In League Structure & Stadium Rent Seeking – the Antitrust Role Reconsidered, Florida Law Review (forthcoming) (download from ssrn) David Haddock, Tonja Jacobi and I explain how the anti-competitive structure of U.S. sporting leagues feeds the cycle of stadium rent seeking.
North American sporting teams receive enormous public funding for new and renovated stadiums after threatening to depart their hometowns, or by actually moving elsewhere. In contrast, English sporting teams neither receive much public money for such projects, nor move towns. We argue that no inherent cultural or political cross-Atlantic variations cause the differences; rather, it is the industrial organization of sports in the two countries—the structure of league control—that enables rent seeking by American sporting teams but not by their English counterparts. Cross-country time series data contrasting American professional football and baseball stadiums with English soccer grounds support our claim, as does data regarding the stadiums of geographically flexible NFL teams contrasted with those of functionally immobile major collegiate football teams.
The figure below shows the age of individual sports stadiums in England and the U.S. color coded by competition. As we explain in the paper, Soldier Field is not really as old as these figures suggest, nor is the Jacksonville stadium.
This next figure focuses on the contrast between NFL and EPL stadiums. These fields are interchangeable, yet somehow the U.S. cities and states pay billions to build new NFL stadiums, whereas EPL teams largely make do or pay for their own facilities. The differences in age are stark.
Why does this happen? North American sports leagues are cartels: they control entry of teams, then collaborate to maximize effective rent seeking, stave off competition and keep prices high. In most of the world, competitive merit determines entrance into leagues via a system known as promotion-and-relegation, whereby the worst performing teams in one competitive tier are demoted to the next lower tier at season’s end, and an equivalent number of top teams are promoted from the division below. The fluidity created by promotion-and-relegation severely undermines the credibility of a team’s threat to leave town by creating alternative, less costly entry points into the league. Open entry mitigates pressure to engage in intercity competition over scarce team slots, and thus relieves the pressure to transfer wealth from the public to private team owners through stadium funding.
Download the full paper from ssrn for more details.