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OT: Do sports leagues naturally sort themselves into natural monopolies?

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Old
12-21-2012, 11:24 AM
  #1
cutchemist42
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OT: Do sports leagues naturally sort themselves into natural monopolies?

http://en.wikipedia.org/wiki/Natural_monopoly

Do the upper tier of sport leagues result in natural monopolies? Should they be regulated like natural monopolies?

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12-21-2012, 11:54 AM
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cheswick
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No. The NHL isn't the employer, the 30 individual teams are the employers. Hence the threat of suing for anti-trust. The teams compete agaisnt themselves for talent.

Not to mention there are numerous professional hockey leagues in North America. and some with teams in cities with the NHL.

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12-21-2012, 12:33 PM
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Yes. Every time there has been 2 duelling professional leagues, leagues have folded or merged until there is effectively only one major league. This is true of all the 4 major sports (American League, AFC, ABA, WHA)

From what I've heard, the same holds true for the most part in Europe. Successful leagues expand, unsuccessful ones decline, until you're left with one top league and any subordinate leagues exist to funnel talent into the top league.

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12-21-2012, 01:06 PM
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Originally Posted by Dojji View Post
From what I've heard, the same holds true for the most part in Europe. Successful leagues expand, unsuccessful ones decline, until you're left with one top league and any subordinate leagues exist to funnel talent into the top league.
There never really were any leagues competing with each other, the setup has been like this for ages. One of the reasons is that there was usually one association responsible for each sport, and they controlled all the leagues. In some cases there were only regional divisions who played in a tournament-like format for the local championships, with the divisions then sending teams to the national championship under the guidance of the association, like in Germany until the formation of the Bundesliga in 1963. The Premier League and other leagues moving out of the associations is a rather recent occurrance.

You still have multiple leagues throughout Europe that are basically on one level in most of the big sports. With the EU labor-laws and the overall size of Europe, that's quite the difference compared to the North American leagues.

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12-21-2012, 01:32 PM
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For popular sports, there tends to be a single dominant league per sport within certain political boundaries. There is a positive feedback, winner take all process where the best players and coaches and resources and political backing flow to one league once it gets a significant advantage over competing leagues. For fledgling sports you often see more competing leagues as they fight it out to see who will be the dominant survivor.

The winning league tends to expand to the limits of the country it is in -- or multi-country region if there is significant economic or political integration among neighboring countries.

Professionalization of sports hit first in North America and then Europe (Europe held onto an amateur model longer).

Examples:

North America
Basketball - NBA (US + Canada)
Hockey - NHL (US + Canada)
Baseball - MLB (US + Canada), Mexican League (AAA in Mexico)
Football - NFL (US), CFL (Canada)
Soccer - MLS (US + Canada), Liga MX (Mexico)

The US and Canadian economies are highly integrated even though we have no official political integration. NFL is the only one of the Big Four (or Big Five) that is not cross-border and there is significant pressure for that to happen someday with the Bills and Toronto tiptoeing around that line, but there is also significant political pressure within Canada to remain independent.

Europe:

In Europe we see that all the big countries have their own soccer league. England, Spain, Italy, Germany, France, etc. At the same time, there is the Europe-wide Champions League. There is obvious economic pressure to form a European super-league with just the top teams from each country -- but there is tremendous political pressure within each country to prevent that.

With hockey we see more regional integration with KHL, but also country-based leagues.

Asia:

Baseball - Nippon Pro Baseball (Japan), Korea Pro Baseball, China Baseball League, Chinese Pro Baseball League (Taiwan), Australian Baseball League
Basketball - National Basketball League
Soccer - A-League (Australia), J-League (Japan), K-League (Korea)

I think the economic pressure tends to be for a single, dominant league to control as large a geographic territory as is technically feasible to maximize population base and revenue. Political pressure limits that as autonomous regions and nation-states try to keep control of their local leagues.

The same winner-take-all effect can be seen in FIFA and the Olympics. In those cases a single dominant organization takes over the entire planet. There's no hope of an independent organization challenging FIFA or the Olympics for dominance -- despite the massive fraud and corruption both organizations exhibit. They are so firmly entrenched it's nearly impossible to supplant them.

North America is different from Europe or Asia in that a single country, the US, is so dominant economically. Europe and Asia have more equal-sized countries -- although China's rapid growth will make East Asia look more like North America in the future.

The history of pro sports in each region is a function of the underlying geography and economics and culture. So what happens in North America isn't necessarily applicable to Europe or Asia. But comparing leagues there are a lot of similarities.

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12-21-2012, 01:37 PM
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Originally Posted by cheswick View Post
No. The NHL isn't the employer, the 30 individual teams are the employers. Hence the threat of suing for anti-trust. The teams compete agaisnt themselves for talent.

Not to mention there are numerous professional hockey leagues in North America. and some with teams in cities with the NHL.
the teams are not competing against each other at all. Well maybe the ducks and kings might be competing but the other teams aren't. I think the court systems have failed in this regard. Hockey is competing against other sports and entertainment. The Red Wings aren't competing against the Predators. No one in Nashville is going to become a Red Wings season ticket holder.

That is the problem with the salaries. No player is worth the money they generate. If you got rid of every current nhl player and replaced them with new players in a few years the fans wouldn't care. you would still have stars. I think a smart lawyer could prove this. Nothing is stopping a sidney crosby from playing football or baseball or getting a job in a european league. The problem is the cost of arenas. You could start a new league with teams in the same cities. But where would they play?

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12-21-2012, 01:40 PM
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cutchemist42
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Originally Posted by cheswick View Post
No. The NHL isn't the employer, the 30 individual teams are the employers. Hence the threat of suing for anti-trust. The teams compete agaisnt themselves for talent.

Not to mention there are numerous professional hockey leagues in North America. and some with teams in cities with the NHL.
The NHL is not the sole employer like in the natural monopoly textbook definition. However, when it comes to 1 governing body whether it be a coporation like the NHL or a quasi government/sports association like in European countries, there is always a top flight league who holds alot of power whether it be a small sport or large sport.

Found this interesting, relating to specific teams being natural monopolies or not.

"In the United States, sports leagues and journalists have defended territorial rights by arguing that local teams are natural monopolies. The rationale is that local competition leads to two undesirable outcomes. First, because fans prefer better teams, teams in the same market will engage in an “arms race,” each trying to attract better players than the others in order to capture the interests of local fans.

Second, one team will succeed – perhaps through luck – in being the best, and will attract many fans; however, the other teams, despite participating in the player arms race, will suffer at the gate because they are not the best locally. This argument amounts to the claim that sports is a type of “winner-takeall” product in local markets (Frank and Cook, 1995). The also-rans, therefore, will suffer high costs
and low revenues, and be driven from the market.

Considerable evidence shows that these arguments are false. In leagues without territorial rights, markets with more than one successful team have proven to be stable. In Italy, two teams from Milan played in the 2003 semi-finals for the European Cup and also finished second and third in Italian
Serie A. Although less successful, Lazio and Roma from Rome have had an enduring rivalry. In 2000 the four teams in Milan and Rome were among the top five in attendance for the league


http://www-siepr.stanford.edu/Papers/pdf/02-43.pdf

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12-21-2012, 01:46 PM
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madhi19
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It all about venue control. The price of market entry is too high and an established league always has the option of expanding to cut off any newcomer from secondary or even tertiary market.

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12-21-2012, 01:58 PM
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Fugu
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Quote:
Originally Posted by cutchemist42 View Post
http://en.wikipedia.org/wiki/Natural_monopoly

Do the upper tier of sport leagues result in natural monopolies? Should they be regulated like natural monopolies?

I don't believe it's due to obtaining an efficient cost or economies of scale [hence, no, not natural monopolies], but the fact the barrier to entry is extremely significant. From Wiki:
In theories of competition in economics, barriers to entry, also known as barrier to entry, are obstacles that make it difficult to enter a given market.[1] The term can refer to hindrances a firm faces in trying to enter a market or industry - such as government regulation, or a large, established firm taking advantage of economies of scale - or those an individual faces in trying to gain entrance to a profession - such as education or licensing requirements.
Because barriers to entry protect incumbent firms and restrict competition in a market, they can contribute to distortionary prices. The existence of monopolies or market power is often aided by barriers to entry.
From that list, relevant examples of barriers that aid the sports league's exclusivity:

*Capital - funding a team that can compete for talent (if it were available requires massive amounts of money; and several teams and arenas
*Control of Resources (maybe inputs is the correct term)
*Customer Loyalty
*Network Effect
*Restrictive Practices - Players all bound to NHL, and vice versa; the league approves you for entry, not the other way around
*Other agreements/ownership - arenas


In a different sense, the leagues aren't so much pure monopolies, but have characteristics of cartels, which some people alternatively like to refer to as Joint Ventures-- noting that a JV doesn't necessarily mean anticompetitive practices are required or undertaken.

Note that leagues indeed do all the things a private cartel would do, except that the existence of an union provides a legal vehicle for cartel-like practices. Wiki on cartels:
A cartel is a formal agreement among competing firms. It's a formal organization where there is a small number of sellers and usually involve homogeneous products. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion (also called the cartel agreement) is to increase individual members' profits by reducing competition.
One can distinguish private cartels from public cartels. In the public cartel a government is involved to enforce the cartel agreement, and the government's sovereignty shields such cartels from legal actions. Inversely, private cartels are subject to legal liability under the antitrust laws now found in nearly every nation of the world.

Furthermore, the purpose of private cartels is to benefit only those individuals who constitute it, public cartels, in theory, work to pass on benefits to the populace as a whole.

I put in blue things that one could say the sports leagues do.

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12-21-2012, 02:01 PM
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this is only true for typical US sports like baseball and American football..
you can't say that the NBA holds a monopoly on basketball since there are leagues in Europe paying good money.. the same goes for the NHL and hockey..

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12-21-2012, 02:06 PM
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Originally Posted by robla View Post
this is only true for typical US sports like baseball and American football..
you can't say that the NBA holds a monopoly on basketball since there are leagues in Europe paying good money.. the same goes for the NHL and hockey..


I believe the Sherman Act refers to practices in the US market.

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12-21-2012, 02:12 PM
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cutchemist42
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this is only true for typical US sports like baseball and American football..
you can't say that the NBA holds a monopoly on basketball since there are leagues in Europe paying good money.. the same goes for the NHL and hockey..
I would say though that sport leagues become the top in a region based on travel restraints or country/political restraints. The NHL could go into Europe if they wanted to, but travel limits them to being the top flight only in their region. They only have the monopolistic power in our region.

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12-21-2012, 03:06 PM
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Even internationally there is a winner take all phenomenon with one, or just a few, leagues getting the best and most talent, coaches, fans and money.

hockey - NHL
basketball - NBA
baseball - MLB
football - NFL

All the other leagues on the planet -- even very good leagues -- serve as feeder leagues to the top leagues. Japanese pro baseball is great. But the very best Japanese players still want to come to the Yankees. There is tremendous European basketball and hockey -- but the best Europeans join the NBA and NHL.

Soccer is the exception with the pro leagues in England, Spain, Italy, and Germany all with claims in recent decades to be the best. But even there the winner take all phenomenon is taking place -- just slower because it was 4 near-equals battling it out.

Italy's Serie A has fallen a great deal in recent years -- while England's Premier League and Spain's La Liga have leaped ahead on the back of ever richer global media rights. Given the reality of English and Spanish as global languages, it seems likely we'll have a top tier of two clearly dominant leagues in terms of revenue and global fandom. Although that would be cut short if Europe ever established a true super league.

As it is the Champions League is already clearly the #1 most prestigious annual club competition on the planet.

As media rights fees keep soaring -- the gap between the top two (England and Spain) and the rest of Europe will only grow.

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12-21-2012, 03:07 PM
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Monopolies are good for pro sports in the sense that all the talent accumulates in one league.

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12-21-2012, 03:19 PM
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Monopolies are good for pro sports in the sense that all the talent accumulates in one league.

But bad for consumers because [especially] where demand for the product is high, so are ticket prices. Think of Toronto and their hypothetical 'veto' on second teams in the GTA.

The only way to see NHL hockey live is to pay a king's ransom for the average person. If the broadcasts are also moved to pay-for-view or expensive cable tiers or exclusive networks, it becomes more difficult. Still not illegal, but it's certainly not competitive in terms of offerings and prices.

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12-21-2012, 03:22 PM
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Originally Posted by Fugu View Post
But bad for consumers because [especially] where demand for the product is high, so are ticket prices. Think of Toronto and their hypothetical 'veto' on second teams in the GTA.

The only way to see NHL hockey live is to pay a king's ransom for the average person. If the broadcasts are also moved to pay-for-view or expensive cable tiers or exclusive networks, it becomes more difficult. Still not illegal, but it's certainly not competitive in terms of offerings and prices.
Dont disagree, but you are paying for a luxury product. Price really shouldnt be that big of a deal. It should only be affordable enough to where the business model works.

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12-21-2012, 04:45 PM
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Dont disagree, but you are paying for a luxury product. Price really shouldnt be that big of a deal. It should only be affordable enough to where the business model works.

Agree and disagree. I guess the bottom line is which side are you arguing from? It can be argued as great/awesome of horrible, and all of that would be true depending on which facet you're addressing.

Realistically though the only reason anyone truly worries about monopolies is the potential for abuse because there is no competition and everyone has to pay whatever price is asked-- absent any regulation. Monopolies aren't very good at self-regulation, and realistically could kill off their consumers and themselves.

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12-24-2012, 09:02 AM
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Agree and disagree. I guess the bottom line is which side are you arguing from? It can be argued as great/awesome of horrible, and all of that would be true depending on which facet you're addressing.

Realistically though the only reason anyone truly worries about monopolies is the potential for abuse because there is no competition and everyone has to pay whatever price is asked-- absent any regulation. Monopolies aren't very good at self-regulation, and realistically could kill off their consumers and themselves.
Could it be said then that the NHL is a monopoly due to some abuse of the public and could need some regulation, despite the government not being able to claim the league is not a natural monopoly in the textbook definition?

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