Freeman

ARTICLE

The Economic Woes of Pro Sports: Greed or Government?

Subsidies and Antitrust Regulation Are the True Sources of Exorbitant Salaries and City-Hopping

JANUARY 01, 1997 by RAYMOND J. KEATING

Mr. Keating is chief economist with the Washington, D.C.-based Small Business Survival Foundation.

Beyond labor strife, two issues particularly annoy pro sports fans today—exorbitant player salaries and city-hopping by teams.

Player salaries that seem wildly out of kilter have been bothersome for some time. For example, the average Major League Baseball player reportedly earned $1.2 million dollars last year. Payrolls averaged about $32 million per team. The Montreal Expos were considered cheap—their payroll was only a bit more than $15 million, compared with the New York Yankees’ top payroll, reportedly exceeding $60 million by year’s end.

Almost as irksome are team owners who move, or threaten to move, their teams from city to city. Art Modell’s recent uprooting of the NFL’s Browns from Cleveland to become the Ravens of Baltimore is the most-publicized example—though actual and threatened moves have spread into a mini-plague in pro sports.

Fans regularly identify private greed as the source of these annoyances. However, the true genesis of these problems is government action. In this instance, federal, state, and local governments contribute to the mess.

At the federal level, antitrust legislation serves as one culprit in the city-switching games played by teams. Pro sports leagues have been classified by government officials as monopolies, and are therefore subject to antitrust regulation. This makes it all but impossible for leagues to exert any control over team movements. If a league wishes to stop a team from picking up and moving to another city, it faces an expensive and probably losing litigation battle. The exception to this has been Major League Baseball, which operates under an antitrust exemption, and indeed, baseball teams remain far less mobile than, for example, NFL teams.

In reality, pro sports leagues can in no serious economic way be considered monopolies. Leagues are nothing more than partnerships competing for consumers’ entertainment dollars. Members of Congress often remind Major League Baseball how lucky it is to be granted an antitrust exemption. And baseball is indeed lucky to be granted a reprieve from congressional economic ignorance. Antitrust regulation stands on highly precarious ground even in more seemingly simple cases. On the field of pro sports, it lands clearly out of bounds.

All pro sports leagues should be exempt from antitrust regulation. The effect of this action would allow leagues to be run as the partners see fit, including the power to stop team movements that hurt the sport.

At the state and local levels, government subsidies boost player salaries and also encourage team mobility. These subsidies take the form of taxpayer-financed stadiums and arenas.

In essence, the taxpayers pick up the majority of a team’s capital costs—usually running anywhere between $100 million and $400 million for a new stadium (though New York City is talking about more than $1 billion for a new Yankee Stadium on the city’s West Side). The annual debt-service costs on a new ballpark can run into the tens-of-millions-of-dollars range. Obviously, relieved of such expenses, owners are free to bid player salaries ever higher, while boosting their own bottom lines as well.

Government-built stadiums also transform teams from the status of owners to renters. It’s always easier for a renter to up and leave than it is for an owner. So, perversely, government officials who believe that only a taxpayer-built stadium can attract or keep a major league team in their state or city merely ensure that teams will continue issuing threats and moving. Naturally, under this scenario, teams possess every incentive to pit city against city and state against state in a vicious game of corporate welfare.

My fellow fans, in the end, it is not the greed of players and owners that result in skyrocketing salaries and city-hopping by teams, but the actions of government officials.

In a truly free sports market, leagues operate free of antitrust regulation, teams receive no subsidies, owners build their own stadiums, and player salaries stay within the realm of sanity as owners are forced to consider the full cost of team operations including stadium or arena financing. Indeed, this is how the pro sports business largely worked until the 1960s and 1970s, when corporate welfare expanded along with all other forms of government activity.

Government needs to deregulate, privatize, and downsize, allowing the market to work. The result will be healthier sports leagues, happier fans, and savings for taxpayers.

ASSOCIATED ISSUE

January 1997

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