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1 THE MISDIRECTION PLAY

July 17, 1978
July 17, 1978

Table of Contents
July 17, 1978

Wimbledon
U.S.-U.S.S.R.
Money

1 THE MISDIRECTION PLAY

FACT: The professional sports industry is a self-regulating monopoly.

This is an article from the July 17, 1978 issue Original Layout

Monopoly. Antitrust. Restraint of trade. For years those loaded words have been lobbed like mortar rounds at the oak-paneled bunkers of sports management. Monopolistic control is the cornerstone on which the sports industry has been built and from which all of its benefits, both financial and competitive, are derived. Moreover, it is the only self-regulated monopoly in America. Unlike the broadcasting and airline industries, whose monopolistic practices are regulated by the Federal Communications Commission and the Federal Aviation Administration, respectively, the sports business has been left to referee itself.

To understand how and why this comfy arrangement has come about takes some hacking through legal and political thickets, but the trip is worth it. Suffice it to say that this Fact is so crucial to Moneyball that the fan should forget the boom-a-lackas and concentrate on a new mantra: mo-nop-o-ly, mo-nop-o-ly.

Many owners, ever protective of their Boardwalks and Park Places, strive mightily to convince the public that they are playing some other game. They have their own chants. Jerry Hoffberger does whole oratorios, equating his needy Orioles with the Baltimore City Orchestra as a community cultural asset. In Gene Klein's rhapsody, his San Diego Chargers are not engaged in anything so crass as turning a buck; they are, he says, celebrating an "art form." Usually, though, the monopolists fall back on a classic all-purpose fudge that was first used in baseball: "It is too much of a sport to be a business and too much of a business to be a sport."

The sports industry is indeed schizoid. While, financially speaking, General Motors does not care one toot if it drives Ford into the emergency lane, the Montreal Canadiens have a lot to lose by overwhelming the Washington Capitals on the ledger books as well as on the ice. Rivals in combat, they are also partners in a group venture called the NHL.

Just as you cannot be a bully if there is no one to pick on, a team obviously cannot flourish if it drives all or most of its rivals out of business. So the big guys theoretically have to pull their punches; they slap the little guys around just enough to keep them in their places, but not so hard as to put them away for good. Unless, of course, some pipsqueak rival league tries to invade the big guys' turf. Then, watch out, because that's when the heavyweights in the established league go for the clubs and tire chains.

Thus the owners are tugged in two directions at once. To keep their cross purposes from clashing requires a pliancy and objectivity that few of them possess. To protect themselves from one another, therefore, the owners operate as a cartel, an economic entity in which a group of firms (teams) within the same industry (league) make agreements on matters of mutual interest (rules, expansion, promotion, schedules, etc.). Such agreements are illegal in most other U.S. businesses, because they tend to lead to nasty things like collusion, price-fixing and restraint of trade.

Unregulated as they are, owners ask that the public accept their actions as being in good faith. Critics like Ohio Congressman John Seiberling are unwilling to grant that acceptance. An antitrust lawyer and one of the many federal legislators who have introduced bills that would put an end to the owners' monopolistic privileges, Seiberling says, "Whenever artificial barriers are created to the normal forces of the marketplace and free enterprise, the American people end up paying a higher price and getting less of the commodity."

All of which gives rise to the big question about the sports industry: is it a sport and, therefore, something so unique that its survival requires special hands-off treatment under the law; or is it a business and, therefore, something so commercial that it should be subject to the same restraints imposed on other profit-making enterprises? Asked that very question during a congressional hearing, Bowie Kuhn, scrambling like a runner caught between third and home, concluded, "We are a sports business."

Baseball has good reason for wanting to have it both ways. By a venerable decree of the United States Supreme Court, it is the only professional sport that is exempted from antitrust laws. Because the reasons for this singular honor have long confounded the nation's legislators and the Justice Department's lawyers, pro football, basketball and hockey have also benefited, by default, from the same exemption. Explains Congressman Frank Horton of New York, a member of the 1976 House Select Committee on Professional Sports, "Basically, all four sports enjoy an immunity—baseball because it is immune by judicial decision, and the others because the executive branch and the Justice Department just have not really followed up and tried to enforce the antitrust laws...."

Not that government officials agree that sports deserve controversial privileges. Hear the testimony of U.S. Deputy Assistant Attorney General Joe Sims, an antitrust specialist, before the 1976 House Select Committee on Professional Sports: "I know of no economic or other data which supports in any way the conclusion that professional sports should be exempted from the antitrust laws.... In the absence of such evidence, our belief is that the exemption should be terminated; and indeed should never have been started and wouldn't have been except for a misinterpretation of the commerce clause."

How this "misinterpretation" shaped the future of the nation's professional pastimes is one of the more bizarre chapters in American jurisprudence. It dates back to a 1922 U.S. Supreme Court decision on a suit brought against organized baseball by one of the teams in the short-lived Federal League. The suit charged that the National and American Leagues had conspired to kill off the new rival by buying out its teams and monopolizing the player market. The opinion, written by Justice Oliver Wendell Holmes, said that the business of baseball was not interstate commerce but rather the giving of local exhibitions. Thus the sport was immune to the antitrust laws. "Not one of Mr. Justice Holmes' happiest days," a fellow member of the Supreme Court later remarked. Although the antitrust laws were subsequently broadened to include all manner of exhibitions, ranging from ballet to boxing; although baseball has grown and prospered to the point where its commerce is not only interstate but also international; and although Holmes' decision has been retested five times in the Supreme Court, the original decision has held firm.

The Court's reluctance to reverse itself stems from its thinking that, however unsound the 1922 ruling, a sudden change now might be a greater injustice to an industry that for decades has been allowed to develop on the basis of that decision. Indeed, several owners have testified that the antitrust exemption was one of the major reasons they bought into baseball. And for baseball's proprietors it has conveniently happened that Congress, the other branch of the government that might have worked to rectify the big misinterpretation, has been reluctant to enact remedial legislation.

Which is not to say that Congress has not busied itself pondering the antitrust question; it's just that lobbyists for the sports industry have been even busier. The congressional debate on curtailing pro sports' exemption has been droning on for more than half a century. And though there have been 11 hearings, more than 70 bills and enough hot air to levitate a zeppelin in the past two decades alone, the net result is zero. Or more precisely, minus two. The only sports antitrust laws ever enacted by Congress, the 1961 Sports Broadcast Act, which enriched the teams by allowing them to bargain for TV money as a group, and the 1966 Football Merger Act, which ended the salary war between the NFL and AFL by permitting the two leagues to merge, granted the sports industry further exemptions not enjoyed by most other businesses.

Nevertheless, Congress figures to go on making threatening noises for three reasons. First, while politicians' utterances on most other issues get little or no play in the media, their comments on sports are all but guaranteed to receive publicity that is instant, wide and generally favorable. Second, according to one congressional assistant, some of the pols are genuinely concerned "whether the fans are getting screwed, and if there is anybody protecting their interests." And, third, many Congressmen are just plain angry that Washington no longer has a major league baseball team.

Still, Congress figures to keep its long record of indecisiveness on the antitrust issue intact, because, compared to inflation and the threat of war in the Middle East, alleged transgressions in the sports business are not exactly issues of burning congressional concern, and because there is no great public outcry for reform.

In sum, says Professor Lionel Sobel, author of Professional Sports and the Law, the mishandling of the big misinterpretation has been an "embarrassing comedy of errors involving the Congress and Supreme Court, and some shrewd tactics on the part of major league executives."

So what does all this have to do with the guy munching on a cold hot dog in the far reaches of Section K? Everything. Under the structure that has evolved from the big misinterpretation, the owners not only have the power to make, change and, through the office of a commissioner whom they hire and fire, enforce the rules of Moneyball, but they also control the time, place, number, quality and price of the games that the Section K fan pays to see. These unique monopolistic rights have left it to the owners to determine whether their pursuit of private gain is also for the public good.

These rights are also the target of forces that have lately been zeroing in on three major areas in which management has established restrictions on competition. They are: 1) the distribution of franchises, 2) the sale of broadcast rights and 3) the movement of players. In fact, the current big money war in sports is the result of several recent direct hits by the players' unions on the barriers that restrain player movement. However, the other two restricted zones have so far proved largely impervious to attack.

And management aims to keep them that way, arguing that restrictions on the business side are necessary to maintain free-wheeling competition on the playing field. Critics like Ed Garvey, executive director of the football players' union, call that the old "best-interest-of-the-game" dodge. "When the owners say that," Garvey says, "the 'game' means the business, and the business means the 'best interest' of those who own those teams." Garvey protests too loudly, according to economist Roger Noll, because the only way the owners can afford to pay higher salaries is by protecting the monopoly rights that insure greater income. Noll says, "In most cases, the interests of the players coincide with the interests of the owners, and both tend to benefit from the restrictive practices that are costly to fans."

Territorial rights, Noll adds, are "perhaps the most egregious wrong of all the monopolistic practices in professional sports.... The number of franchises can be controlled by owners, who can dole them out, just as any other monopolist would, creating a contrived scarcity. Many more cities could support teams if the supply were not limited. In recent years, as sports have become more popular, the response of the monopolist has been predictable—ticket prices go up and up and up. In a competitive industry, higher ticket prices induce new firms to compete, but the monopolist simply takes in higher revenues. Now the owners share in the take with the players and the union. The financing looks good, but the fan is being ripped off."

Remember, mo-nop-o-ly, mo-nop-o-ly.

ILLUSTRATIONROY ANDERSENBecause they are unfettered, the monopolists get to decide what's best for fans.ILLUSTRATIONROY ANDERSENThe Supreme Court flunked when ruling on baseball.ILLUSTRATIONROY ANDERSENCongress has expended plenty of hot air on sports.