The Free Market 14, no. 1 (January 1996)
There is no oil in Nashville or sheep in St. Louis, and only the female Baltimore oriole is brown. But that hasn’t stopped the Rams from moving to Missouri, the Cleveland Browns from moving to Baltimore, or the Houston Oilers from moving to Nashville.
Pigskin lovers and haters abound, but the ranks of football haters are swelling as more and more taxpayers are joining the chorus: “I hate football.” In an attempt to lure football teams, local politicians are giving away the store on new stadiums, training facilities, rent subsidies, and sweetheart revenue deals. Even under the best circumstances, local taxpayers lose hundreds of millions of dollars.
In addition to taxpayers, many football fans view this shuffling of football teams as a tragic blow to fan loyalty. Blame your local politician for wasting your money. But the real villain is the central government’s guardian of competition—federal antitrust law.
Why are teams moving? Because the government overrides the property rights and autonomy of the league. The NFL and other professional sports leagues—which are entirely private—are organized necessarily as cartels. There’s nothing wrong with that. The league system allows the owners to act in the collective long-run interest of all the teams and their fans.
It is the league that establishes the rules, makes out the schedules, and imposes necessary discipline on players or owners who break the rules. Within the free market for sports, they can impose a salary cap or revenue sharing on themselves if they so choose.
They can also limit the number of teams, to ensure high-quality play, and prevent teams from moving from one city to another, to protect fan loyalty. Profits, of course, are the major concern, but in sports the profits depend not on cutthroat competition but on competitive balance. Sharing the revenue from the TV contract and splitting ticket receipts between home team and visitors ensures a level playing field between teams. This balance is fundamental to the economics of professional team sports.
That changed when Al Davis, the owner of the Oakland Raiders, decided to challenge the rules of the game by moving his team to Los Angeles without the permission of the NFL. The league stopped him, but the Raiders sued the league on antitrust grounds—that the league was preventing competition in an economic sense.
The Raiders’ successful suit opened up the Pandora’s box that now finds many teams shopping themselves out to the highest bidder and city politicians paying the tab from the nearly empty pockets of the taxpayer.
The ensuing chaos shows the wisdom of the league’s rules. With the “right” to move anywhere one wants, teams are capturing profits from new stadium revenues. For example, St. Louis built the Rams a domed stadium and gave the Rams 100% of the revenue from luxury boxes, club seats, concessions, a guarantee of 85% attendance, and options to build even more boxes, plus 75% of all stadium advertising sales. The Rams 30-year lease was called by one owner “the mother of all stadium deals”—until the next deal was struck.
These sweetheart stadium deals are provided by local politicians eager to make their mark. The revenues are either pocketed by the owner or used to bid up the salaries of free-agent star players. The individual teams now pay little attention to the impact that changing cities has on league revenue-sharing money from the TV contract.
The Rams, for example, get substantially more local revenue in their pockets, but they greatly reduce the league’s revenue-sharing money because the lost LA market was many times the size of the small TV market in St. Louis. Teams that change cities always gain. But the league as a whole generally loses. Fan loyalties are disrupted. And lessened team rivalries could ultimately dampen or reduce the long-run demand for football.
The league’s rules were established for rational reasons. They were based on everyone’s long-term interests. By undermining the league’s ability to control individual team behavior, antitrust laws have caused problems for fans, cities, and the game itself. The renegade-owner syndrome is now spreading with Dallas Cowboy owner, Jimmy Jones, defying the league’s control of official merchandise sales and endorsement revenues.
Antitrust law is anti-competitive because it distorts the market process. Government has never made the market work better. It’s anti-competitive and anti-entrepreneurial and, in the end, anti-consumer, whether in telephone services, computer chips, or professional football.
In their recent book, The Causes and Consequences of Antitrust, Fred McChesney and William Shughart show that the mainstream economic consensus in favor of antitrust law is “naive” at best. But the naivete is shared by economists of the Chicago and Harvard schools (but not the Austrians), and continues to command support despite the failure of the laws to produce socially beneficial results.
The interests of football fans and taxpayers were well served through the market process that produced incentives for owners to form leagues and for leagues to nurture the support of fans. Non-fans could at least take heart that professional football paid its own way, created jobs, and provided entertainment.
I used to be a fan of the Raiders and Cowboys. No more. They’ve joined the rolls of the pressure groups who use federal power at everyone else’s expense.
