The Economics of Sport and the Media

International Journal of Sport Communication, 2007, 1, 127-131 2007 Human Kinetics, Inc. The Economics of Sport and the Media Edited by Claude Jeanrenaud and Stefan Kesenné. Published 2006 by Edward Elgar Publishers. $85.00, 203 pp. Reviewed by Joel G. Maxcy, University of Georgia, USA Claude Jeanrenaud and Stefan Kesenné, editors of The Economics of Sport and the Media, point out in the introduction to their collected volume that most sport spectators are now watching their games on television. This statement underscores the importance of sport broadcast and media markets as not just a vehicle by which fans consume sporting events but also as potentially the most important source of revenue to the organizations that produce and sell sporting events. This volume of 10 chapters, each penned by a respected sports economist or sport-policy analyst, is of particular importance because it provides a constructive comparison with perspectives from both Europe and North America. The material is presented in a straightforward manner, largely free of economic jargon, and comprehensible to academics from a variety of fields, as well as interested professionals. The fundamental unit of analysis in most economic studies of spectator sports is the live gate the sum total value of ticket sales permitting fans access to seats in the stadium or arena by which to witness the event in person. A wealth of economic studies examining the production and demand for sport has focused on this facet of the market for sport events. Indeed, it can be put forth that this is appropriate because complementary markets to sporting events, such as concessions, stadium signage, and sponsorships, derive directly from the live gate. Media and broadcast markets are likewise complementary but also consumption substitutes for live attendance. The characteristics that determine the demand for the media and livegate products are very similar fans/consumers want to see great performances, exciting games, home-team connections, and so forth. Notwithstanding, there are economic issues unique to sport-media markets, and although they are not ignored in the sports-economic literature, the presentation and discussion of these matters is to date deficient, and that is substantially rectified with this volume. The importance of analyzing the economics of the sport media must not be discounted. This collected volume goes far in compiling a fundamental history of sport broadcasting, particularly the chapter by Staudohar that traces the history of baseball broadcasting in the United States. In addition, the book provides a thorough understanding of the economics of sport-television broadcasting and offers policy alternatives to the revealed problems. The focus is not, however, universal; the main topic is the television-broadcasting markets for team-sport leagues, professional football (soccer) in Europe and the four major North American team-sport leagues: Major League Baseball (MLB), the National Football League (NFL), National Basketball Association (NBA), and National Hockey League (NHL). The work offers coverage of the broadcast markets for other mega-sport events whose 127

128 Maxcy rights are controlled by international governing bodies, such as the Olympics and the various international football tournaments. Individual sports such as tennis and golf, although not willfully ignored, receive less attention. Missing altogether is Internet delivery of sporting events, which Humphreys (2007) points out might be organized much differently than traditional media. Taken as a whole, the collection is particularly useful for its assessment of television-broadcast market outcomes given quite different methods of team-sport league organization and alternative legal systems and state regulatory policies. Promotion and regulation in Europe s open-membership leagues leave membership less stable over time in comparison with the closed-membership leagues of North America. Competition (antitrust) policies and laws between the two continents are much different. Europe has no equivalent of the Sports Broadcasting Act (SBA), which allows North American team-sport leagues an antitrust exemption for the joint (league-pooled) sale of broadcast rights. Pooled arrangements are permitted in Europe but subject to regulatory review. Furthermore, the rights to the public, or free-to-air, broadcasts in North America are privately held by large broadcast corporations, whereas in Europe the free airways are typically state owned and less competitive with pay-television alternatives in the bidding for broadcast rights. A central theme of this collection is the question of the legal status of the property right to transfer the broadcast rights specifically, whether the right should be held by each individual club owner or by the league to jointly sell the rights to television networks. The historical norm is that despite the joint production of teamsport events, the individual (home) club is the appropriate legal entity and holds the property rights to the revenues generated by an event. The SBA, enacted in 1961, ensures the right of North American professional team-sport leagues to pool and sell broadcast rights jointly, free of antitrust scrutiny. In practice, however, only the NFL sells all television broadcast rights as a joint endeavor. MLB, the NBA, and the NHL each represent a combination of individual and joint broadcast contracts. The property-rights question provides a paradox. League-assumed rights, or joint selling, might run counter to competition policy because such contracts potentially create monopoly power that limits consumer choices and increases prices. Nonetheless, there are potential consumption benefits; in addition to reducing total transactions costs, such arrangements permit a more even distribution of revenues across clubs, improving competitive balance and providing consumers a better product. This assumes fan preferences for the uncertainty-of-outcome hypothesis. Chapter 1, by Gerrard, and chapter 2, by Andreff and Bourg, speak directly to the issue of within-league competition given the alternative of league-pooled versus individual-club sale of broadcast rights. Each provides a convincing argument that competitive balance in European football leagues has suffered when individual club owners retained and sold broadcast property rights. The second chapter includes supportive empirical evidence that this consistently holds for domestic football leagues across Europe. Because the individual sale of rights increases the disparity in market size, competitive-balance problems are amplified. These authors favor interpretation of competition policy that allows for joint sales of broadcast rights. The findings are consistent with economic studies of MLB. The North American sport most reliant on revenue from individual-club sales of broadcast rights has

Review of The Economics of Sport and the Media 129 seen some deterioration in competitive balance as disparity in the values of such individual contracts has increased since the early 1990s (see Hadley, Ciecka, & Krautmann, 2005, for example). A chapter by Fikentscher provides a twist on the consideration of joint arrangements under European competition law. He analyzes a joint purchasing group The European Broadcasting Union formed to counter joint selling by football s governing bodies (e.g., UEFA and FIFA). He provides a European Union adaptation of the rule of reason test, under competition law, which establishes that the procompetitive effects of the joint purchasing of broadcast rights are significant, whereas anticompetitive effects are marginal. Notwithstanding, joint arrangements are subject to criticism as monopoly on both sides of the Atlantic. Joint sales of broadcast rights create significant market power for the leagues and organizations selling those rights. Chapters by Solberg and Desbordes point out that the escalation in the costs of rights fees in the 1990s transferred nearly all rents to, and all risk from, the organizations and leagues that sell off broadcast rights at the expense of the networks and broadcasters who purchase the rights. It is maintained that the increased costs result not only from increased competition among rights buyers but also from the increased incidence of joint selling over this time period. The increased risks and costs to broadcasters do not inevitably bring harm to consumers, but broadcasters will certainly attempt to pass on the higher costs, and it might well reduce consumers choices. One result is that the free-to-air broadcasters are less willing and able to compete for contract rights, a point also addressed by Syzmanski. Furthermore, a chapter authored by Forrest, Simmons, and Buraimo strikes a blow against joint sale of rights as a prescription to improve the product offered consumers by way of better competitive balance. Their empirical analysis of the determinants of demand for television broadcasts of English Premier League football finds that uncertainty of match outcome does not factor into fans decisions to view a broadcast of a game. Comparison of the North American and European systems reveals a second conundrum. Despite the antitrust exemption established by the SBA, which effectively allows sports leagues to limit broadcasts, sport-broadcast consumers in North America have far more opportunities to view sports broadcasts, and most often with much lower cost on free-to-air television. Syzmanski addresses this issue in his chapter and extracts some valuable insights. He allows that consumer tastes, representing more diverse sport interests in North America; economies of scale, brought about by more and larger TV markets; and the willingness of North American leagues, particularly the NFL, to modify the games to suit broadcaster s needs are all plausible explanations for the result. Nonetheless, he believes that the history of broadcast regulation in the United States, which fostered the development of strong competitive free-to-air television networks, as opposed to the European model of state-owned monopoly networks, is the primary factor. Once open to competition in the 1980s, pay-television providers quickly dominated European sports-broadcast markets. The strong free-to-air corporate television networks in the United States (ABC, CBS, NBC, and Fox) remain able to offer very competitive bids in the broadcast-rights markets of North America. Syzmanski warns, however, that the development and success of new broadcast industries such as satellite

130 Maxcy television suggest that premium rights will become more evident in North America as the monopoly leagues will be able to extract more money from their consumers. He implies that this does not necessarily provide a social benefit. Zimbalist follows up on the analysis of North American markets with further concerns about market power in the cable-television industry and its adverse affects on consumers. He points out that there has been a significant movement of televised sporting events, especially MLB games, away from the free-to-air broadcast networks and toward pay cable television since the late 1980s, because the dual revenue steams of subscriptions and advertising are attractive to the sports industry. He addresses a number of important monopoly-power concerns specific to the cable-television industry. He questions whether standard cable-system practices such as the bundling of channels should be legal, and even whether the SBA legally extends beyond the free-to-air broadcast networks. Vertical-integration issues are at the forefront. In North America broadcast and cable companies have a long history of owning team-sport clubs, and we are now seeing increasing vertical integration of regional sports networks. Zimbalist argues that this practice is often detrimental to consumer welfare and might even harm the integrity of competition within a sport league. It therefore should face stricter antitrust scrutiny. Taken as a whole, the chapters in this book allow one to draw noteworthy inferences about monopoly power and competition policy in sport broadcasting. The joint sales of league-pooled rights might offer the benefit of better talent distributions and reduced costs, but we should be wary of the market power created by such arrangements, principally adverse effects on consumers. The SBA, which permits the monopoly practice of joint sales, is generally regarded as a success in the United States. Much of this might be because the NFL, which motivated the law, has a business model that is held in high regard by the sports press. In addition, there is a history of access to televised sporting events at comparatively low cost for North American consumers. Nonetheless, the consumption benefits enjoyed by American consumers are a result not of the SBA but rather of the history of significant competition in the market for rights by the free-to-air television providers. A regulatory environment that has long advanced free-to-air broadcast networks is the most credible explanation. Furthermore, we should be aware that the current regulatory environment is tipping the balance toward the leagues and away from consumers. Simple examination of the cable industry in North America shows that fans are paying higher prices and receiving less access, and regulation favors this pattern. Consumers should be wary that times are changing, and the combination of monopoly leagues and monopoly media-rights holders does not bode well for their interests in the absence of appropriate regulation. In conclusion, The Economics of Sport and the Media sheds light on the important policy issues facing the sport-broadcast industry. Monopoly issues and public-good aspects predispose broadcast markets to government regulation. This volume brings together a very useful comparison of the European and North American systems and corresponding research perspectives. The book should serve as an important reference that will drive scholars and policy analysts to conduct important research in this crucial segment of the sport industry.

Review of The Economics of Sport and the Media 131 References Hadley, L., Ciecka, J., & Krautmann, A. (2005). Competitive balance in the aftermath of the 1994 players strike. Journal of Sports Economics, 6(4), 379-389. Humphreys, B. (2007). Book review: The economics of sport and the media. International Journal of Sport Finance, 2(2), 119-120.