declare the causes which impel them to this demand for reform.

We hold these Truths to be both self-evident and demonstrated by the course of human history, that among the various Pursuits of Happiness that Governments are instituted among us to secure, is the ability to participate in and view sporting contests; and that whenever any form of government or civil society becomes destructive of these ends, it is the Right of the People to insist upon sufficient new forms of government or private regulation based on such Principles, and organizing their Powers in such Form as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that the rules and customs of sports leagues long established should not be changed for light and transient Causes; and accordingly all Experience hath shewn that sports fans are more disposed to suffer, while Evils are sufferable, than to right themselves by abolishing the Forms to which they are accustomed. But when a long Train of Abuses and Usurpations, pursuing invariably the same Object, evinces a Design to systematically exploit sports fans in the exercise of the absolute Despotism that leagues possess, it is the Right of the People, it is their Duty, to throw off these rules, customs, and structures of selfish, self-interested governance, and to provide new Guards for their future Security. Such has been the patient Sufferance of sports fans, and such is now the Necessity which constrains them to alter their former tolerance of these Systems of sports governance. The History of the present dominant sports leagues in the major commercial sporting countries throughout the World is a History of repeated Injuries and Usurpations, all having in direct Object the Establishment of an absolute Tyranny over sports fans. To prove this, and acknowledging that the owners who control each league have not of necessity engaged in each and every aspect of the conduct described below, let these Facts be submitted to a candid World.

THE OWNERS have refused to implement rules and policies, the most wholesome and necessary for the Public Good.

THEY have forbidden their administrators to implement policies of immediate and pressing importance, unless demonstrated to satisfy a minority of self-interested member clubs.

THEY have maintained their tyrannical Power, by systematically crushing alternative leagues or competition organizers, through predatory practices and lucrative mergers.

THEY have adopted policies to ensure their own place in premier competitions, notwithstanding persistent incompetence of club management and insufficient quality of on-field performance, by limiting the entry into the competition to a chosen few.

THEY have systematically and deliberately suppressed entry into the premier competitions in each sport, with the Object and Design of creating an unmet demand among local communities, so that aforesaid Owners may demand and receive exploitive stadium deals from local taxpayers, with heartless disregard for the recurrent fiscal crises facing cities and counties.

THEY have failed to respond adequately to the changing reality of American demographics, wherein almost two in five Americans live elsewhere from their place of origin, by restricting the ability of mobile Americans to follow their home team through live, out-of-market broadcasts, requiring fans to subscribe to expensive premium television packages, and, even then, limiting fans by inefficient blackout rules, thereby placing said Owners’ short-run selfish interests over the general Public Good.

THEY act collectively to shield themselves from competition from more efficient club operators, by guaranteeing teams perpetual membership in the premier competition without regard to the quality of the team, by denying entry opportunities to superior club Operators, and by sheltering clubs from competition within assigned geographic Territories, even from clubs in lower-tier competitions that might compete for fans’ patronage.

THEY restrain competition among themselves for players, not for the purpose of ensuring that athletes play for the club that most values their services, nor for the purpose of ensuring that the overall allocation of players to clubs maximizes fan appeal, but rather for the selfish Purpose of holding down Owner costs—which are unlikely to be passed on to consumers—and to provide Owners with “cost certainty,” thereby insulating themselves from the ordinary pressure that any business faces when it makes mistakes to invest more Resources to improve an inferior product.

Therefore, sports fans of the United States, appealing to the Supreme Judge of the World for the Rectitude of our Intentions, do, in the Name, and by Authority of the good People of these United States, solemnly Publish and Declare, That sports leagues are, and of Right ought to be, public trusts to be operated by Owners and league administrators for the benefit of the Public, and that if those who control our sporting institutions will not Act to reform their institutions, then government should mandate such reform. Then for the support of this Declaration, with a firm Reliance on the Protection of divine Providence, we mutually pledge to one another our Lives, our Fortunes, and our sacred Honor.

The Book, in a Nutshell

In modern and plainer English, we hope in this book to persuade you that sports fans have been and remain exploited by sports league owners, and that two significant but well-tested reforms would result in sporting competitions being organized and contested in a manner better designed to maximize their appeal to sports fans. In this chapter, we explain how the best model for consumer protection is generally the forces of competition in the marketplace, and why the structure of leagues and the loyalty of fans for their favorite teams significantly insulate owners from market forces, exposing sports fans to exploitive opportunities. We note how sports leagues, in some ways, are worse for consumers of sports than monopolies are for consumers of other goods and services, because club owners operate less efficiently than a single-firm monopolist like Standard Oil or Microsoft.

Because of our preference for free markets and skepticism about the ability of politicians or not-for-profit bureaucrats to be responsive to sports fans, we argue for a twofold remedy to the abuse of power by current sports team owners: (1) sports leagues should be restructured to vest control in a for-profit commercial enterprise that is separate and distinct from the owners of clubs participating in the competition, and (2) participation in each sport’s major league should be based on merit, demonstrated best by performance in the prior season.

In this chapter, we’ll identify a variety of ways in which consumers are hurt by the absence of an independent competition organizer and the presence of a clear conflict between the interests of the league as a whole and the interests of specific owners. In Chapter Two we expand upon why we diagnose the problem as arising from the twin ills of limited entry and the conflict of interest between club owners and the best advantage of the sport. In Chapter Three, we address the American obsession with competitive balance as a critical goal for a sports league, and why our proposals would not prevent leagues from achieving a desired degree of balance. Our shield against claims that our proposal is attractive only in the ivory towers of academia is laid out in Chapters Four and Five, where we readily acknowledge borrowing our ideas from NASCAR and international soccer. In Chapter Four, we show how NASCAR organizes the stock car racing competition that has recently been America’s fastest-growing sport, and why NASCAR’s independence from the racing teams that participate in the competition has been critical to its success. In Chapter Five, we show how many of the problems facing American sports fans are not shared by their counterparts globally because of the entry-by-merit system used by almost all soccer leagues throughout the rest of the world. Chapter Six provides a more detailed explanation of how our proposal would work, and responds to the skeptics’ perennial question—if this is such a good idea why hasn’t someone already tried it? Chapter Seven offers some compromise proposals if our central ideas are considered too radical for the first decade of the twenty-first century, and Chapter Eight discusses why our reforms are superior to other kinds of government intervention. Finally, Chapter Nine concludes with a summary of our argument and some imaginary scenarios for how our proposals might actually see fruition.

Sports and the Public Trust

As consumers, most of us want to be able to purchase high-quality goods and services at reasonable prices. This is, indeed, an important aspect of the “pursuit of happiness” recognized as one of our inalienable rights. By and large, our consumer-oriented society has succeeded in this goal. We’ve learned by experience that—with some important exceptions—consumers are better off with free markets, our English ancestors having overturned a system based on tradition and aristocratic control (the feudal system) and our American ancestors having rejected the central planning of Lenin. Especially for goods and services that are not essential to our daily lives (in today’s affluent society, most of us purchase far more than we absolutely need), even if we have a favorite brand or service provider, if it gets too pricey, or quality suffers, or the seller fails to add new features offered by others, we will simply switch our patronage to a new seller. Realizing this, firms have a strong incentive to maintain low prices, high quality, and innovations responsive to consumer demand. In the words of a prominent judge and former law professor, a firm facing competition from other rivals “is unlikely to adopt policies that disserve its consumers; it cannot afford to. And if it blunders and does adopt such a policy, market retribution will be swift.”¹

Market retribution will not be swift for most sports fans. The very nature of being a fan means that rival teams are not close substitutes, and therefore the majority of committed fans face little choice but to follow their team, regardless of the quality of the team on the field.² Sports fans will pay higher prices. They will vote for tax subsidies for their favorite team’s stadium. If quality suffers, fans suffer, but they rarely switch to another club or sport. When leagues or clubs fail to offer fan-friendly innovations, loyal fans continue to patronize their favorite team in sufficient numbers that the clubs’ owners face little pressure to compete. In a world where most fans enjoy their team through the medium of television, it might be argued that the substitution possibilities are far greater than in the past when consumers were largely tied to their city. This can certainly make a difference when it comes to the recruitment of new fans, and it is likely that a significant fraction of new fans, mostly adolescents, are attracted to the most successful team of the moment. However, this mechanism works only slowly and imperfectly to undermine the monopoly power of the incumbent teams. Meanwhile, the economic rents extracted from loyal fans by the sale of monopoly rights to broadcasters make the “do nothing” strategy of many franchise owners more profitable than ever.

The relationship between a sports fan and a team owner or a league is not the same as that between a telephone company and its customers, or between the buyer of computer software and its supplier. In these cases, economic regulation may or may not be necessary to control the exercise of monopoly power on the part of the seller. In recent times, legislators and courts have gone to great lengths to ensure that such regulation is implemented with the lightest possible touch, trusting the natural relationship between a business and its customers to bring about a suitable economic solution. As long as the customer is king, one might say, nothing too much can go wrong. But in sports, no one wants market retribution to be swift. We hope that Los Angelenos and others who grew up as Dodger fans with Vin Scully’s Hall of Fame broadcasts will remain loyal despite management travails that have impeded recent performance. We honor members of Red Sox Nation who lived and died with years of ineptitude, which some believe was supernaturally imposed. With sports, the customer is not buying something that depends largely on the current behavior of the owner, but is rather buying into a tradition, which in some cases has been established for over a century. The “trust” that fans place in their favorite teams is what makes sports the special entertainment and civil institution that it is. In this sense, the current owners are more than suppliers of a good or service produced for today; they form part of a chain between the past and the future. It is this relationship that the fans value. Should the current owners destroy the relationship by unwarranted reforms or gross exploitation of their position, there is little the fans can do to recover it in the future.

What is the effect of this trust that fans place in their favorite teams and sports? In 1602, long before economists developed fancy models to demonstrate common sense, an English court declared that monopolies were contrary to the public interest because they raise price, reduce output, and lower quality. (The court invalidated a “patent” granting a monopoly to one of Queen Elizabeth’s cronies to produce playing cards, finding that because the grant was contrary to the public interest, Her Majesty must have been “deceived in her grant.” ³) As we demonstrate further on, this principle applies in spades (so to speak) to the sports industry. Many fans can get their desired sports entertainment—tickets to games, games on television, souvenir apparel, and merchandise—but only at higher prices. To maintain the scarcity of goods and services that allows for higher prices, leagues reduce output; in some cases through television blackouts but primarily through fewer franchises playing high-quality professional sports. Fans in major metropolitan areas might well support more teams; fans in smaller cities don’t have high-quality professional teams at all.

The Inefficient Monopolists

Moreover, some of our previous work suggests a significant additional harm caused by monopoly sports leagues that is often overlooked: because club owners can’t agree on how to divide the spoils of leaguewide initiatives, which involve a sharing of profits among the clubs who control the league competition, clubs will forego new and desirable business opportunities that fans are willing to pay for.⁴ Thus, even when fans are willing to pay monopoly prices for prized sporting entertainment, sometimes they just can’t get it.

We initially arrived at this insight into professional sports when both of us were consulted by the British government as part of a challenge to the 1992 collective sale of all television broadcast rights for English Premier League soccer games to Rupert Murdoch’s Sky Sports satellite network. Murdoch acquired the rights to broadcast 60 of the league’s 380 games during the sea...