Arlen Specter is at it again, this time trying to use Spygate as a means to attack the NFL's anti-trust exemption. What one has to do with the other is beyond me, and it's fairly apparent that spygate is being used as yet another excuse for Specter to try and cosy up to Comcast, the cable company based in Specter's home state of Pennsylvania (and, completely coincidentally, a major contributor to Specter's previous campaigns). Despite the sham of a facade, it is worth considering to what extent the NFL should, or should not, be allowed to retain their anti-trust exemption.
Specter, in the past, has been primarily concerned with the sale of television rights (as opposed to, say, the claims of Maurice Clarett, who petitioned that the anti-trust exemption as it relates to the draft be overturned). Specter is arguing that the negotiation of television rights should be done on a team-by-team basis, rather than have the league negotiate a league-wide television package. One supposed benefit of this would be to allow regional stations to acquire rights to local games, giving local fans the ability to watch more games with their local team than otherwise.
In principle, this seems to make a lot of sense...this would benefit the fans as they could watch their local teams more often, and would force the teams to be more competitive, and surely anything that increases competition is a good thing? In the case of professional sports, I'm not so sure, because I'm pretty sure that the teams are not the products being sold, but rather the game itself is the product.
Suppose Specter's plan were initiated. One would expect to see big market teams, such as the Giants, Patriots, Bears, Redskins, and Cowboys, sign far more lucrative contracts with television stations than the Chiefs, Browns, Bengals, Bills, and Oilers. This would likely lead to greater income disparity between the teams than currently exist (Thought experiment: how much of the NFL's $24 billion contract is paying for the right to air Patriots games, and how much is for the rights to air Bengals game? Scrapping the anti-trust exemption would mean each team earns their marginal product, not equal shares of the total contract), harming the small market teams at the expense of the large market teams. This is neither good nor bad--being in a "good" market as opposed to a "bad" market is little more than a rent, and will be more or less directly capitalized into the value/price of the team. Sure, the Patriots might win more games than the Chiefs, and make more money than the Chiefs, but when somebody moves to buy the Patriots, they will have to pay more for the higher stream of profit that the Patriots bring in. In the end, owning the Patriots should be just as valuable as owning the Chiefs.
What other effects might this plan have? Well the first, and most obvious, is that we'd expect to see the playing field become a little less "level." Again, ex ante there isn't much to say about this. Big market teams win more often, but at the same time their owners pay more for their teams, so it would seem to be a wash. However, if externalities exist between teams, then the story becomes more complicated. As it turns out, there appear to be significant externalities present. Teams get more fans for games against good teams, fans would generally prefer to watch a close game than a blowout, and so forth. The Patriots, it turns out, are worth more to Robert Kraft if the Chiefs are good than if the Chiefs are bad. There are many ways to deal with the issues of externalities. One method is regulation, which Arlen Specter wishes to do. A generally more efficient means is internalization, which is exactly what the NFL league structure is doing. All of the teams, small and big market alike, are worth more if these bilateral positive externalities can be internalized.
This, in turn, should change the way we perceive professional sports. What appears to be teams competing against each other are in fact two firms engaged in the joint production of a single product. Which, in my mind, makes Arlen Specter's "competition" based argument have more holes than the Minnesota Vikings' secondary.
Specter, in the past, has been primarily concerned with the sale of television rights (as opposed to, say, the claims of Maurice Clarett, who petitioned that the anti-trust exemption as it relates to the draft be overturned). Specter is arguing that the negotiation of television rights should be done on a team-by-team basis, rather than have the league negotiate a league-wide television package. One supposed benefit of this would be to allow regional stations to acquire rights to local games, giving local fans the ability to watch more games with their local team than otherwise.
In principle, this seems to make a lot of sense...this would benefit the fans as they could watch their local teams more often, and would force the teams to be more competitive, and surely anything that increases competition is a good thing? In the case of professional sports, I'm not so sure, because I'm pretty sure that the teams are not the products being sold, but rather the game itself is the product.
Suppose Specter's plan were initiated. One would expect to see big market teams, such as the Giants, Patriots, Bears, Redskins, and Cowboys, sign far more lucrative contracts with television stations than the Chiefs, Browns, Bengals, Bills, and Oilers. This would likely lead to greater income disparity between the teams than currently exist (Thought experiment: how much of the NFL's $24 billion contract is paying for the right to air Patriots games, and how much is for the rights to air Bengals game? Scrapping the anti-trust exemption would mean each team earns their marginal product, not equal shares of the total contract), harming the small market teams at the expense of the large market teams. This is neither good nor bad--being in a "good" market as opposed to a "bad" market is little more than a rent, and will be more or less directly capitalized into the value/price of the team. Sure, the Patriots might win more games than the Chiefs, and make more money than the Chiefs, but when somebody moves to buy the Patriots, they will have to pay more for the higher stream of profit that the Patriots bring in. In the end, owning the Patriots should be just as valuable as owning the Chiefs.
What other effects might this plan have? Well the first, and most obvious, is that we'd expect to see the playing field become a little less "level." Again, ex ante there isn't much to say about this. Big market teams win more often, but at the same time their owners pay more for their teams, so it would seem to be a wash. However, if externalities exist between teams, then the story becomes more complicated. As it turns out, there appear to be significant externalities present. Teams get more fans for games against good teams, fans would generally prefer to watch a close game than a blowout, and so forth. The Patriots, it turns out, are worth more to Robert Kraft if the Chiefs are good than if the Chiefs are bad. There are many ways to deal with the issues of externalities. One method is regulation, which Arlen Specter wishes to do. A generally more efficient means is internalization, which is exactly what the NFL league structure is doing. All of the teams, small and big market alike, are worth more if these bilateral positive externalities can be internalized.
This, in turn, should change the way we perceive professional sports. What appears to be teams competing against each other are in fact two firms engaged in the joint production of a single product. Which, in my mind, makes Arlen Specter's "competition" based argument have more holes than the Minnesota Vikings' secondary.
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