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Yankee Stadium and the Power of Sports Monopolies

April 29, 2009

By Steven Malanga

The opening of the new, $1.3 billion Yankee Stadium, with its $2,625 front-row seats and an average ticket price of $72, has sparked as much commentary and controversy as the team itself and its $400 million stable of off-season free agent acquisitions. Empty seats in some of the priciest sections have critics proclaiming that the Yankees miscalculated demand. The team, in turn, contends that it’s already sold 85 percent of its premium seats (average price, $510) for the year and that virtually all of the stadium’s ordinary, non-premium seats are gone at ticket prices that are on average 75 percent higher than last year.

Even though the Yanks have been forced for the time being to cut their top prices, time and demographics are on the side of the Yankees--and most other teams, too. Even the worst U.S. recession in more than a generation, even here in New York, the home of our sickly financial markets, isn’t likely to moderate the upward spiral of ticket prices. Why? Because for decades now major professional sports leagues, and especially Major League Baseball, have used certain cartel powers tolerated by government to restrict supply, even as we as a country have grown more populous and richer (the current recession notwithstanding). Pro sports aren’t retailing, where every economic uptick finds businesses elbowing each other for prime locations. Instead, the leagues have divided the country nicely, and short of some kind of major court decision or legislation in Washington that drastically reshapes the way leagues must do business (which would probably disconcert the very fans who abhor rising prices), the cost of attending games just about everywhere is likely to continue growing at a faster rate than most prices. The Yankees are merely leading the way.

To understand what I mean about sports and demographic trends, just take a look at the way the New York metropolitan area has changed in the last 47 years, and the way baseball hasn’t. Since 1962, when the Mets joined the Yankees in New York, MLB’s capacity in the area hasn’t grown. The teams both play a home-season schedule of 81 games, as they have since ’62, and their stadium capacities are actually somewhat smaller today than 47 years ago.

But since the last time the league added capacity in New York, the population of the metropolitan area has grown by some 3 million, or by nearly a fifth. More important, the wealth of that population has increased robustly. Per capita income, after adjusting for inflation, has nearly doubled in the region. All of those extra people and the additional wealth per person mean total income in the region, after adjusting for inflation is up by 115 percent. That’s a marketplace you’d love to have more or less to yourselves, as the Yankees and Mets do.

A growing population that’s also growing richer has set off a scramble for tickets, and as tickets became more prized, businesses have jumped into the fray to compete with the ordinary fan because they can reward prime clients with something that is now scarce and get favorable tax treatment to boot. I can’t say precisely when the era of corporate ticket buying took off, but it’s a good bet that it had something to do with the soaring price of tickets to the four major sports during the 1990s. The average price of a baseball ticket alone increased 93 percent during that decade, compared to a gain of just 26 percent for the Consumer Price Index in an era of low inflation. So far this decade, the average price of an MLB ticket has risen another 60 percent, or more than double the Consumer Price Index. If baseball’s prices had instead increased at the same rate as the CPI over the past 20 years, ticket prices on average would be half of what they are today.

This isn’t by accident. Over the years, professional sports teams have had the leeway to organize and cooperate among themselves. Teams, which are individual businesses, can join together to design a single schedule among themselves and limit the number of participants in a league in order to create a championship format leading to a World Series or Super Bowl. Teams have also been allowed to create a single system of hiring players, such as a draft, and to implement salary caps, on the grounds that it’s in the best interest of the leagues—and fans—to have some sort of competitive balance within a league.

Baseball, of course, has long had more monopoly power than the other leagues thanks to a famous (or infamous, depending on your perspective) 1922 Supreme Court decision in which the court ruled that baseball was a sport, not an interstate business, and therefore not subject to federal anti-trust laws. The most noted element of baseball’s anti-trust exemption, the ability to bind players to a team for life, has slowly been whittled away over the years by court decisions, arbitrator rulings, collective bargaining, and finally by a 1998 federal legislation, the Curt Flood Act, which revoked baseball’s anti-trust exemption in labor issues.

But even as players have gained access to much higher salaries, other elements of the cartel have remained in place, most especially the ability of the league to stop teams from moving between markets and to restrict competition within markets. That means that teams can’t switch markets without approval from MLB, and can’t enter a market already occupied by someone else without approval of a local owner.

The situation hasn’t changed much over the years because there’s no genuine agent of change to force the leagues to operate differently. The only time the federal government ever raises the issue of monopoly practices in pro sports is when some congressman gets his nose out of joint because his local team is thinking of relocating, and then the debate becomes about how to placate the congressman, not how to force the leagues to operate more competitively. The courts haven’t offered much of a better solution because the few lawsuits brought against leagues for antitrust violations are usually initiated by competing leagues or wannabe owners who want to be admitted to the cartel, not bust it up.

Baseball’s owners thus congratulate themselves on the job they’ve done marketing the sport in order to sustain whopping price increases, but it’s a lot easier to raise prices when you have a form of monopoly, but not so easy otherwise. Just ask any retailer who has ever tried to compete with Wal-Mart.

Every once in a while some incurable free-market romantic argues that if the courts would just force the leagues to dump their monopoly practices fans would be better off. If, for instance, MLB couldn’t stop the financially-challenged Minnesota Twins from relocating to New York to compete for fans with the Mets and Yankees, would that moderate ticket prices? A quick look at the market suggests that, given the opportunity, the Twins would be crazy not to consider such a move. After all, one-third of the New York market still amounts to double the population and more than double the aggregate personal income of greater Minneapolis-St. Paul.

Given the success on the field that the Twins have had with meager resources, one could imagine that they would soon develop a loyal following in New York and would probably over time become at least the area’s second most popular team, considering how the poorly-run Mets consistently manage to squander the advantages they have as a big-market team. And maybe a move by the Twins would jolt Minnesota-area fans into more support for a new team. Or maybe not. That’s the way markets work.

But the real incurable romantics in sports are fans, who would dislike that kind of competitive jockeying even more than they dislike high prices. Sports fans, especially in baseball, want everything about the leagues, including their structure, to stay exactly the same because fans value tradition so much. But you can’t have that kind of long-term equilibrium and still expect low prices.

So for the foreseeable future the only economic threat most teams will face in the major sports is from lousy play, which shows that fans still have certain standards. The 1992 Yankees, for instance, with a 76-86 record, drew just 1.7 million spectators. With an expensive new park to pay for, attendance like that would be a disaster today for the Yankees, who count on drawing more than 4 million spectators. Since history has shown that after a few years of fascination with a new stadium, fans will desert a team if their performance wanes, the Yankees face considerable pressure on the field considering the cost of the new stadium.

The leagues understand this issue, of course, which is why they have all done everything they can to make as many teams seem competitive as possible, including expanding the number of teams that get into the playoffs and shrinking the size of divisions to create the illusion that virtually all teams are in contention down to the bitter end of a season.

Of course, some people would observe that sports are entertainment and thus a discretionary purchase, and so their monopoly powers do not quite jolt us the way we might be jolted by banks or supermarkets colluding with one another. To paraphrase Rick in Casablanca, the problems of a few sports fans don’t amount to a hill of beans when the global financial system is falling apart. Still, there’s something unseemly about allowing businesses to generate demand for their services and then use cartel powers to restrict supply and drive up prices. It’s un-American, actually.

Of course, one solution would be for fans to appeal to the Obama administration to nationalize the sports leagues, as it has General Motors, and run them for the public good, as Fidel Castro has done with baseball in Cuba. Then you’d only have to worry about fiddling by Washington. I’m sure it wouldn’t be long before some congressman demanded we limit the number of foreign players to give our American boys in the minors a chance to earn a major league living.

With Washington in control, the games wouldn’t be as good, but they would be cheaper.

Original Source: http://www.realclearmarkets.com/articles/2009/04/yankee_stadium_and_the_power_o.html

 

 
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