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From NewsLink, Vol. 5, No. 1, Fall 2000
If you are within earshot of sports talk radio WEEI-850 in Boston, you might hear, beyond banter of box scores and line-ups, a passionate discussion of the business of sports. Beyond ruminations of the Curse of the Bambino or Rick Pitino's failure as a Celtics coach brews a fascination with the economics of sports. This is more than bottom-line gazing about the seemingly exorbitant salaries paid to young athletes. It's about whether the enthusiasm for sports justifies the dedication of scarce public resources away from education, housing and health care to private business.
From a larger perspective, the sports industry is not as crucial as manufacturing. As large as the old pastime looms in American culture, baseball, for example, is dwarfed by other mundane industries. In 1994, the noted economist Henry Aaron (not to be confused with the great home run king) told Congress that the cardboard box industry generated three times as much economic activity as the $2 billion created by baseball. But the phenomenal growth of sports is prompting economists to apply their models in new, engaging ways.
As William S. Kern notes in his introduction to his collection of essays, The Economics of Sports, economists should be very comfortable in the box seats.
Does the enthusiasm for sports justify the dedication of scarce public resources away from other uses?
To be sure, much of the public's complaints about professional sports today – the high ticket prices, high player salaries, rent-seeking team owners – are pure fodder for economic analysis. Particularly since the demand for sports appears to be endless and impervious to price increases and labor lockouts.
However, economists have long been drawn to study questions of industrial organizations and to judge productivity through salary caps and statistics. “The development of free agency in sports, the behavior of the National Collegiate Athletic Association in regulating collegiate sports and the growing use of `personal seat licenses' by the National Football League teams, have provided additional opportunities to measure the effects of monopsony power, the behavior of cartels, and the practice of price discrimination,” observes Kern.
Kern may have a hard time applying the theory of monopsony power – the ability of a buyer to force prices down by restricting purchases – in an industry in which player compensation is out of this world. But he's clearly rounding third base.
In his study, “Market Power in Pro Sports: Problems and Solutions,” Rodney Fort examines the special legal status of sports leagues. Exempt from anti-trust rules, sports leagues operate as cartels, restricting the supply of franchises and stifling competition. As Fort notes, this state of affairs is compounded by the fact that sports leagues are allowed to act jointly in the sale of rights to broadcast their games, a practice that would be outlawed in any other industry. It is tempting to blame player unions such as the NBA Players Association and its 1998 lockout, for ruining the game but the truth lies elsewhere. “According to economic theory, it is demand that drives the result. Besides, if players didn't take their share, would anyone reasonably suggest that owners would rebate the balance to fans?”
Fort believes that breaking up the leagues and fostering competition between franchises “would tip the economic scales away from owners and toward fans and taxpayers. For example, competition among leagues would eliminate monopoly profits from TV contracts. It would also eliminate the wasteful expansion and relocation tactics used by franchises to extract public subsidies for stadiums.”
But to get that point requires not only new thinking in Congress, but also a public education effort that might just be too overwhelming.
In his contribution to the book, Andrew Zimbalist takes this one step further. Some smaller cities are oversubscribed to professional franchises and big cities tend to have wealthier franchises. He proposes legislation that creates two leagues in big cities for each sport. It is not an idea endearing to current owners, nor to the fans who have already invested emotionally in their home teams.
Critics of corporate welfare to professional sports team owners have long hitched their mast to the empirical research of Robert Baade. Baade has often disputed claims that new sports stadiums contribute to regional economies. Nonetheless, the view that sports stadiums are centrifugal to urban renewal strategy (reversing an exodus of capital and labor to the suburbs) is now fashionable. But revisiting earlier research, Baade, examining the central business district of Pioneer Square in Seattle and its new Kingdome, found that stadiums generated little new economic activity.
In fact, his survey indicated that Seattle Mariners' baseball games actually frustrated non-sports related business in the area – offsetting any gains from the spending made by visiting sports fans.
While Fort and Baade examine more topical issues in sports economics, John J. Siegfried and Timothy Peterson ask a fundamental question about sports fans themselves: “Who is sitting in the stands? The income levels of sports fans.” Thus the issue becomes one not only of efficiency (what happens when you use tax dollars for sports?) but also one of equity (who bears the burden of such decisions?). It is clear that owners benefit directly from public tax dollars, but what about fans and which ones? Consumers of sporting events clearly enjoy higher incomes than the nation's average income earner. The trend toward public subsidy further skews this redistribution upward.
In what may turn out to be the most controversial essay, Lawrence Kahn's, “A Level Playing Field? Sports and Discrimination” challenges the prevailing view that racial bias has been eliminated in the world of sports. He argues that while parity exists in the pay scales between white and black athletes, in the National Basketball Association, for example, the data suggest that customers, i.e. fans, reveal some preference for teams with white star players. This may be difficult to believe in a world transformed by Michael Jordan but Kahn's work is very thorough.
While it may be slightly academic for the general reader, “The Economics of Sports” is a worthy contribution to this growing field of study.
NewsLink is the quarterly newsletter of the Beacon Hill Institute for Public Policy Research at Suffolk University. © 1996-2003. All rights reserved.
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