Regulating Professional Sports Leagues

Posted by Social Science Research Network

Regulating Professional Sports Leagues – Nathaniel Grow (University of Georgia – Department of Insurance, Legal Studies, Real Estate)

ABSTRACT: Four monopoly sports leagues currently dominate the U.S. professional sports industry. Although federal antitrust law — the primary source of regulation governing the industry — would normally be expected to provide a significant check on anticompetitive, monopolistic behavior, it has failed to effectively govern the leagues due to both their well-entrenched monopoly status and the unique level of coordination necessary among their respective teams. Consequently, the four leagues today each in many respects enjoy unregulated monopoly status in what is estimated to be a $67 billion industry.

As one might expect, these leagues use their largely unchecked monopoly power to injure the public in various ways. By restricting expansion, leagues create an artificial shortage of franchises enabling their existing teams to extract billions of dollars in stadium subsidies from U.S. taxpayers. Similarly, by preventing their franchises from individually licensing their broadcast rights nationally or over the Internet, the leagues are able to demand significantly higher fees from television networks and consumers than would be obtainable in a competitive marketplace, while at the same time subjecting viewers to arcane and outdated blackout provisions.

Unfortunately, existing proposals in the academic literature to remedy this undesirable state of affairs are both impractical and unlikely to be effective. This article instead proposes a surprisingly overlooked solution: the creation of a federal sports regulatory agency. Because the U.S. professional sports leagues today effectively operate as natural monopolies — with nearly 150 years of history establishing that competing leagues cannot sustainably co-exist in a sport for any significant length of time — direct government regulation of the industry is warranted. Indeed, a specialized agency would be particularly well suited to ensure that the leagues’ activities are aligned with the public interest, while at the same time accommodating the industry’s unusual economic characteristics.