Hard Ball: The Abuse of Power in Pro Team Sports.

Siegfried, John J.

By James Quirk and Rodney Fort.

Princeton, NJ: Princeton University Press, 1999. Pp. xi, 233. $22.95.

This engaging book is about the sickness plaguing professional sports in America. The diagnosis is a bad case of chronic monopoly.

The four high-revenue men's professional team sports each currently operates with a single monopoly league. The source of monopoly differs among the leagues, however. Major League Baseball (MLB) was formed by a 1902 merger that predates the anti-merger section of the 1914 Clayton Act. In 1922, baseball was exempted from antitrust coverage by the Supreme Court because "baseball is not a business." The National Football League (NFL) is the product of a 1969 merger with the rival American Football League (AEL)' which opened for business in 1960. At the NFL's request, the combination of rival football leagues was explicitly exempted from the Clayton Act by congressional action. The current National Basketball Association (NBA) and National Hockey League (NHL) are products of 1970s mergers between rival leagues--the NBA with surviving parts of the American Basketball Association and the NHL with a few survivors from the World Hockey Association. Neither merger was challenged by antitrust authorities. The result is entrenched monopoly leagues in all four major professional men's team sports today (and since 1999, also in women's professional basketball).

The monopolies are more entrenched today than ever before. Since confronting rival leagues in the 1960s, the NFL, NBA, and NHL have recognized that restricting entry to support the scarcity value of franchises is not without risk. Over the past four decades, there has been sufficient expansion in all four sports to place a franchise in many (but, importantly, not all) cities that can financially support a team. Unlike in 1960, today no league leaves enough locations vacant to tempt an entirely new league. In addition to the shortage of locations sufficient for an entire league, a new league today would also have to figure out how to bid for top player talent against established teams that earn huge monopoly rents from the collective sale of television broadcast rights and receive large subsidies from local governments (in the form of playing facilities with concessionary leases).

Because I agree wholeheartedly with the authors' diagnosis of what ails the sports industry, I want to praise this book and recommend it enthusiastically. I suspect the book would have been more persuasive if the authors had not only identified the symptoms of the disease plaguing professional team sports--exorbitant player salaries, the blackmailing of cities, and competitive imbalance--and diagnosed the ailment--monopoly power--but also had reported the long-term consequences of the disease. Is the disease fatal, and if so, to whom?

Monopoly control of franchise expansion and team relocation causes both economic inefficiency and a redistribution of income. Monopoly contributes to exorbitant player salaries (increasing the marginal revenue component of marginal revenue product), provides credibility for threats to leave a city (or never locate there in the first place) if local residents do not pony up funds to build a revenue-maximizing facility and lease it to the team for a pittance, and leads to the skewed revenue potential that splits teams into haves and have-nots in terms of playing talent. At the heart of all three symptoms is exclusive territories assigned to team owners.

Quirk and Fort seem concerned primarily with the distributional consequences of the monopoly power, as it has been used to restrain league expansion, limit team relocations, raise ticket prices, and inhibit access to major league sports in America. A leisure activity that once was enjoyed by the lunch-pail crowd, more and more caters to those who favor crepes and Chardonnay. Ordinary folk are being priced out of live attendance at sporting events. The professional sports industry is a for-profit business that has learned how to tap into the wealth generated at the top of an increasingly disperse income distribution.

Controlling the number of franchises and team relocations also enables owners to extract large public subsidies from taxpayers seemingly petrified of being disparaged as residents of a "minor league town" if their major league franchise were to relocate. The subsidies are raised from regressive sales taxes, lotteries, or sin taxes, and they are divided between wealthy owners and players.

The economist-reader of Hard Ball might resonate more to a discussion of how the monopoly leagues inhibit teams from moving from lower valued to higher valued locations and refuse franchises to locations where the net social value of a team would exceed the opportunity cost of the resources necessary to operate it.

Hard Ball is fun to read. It is laced with anecdotes, humor, and sarcasm. If readers view this as dismal economic science, nothing will likely please them. This is about as good reading as it gets in the world of professional economists.

The value of Hard Ball is its persuasive case for giving competition a chance in professional sports. When the opportunity arose with the successful entry of the AFL in the 1960s, Congress fumbled by approving legislation exempting professional football from antimerger prosecution. When the American Basketball League merged with the NBA and the NHL absorbed the World Hockey Association in the 1970s, the Department of Justice blew an open shot at monopoly in sport. Ineffective antitrust efforts decades ago allowed successful upstarts to join their established rivals in reestablishing monopoly control over the number and distribution of franchises. The legacy of those decisions is monopoly leagues that have grown more entrenched over time.

Quirk and Fort propose divestiture of the sports leagues, perhaps into four separate leagues of at least eight teams each. (All four leagues are approaching 32 franchises.) The leagues could continue to hold a common playoff. What they could not coordinate is franchise locations and league size. This is an attractive approach, but a dominant league eventually may emerge if a winner-take-all mentality among fans leads them to support only the league they believe to be the best no matter how small the difference in average talent level across leagues.

A more realistic proposal that does not falter if fans are obsessed with supporting only the number-one league is to prohibit existing leagues from exercising collective control over team relocations. This would reduce the disparity in revenue potential because some teams from lower revenue potential markets would invade the territories of teams currently monopolizing larger markets. The result could easily be four baseball teams in New York and three in Los Angeles. Competitive team imbalance would decline because the revenue potential would equalize across teams as the territories of current haves were invaded by current have-nots. Subsidies from cities to teams would shrink because leagues would be unable to prevent a city that lost a team from luring a different team to fill the void. Player salaries would decline because both local television revenues and government subsidies to teams would decline.

Introducing competition in franchise locations decisions could be accomplished by either congressional or judicial action. Although it would not overcome problems caused by the artificial scarcity of franchises, it would encourage teams to move from lower-valued to higher-valued locations, overcome much of the competitive imbalance problem, and begin to apply some brakes to escalating players' salaries (assuming that is a meritorious goal). Most importantly, exposing relocation decisions to a competitive market would be possible to implement without revolutionary changes.