Citation: David Haddock, Tonja Jacobi & Matthew Sag, League Structure & Stadium Rent Seeking – the Antitrust Role Reconsidered, 65 Florida Law Review 1 (2013)
In a nutshell:
In League Structure & Stadium Rent Seeking, David Haddock, Tonja Jacobi, and Matthew Sag argue that the billions of dollars American cities spend building stadiums for professional sports teams are a product of closed league structures that block new entry, and that the least intrusive remedy would be for Congress to impose a promotion and relegation system of the kind that governs English soccer.
Summary
The article begins with a puzzle. NFL and MLB stadiums average less than twenty-three years of age, while English Premier League grounds average more than seventy-eight, even though the fields are functionally interchangeable. American teams extract public subsidies by threatening to leave town, and sometimes leaving; English teams pay for their own grounds and renovate rather than rebuild. We argue that the difference comes down to industrial organization rather than culture or politics. North American leagues are cartels that control entry: a city that loses its franchise cannot replace it without the permission of the incumbent teams, so a threat to relocate is credible. In England, promotion and relegation links twenty-three tiers of competition, and the Football Association, not the leagues, controls entry into the pyramid. When Wimbledon won approval to move to Milton Keynes in 2002, fans formed AFC Wimbledon, which climbed through the lower tiers of the pyramid. Because substitutes are easy to create, English relocation threats are empty.
We support the claim with data. American taxpayers spent $10.4 billion on new stadiums between 1970 and 1999, and the NFL alone has commanded at least $2.4 billion in subsidies since 2001. Stadium age data across the English pyramid and the American major leagues fit the theory, and a comparison within the United States rules out the cultural explanation: major college football teams, which cannot credibly threaten to leave their universities, play in stadiums averaging over sixty-seven years old, in line with the English tiers.
The antitrust analysis explains why this competition problem may lack an antitrust solution. Because incumbents control entry, a single team’s relocation threat carries an implicit threat of concerted boycott under section 1 of the Sherman Act, but courts are likely to characterize the resulting harm as a political injury to taxpayers rather than a market injury to consumers, and would hesitate to supervise a transition to open leagues at the remedy stage. Those same obstacles, we conclude, are reasons for Congress rather than the courts to act.
Why read this article?
The article assembles a detailed account of how stadium subsidies work in practice, including the opaque financing mechanisms, such as tax increment financing and tax-exempt municipal bonds, that make wealth transfers to private franchises look like infrastructure investment. It also offers American readers an accessible primer on promotion and relegation, with tables tracking the movement of English teams across tiers over two decades and a comparison with the near-total stasis of NFL membership over the same period. Part III surveys the sports antitrust cases, including American Needle, NCAA v. Board of Regents, the Raiders litigation, and the failed entry suits in Mid-South Grizzlies and Seattle Totems, and explains why none of the standard theories quite fits the stadium problem.
Further Reading
Roger G. Noll & Andrew Zimbalist (eds.), Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums (Brookings Institution Press 1997) – The standard economic reference on stadium subsidies, this edited volume presents evidence that new stadiums produce far smaller local economic benefits than promoters claim, with case studies from Baltimore, Chicago, Cleveland, and other cities.
Stephen F. Ross, Monopoly Sports Leagues, 73 Minnesota Law Review 643 (1989) – This influential article argues that the government should break up MLB and the NFL into competing economic entities, documenting the harms monopoly leagues cause and explaining why neither sport is a natural monopoly.
Stephen F. Ross & Stefan Szymanski, Fans of the World, Unite! A (Capitalist) Manifesto for Sports Consumers (Stanford University Press 2008) – Ross and Szymanski propose two structural reforms for American sports: separating league ownership from team ownership, and adopting promotion and relegation on the soccer model.
Judith Grant Long, Full Count: The Real Cost of Public Funding for Major League Sports Facilities, 6 Journal of Sports Economics 119 (2005) – This study shows that public subsidies for major league facilities are systematically understated, finding that uncounted costs for land, infrastructure, and foregone property taxes raise the average public contribution roughly 40% above reported figures.