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Sport as Monopoly

This is an excerpt from Social Issues in Sport-3rd Edition by Ron Woods.

Some people argue that professional sports in the United States are unique in that they clearly constitute monopolies and that no other U.S. business operates under the same favorable set of rules. Let's examine this argument, beginning with a historical review. In the 1890s, President Grover Cleveland grew concerned about the influence of the Standard Oil Company on the economy and influenced the U.S. Congress to pass the Sherman Antitrust Act, which made illegal "every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce among the several states or with foreign nations" (Michener 1987, 386).

Although this bill did not directly target baseball, it did affect the sport. Professional baseball was conducting interstate commerce and restrained trade, since players couldn't move from one team to another and the owners conspired to keep players' salaries at a desired level. Over the next 30 years, various interests challenged the Sherman Antitrust legislation; in 1922, however, Supreme Court Justice Oliver Wendell Holmes declared that baseball was not in violation of the Sherman laws. Numerous court suits have been filed since, and minor changes have been made in this momentous decision. Naturally, other professional sports fell into the same favorable position due to the similarity of their businesses.

How have professional sports used this favorable ruling to operate as monopolies? Here are a few of the ways:

  • Team owners formed leagues like the NFL to control how teams compete against each other for fans, players, media revenues, sales of licensed merchandise, and sponsorships.
  • The leagues - including MLB, the NBA, the NFL, and the NHL - also work together to eliminate potential competition from new leagues that try to cash in on their sport.
  • Using a draft system for hiring players, owners force players to negotiate only with the team that drafts them, thereby limiting athletes' salaries.
  • New or expansion teams cannot join the league without paying substantial fees to all of the other owners, and one owner cannot relocate his or her team to another city without the approval of other owners.
  • Owners of individual teams cannot sell merchandise associated with their team. In professional football, NFL Properties markets all NFL business properties as a unit and therefore has been wildly successful in negotiating sponsorships, licensing agreements, and television contracts. However, Jerry Jones, owner of the Dallas Cowboys, the most popular team in America, wanted to merchandise Cowboys paraphernalia himself. He didn't see why he should support other franchises with revenue from the sale of Cowboys hats, jerseys, and so on. Jones forced the NFL to modify the monopolistic stance under which it had operated for years, though the league still retains the majority of its power.

For most teams, television revenue is a huge source of income, but the potential revenue for each major league baseball team depends on the size of its market. The NFL restricts individual teams from negotiating local TV contracts, but MLB does not. Hence, the New York Yankees can sell their local TV rights for $75 million a year, whereas the former Montreal Expos were lucky to command $1 million. Among other things, this inequity in potential income helped convince the Expos to relocate to Washington, DC, in 2005. You can see the disparity that different markets create between teams, which throws the teams' power and competitiveness off balance. The NFL, however, remains a true monopoly by negotiating as one entity. The NFL model for distribution of TV revenue is just one of several strategies the league has used to ensure the financial sustainability of each franchise and thus minimize the differences between small, medium, and large markets.

Learn more about Social Issues in Sport, Third Edition.

More Excerpts From Social Issues in Sport 3rd Edition