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League cooperation necessary for fair play

This is an excerpt from Sport and Public Policy, edited by Charles A. Santo, PhD, and Gerard C.S. Mildner, PhD.


From the beginning, competitors in organized sports have cooperated with one another to ensure order and provide a marketable product. A natural outgrowth of associations between individual franchises, leagues have enhanced the viability and stability of their professional sports by providing structure and ensuring an even field for competition.

Setting Rules and Schedules

The early years of British soccer and American college football were often played under “house rules” determined by the host team, which sometimes led to chaotic disputes and violent outcomes. Concerned by some of the extreme events, college presidents unified the rules of college football and instituted a number of measures to ensure the safety of players. The colleges hired impartial third-party referees to allow each team to participate under conditions of fair play.

As professional sports developed, league organizations established common rules of play so that fans could understand the game and teams could prepare for the next game without worrying that the rules would be tailored to help the home team.

A second reason for sport leagues to organize is the need to arrange a schedule among participating teams. Unlike other fields of commerce, each sport team needs to meet its rivals, so some coordinating authority must arrange a schedule of games. Moreover, fans find interest in the determination of the best team in that sport through a league table or league championship. For such a champion to be determined in a fair way, each participating team should play the other teams in their league in an equal or near equal number of circumstances.

Competitive Balance

Sport fans draw interest from seeing sporting events in which the outcome is uncertain and the strength of each team is more or less balanced. In practice, the intervention required for a league to ensure that the teams within the league have a competitive balance is extensive. For most of the 20th century, however, sport leagues did not make a great effort to ensure competitive balance. Dynasties thus emerged, such as the New York Yankees in baseball (winners of 6 American League titles between 1921 and 1928 and 8 World Series titles between 1947 and 1958) and the Boston Celtics in basketball (winners of 10 NBA championships between 1959 and 1969).

One can argue that competitive balance within a league is not necessary to draw fan interest to a sport, as evidenced by the attendance figures in baseball and basketball during the era of the Yankees’ and Celtics’ dominance. Dynasties create familiar players and story lines for fans to follow. More recently, the emergence of fantasy sport leagues has allowed fans to follow a game focused on the statistical performance of players whom they “own” rather than the outcome of the game itself.

Nevertheless, a number of innovations to improve league competitive balance have been created in recent decades. For example, consider the following:

  • Order of the draft. One of the first innovations was the creation of the reverse-order-of-finish player draft, which allows the previous year’s worst team to have the first choice among new players entering the league. To some extent, this system promotes equality of teams over time.
  • Unequal schedules. The National Football League (NFL) has implemented a policy of unequal schedules (challenging one of the foundations for league organization described earlier) to create greater uncertainty in league outcomes. Schedules are drawn so that the division-winning teams of the previous year play other division winners more often, and last-place teams play each other more often as well. This policy enhances the likelihood that weaker teams will have better win–loss records and helps the league schedule a greater number of compelling matchups than would be generated by a random schedule.
  • Revenue sharing. Dominance and dynasties emerge in part because teams in larger cities have access to more revenue than do teams in smaller cities; they can sell more tickets at higher prices and charge higher prices to television networks that want to broadcast their games. To mitigate this potential imbalance, some leagues have established procedures to redistribute revenue from rich teams to poor teams or to provide equal shares of revenue that is generated at a leaguewide level. For example, current league agreements in Major League Baseball require that each team contribute 31 percent of its local revenue (which includes revenue from broadcast contracts and ticket sales) to a common pool that is then redistributed evenly to all teams in the league. The largest source of revenue for NFL teams is television broadcast rights. In the NFL, contracts for broadcast rights are negotiated directly between the league as whole and national networks, rather than between individual teams and their local networks. This policy allows the league to distribute the revenue evenly to all teams regardless of their market size.
  • Salary caps. Several leagues also implement salary caps, which limit the amount of money that each team can spend on player payroll, to ensure that teams in larger markets (or with wealthier owners) cannot simply buy up all the best talent by outspending smaller-market teams. Luxury taxes, which are levied as a financial penalty on teams with payrolls above a certain threshold, are designed to serve a similar purpose.

Many critics of professional sport leagues view their obsession with competitive balance in recent years as more of an attempt to increase firm profitability by gaining an economic advantage over players in labor negotiations or by gaining advantage over broadcasting companies in the market for broadcasting rights. In addition, revenue-sharing agreements can often create perverse incentives for teams to lose. A team owner with a low payroll often stands to gain more in profit from revenue-sharing redistribution than he or she might by making the kind of payroll increases necessary to field a winning team.

Downside of Cooperation

At some level, leagues play a benign and beneficial role as a convener of events and guarantor of fair play. Although we accept that the home team has the advantage of its partisan crowd and its familiarity with the home stadium, no one would accept today having the home team hire the referees, pick which ball should be used, or establish the penalties for fouls. But sport leagues also present a troubling set of contradictions. Although leagues allow owners to work together to promote fair play and balanced competition between member teams, they simultaneously allow competing business people to collude with one another to gain control over individual players, squash any competition that might emerge from rival leagues, and exert influence over fans and city finances through market power. Such collusion among entities who are otherwise competitors is a hallmark characteristic of a cartel. Therefore, sport leagues also represent a contradiction in American public policy because their monopolistic operations are aberrations in the face of antitrust law. This contradiction has been enabled by a series of judicial and congressional precedents, which are summarized in table 1.1 and are discussed in detail throughout the remainder of this chapter.

Table 1.1: Major public policy precedents regarding professional sports
Court case or
congressional
action
Year Issues
involved
Impetus Outcome or effect
Federal Baseball
Club of Baltimore
v. National League
of Professional
Baseball Clubs
1922 Alleged
antitrust
activities of
Organized
Baseball
The Baltimore franchise
of the Federal League
sued the American and
National Leagues when
the Federal League failed,
leaving Baltimore without
a professional team.
The Supreme Court ruled that
Organized Baseball did not
qualify as an illegal monopoly,
declaring that baseball was
inherently neither interstate
nor commerce. Baseball
seemed to have been given an
exemption from antitrust law.
Congressional
Subcommittee
on the Study of
Monopoly Power
Hearings
1951 Alleged
antitrust
activities of
Major League
Baseball
Congress considered
granting a blanket
exemption to Major
League Baseball to
protect it from pending
antitrust lawsuits.
Not willing to support
the “baseball monopoly,”
Congress refused to take
any action, leaving it to the
courts to decide the legality of
baseball’s actions. Congress’
inaction, however, was
seen as an endorsement of
baseball’s antitrust exemption.
Toolson v. New
York Yankees
1953 Baseball’s
reserve clause
and antitrust
activities
A player in the New
York Yankees franchise
opposed a demotion and
sued the team and the
league, charging that their
monopolistic practices
were an illegal restraint
of trade.
The Supreme Court reaffirmed
baseball’s antitrust exemption,
citing the exemption given the
sport in the Federal case and
Congress’ inaction in 1951.
United States
v. International
Boxing Club of
New York
1955 Alleged
antitrust
activities of a
professional
boxing club
The federal government
charged the International
Boxing club of New
York with being an
illegal monopoly on the
grounds that it controlled
boxing exhibitions and
broadcasts in various
states.
The Supreme Court ruled the
International Boxing Club an
illegal monopoly and declared
that baseball’s antitrust
exemption did not apply to
other sports.
Radovich v.
National Football
League
1957 Football’s
reserve clause
and alleged
antitrust
activities
William Radovich, a
former NFL player, sued
the league when he was
blacklisted after leaving
the NFL to play for a team
in a rival league.
The Supreme Court declared
the NFL’s reserve clause illegal
under antitrust laws. Baseball’s
exemption did not apply to
other sports leagues.
Sports
Broadcasting Act
1961 Congressional
protection for
sports’ leagues
controls over
broadcasting
Sports leagues sought
special protection from
antitrust laws so that they
could negotiate broadcast
contracts for their member
teams.
Congress began setting
parameters on acceptable
monopolistic activities, proving
willing to grant exemptions for
favorable reasons.
NFL–AFL Merger 1966 Congressional
protection for
football leagues
to merge
and set up a
football cartel
The National Football
League and American
Football League
sought approval to
merge into one league,
eliminating competition in
professional football.
Congress approved the
merger, largely because of
popular interest for a unified
league championship (the
Super Bowl). Congress,
however, later rejected a
proposed merger between
the National Basketball
Association and the American
Basketball Association in 1971.
Mackey v. National
Football League
1976 The legality of
the “Rozelle
Rule,” a football
policy designed
to restrict free
agency
A policy requiring a
team to give up players
if it signs a free agent
from another team was
challenged as an illegal
restraint on trade.
A district court ruled the
“Rozelle Rule” illegal,
supporting free agency in
football and other professional
sports. Courts proved willing to
support players’ challenges to
sport cartels’ powers.
Smith v. Pro
Football
1976 The legality of
football’s player
draft
The college player draft
was challenged as an
illegal restraint on trade.
A district court ruled the draft
system an illegal limitation
on an athlete’s opportunities
and salaries, but the draft
was preserved as part
of a collective bargaining
agreement.
L.A. Memorial
Coliseum v.
National Football
League
1984 The right of an
owner to move
his franchise
Unhappy with his stadium
deal, Oakland Raiders
owner Al Davis sued
the NFL for the right to
move his franchise to Los
Angeles.
A district court ruled it illegal
for a sports league to prevent
one of its member owners
from moving his franchise,
asserting some power for
owners and paving the way for
franchises to move freely at
their owners’ desires.



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