No. 75 Should Congress Stop the Bidding War for Sports Franchises? Volume 2: League Commissioners

Published August 1, 1996

On November 29, 1995, the Subcommittee on Antitrust, Business Rights, and Competition of the Senate Committee on the Judiciary held hearings on sports franchise relocation. Four panels–federal policy makers, sports league commissioners, municipal authorities, and academics–presented testimony to the committee. That testimony has been reprinted in four volumes [Heartland Policy Studies #74-77] and is summarized here.

1. Federal policy makers: Congress should act to reduce the frequency of sports franchise relocations.

The 1961 Sports Broadcasting Act gave the four major sports leagues a limited antitrust exemption, allowing them to pool their separate broadcasting rights for sale to a single purchaser. According to Representative Martin R. Hoke (R-Ohio), “the quid pro quo for Congress granting sports leagues the special exemption from antitrust laws was that it would create stability, and protect communities and fans.” Thus, says Hoke, “it is perfectly appropriate, even compelling, that Congress . . . should now intervene to stop the exploitation of fans and cities and attempt to stabilize the leagues.”

Senator Byron L. Dorgan (D-North Dakota) questions “whether the American taxpayers ought to be asked to provide housing for these sports teams through the use of tax-exempt bonds.” Dorgan and Representative Louis Stokes (D-Ohio) both note that local governments “struggle to provide such public services as schools, libraries, police and fire protection, and other essential community services while millions of dollars are diverted to retain or attract sports teams.”

The Fans Rights Act, introduced by Senator John Glenn (D-Ohio), Senator Mike DeWine (R-OH), Congressman Louis Stokes (D-OH), and others, would give fans, communities, and sports leagues more control over sports franchise relocation. The Act would provide for a very narrow antitrust exemption shielding a professional sports league from a lawsuit if the league blocks a relocation; require that teams intending to relocate give a community 180 days notice and hold public hearings during that time; and give the community an opportunity to present bona fide offers to purchase the team or induce it to stay.

Heartland Policy Study No. 74: Federal Policy Makers

2. Sports league commissioners: Protect leagues against antitrust claims.

Commissioner Paul Tagliabue (National Football League) contends that league rules governing franchise relocation are sufficient to protect against unjustified team moves . . . if only league decisions were protected against antitrust actions filed against them by team owners.

In 1982, a federal circuit court allowed the football Raiders to abandon Oakland, over the NFL’s objection, and awarded the Raiders $50 million in damages to be paid by the league. Prior to the Raiders litigation, according to Tagliabue, “a sports league franchise was viewed as a license to serve the league’s fans and to play league games in a prescribed geographical area. A franchise was the means by which the league created a stable, continuous relationship with a community, subject to change only by league decision.”

Since 1982, the leagues have been afraid to stop or slow down franchise relocations. Commissioner Gary Bettman (National Hockey League) notes that the leagues themselves “are not seeking any affirmative action by Congress.” But if Congress chooses to intervene, he and Tagliabue concur that the only action necessary would be an expansion of the leagues’ antitrust exemption.

Heartland Policy Study No. 75: League Commissioners

3. Municipal authorities: Save us from extortion.

Houston Mayor Bob Lanier, whose Oilers football franchise will be moving to Nashville, says that the NFL engages in “the extortionist practice of threatening moves unless taxpayers give them expensive stadium improvements or a new stadium.” As a result, “The average working person is asked to put a tax on their home, or pay sales or some other consumer tax, to build luxury boxes in which they cannot afford to sit.”

Cleveland Mayor Michael White, whose Browns football franchise will be moving to Baltimore, agrees. “The 1990s have unveiled an alarming trend in stadium financing,” he notes. “For most of this century, cities only replaced stadiums when the facilities became structurally obsolete. Recently, however, owners are deserting perfectly sound structures on the alleged grounds that they are economically obsolete.” The Browns decided to leave Cleveland, according to White, despite “the unquestionable fan loyalty to the Browns. . . . The betrayal of Cleveland touches a raw nerve not just in Northern Ohio, but all over America.”

John Moag, Jr., Chairman of the Maryland Stadium Authority, offers a different perspective. His city lost the football Colts in 1984 (to Indianapolis), but recently attracted the football Browns (from Cleveland). It is Moag’s belief that Baltimore “deserved” to lose the Colts; “it was the failure of our local and state elected officials in Maryland to provide the Colts with a firm proposal for a new stadium that led Mr. Irsay to accept an offer from Indianapolis to play in a new dome in that city.” Congress, says Moag, “cannot and should not attempt to manipulate this most basic of market factors.”

Heartland Policy Study No. 76: Municipal Authorities

Gary Roberts of Tulane Law School supports the leagues’ request for a limited antitrust exemption for decisions relating to franchise location or relocation. But that is an incomplete solution, because the leagues themselves have inappropriate power in many markets. “The salaries that players and coaches command, the subsidies that teams can extract from local communities, and even the street value of a Super Bowl ticket all suggest that leagues exercise tremendous and arguably monopoly market power in several markets.” He argues that the “remedy for the natural market power that major sports leagues enjoy is to treat leagues in exactly the same manner that government treats all natural monopolies–that is, to regulate them.”

Stephen F. Ross of the University of Illinois contends that major sports leagues are not natural monopolies. He insists that the market power of the National Football League, in particular, is the direct result of a 1966 decision to allow the NFL to merge with the AFL. “Time has shown that Act to be a mistake that should be corrected by Congress. If two or more rival major leagues made their own independent determinations concerning expansion and relocation, the result would be the end of ‘franchise free agency’ and the end of massive exploitation of taxpayers.”

Ross believes “a viable cause of action could be brought under current law against the entire system of NFL rules that, in my opinion, unreasonably restrains and channels trade and competition.” For example, the NFL’s revenue-sharing rules require that revenue from live gate, television, and souvenirs be evenly shared by the leagues’ teams, but teams are permitted to keep for themselves income from luxury boxes and other stadium revenues. “The combined effect of these rules is to dampen incentives to increase live gate income, broadcast ratings, or popularity of team jackets and other paraphernalia, while maximizing incentives to relocate or otherwise exploit local taxpayers.” These rules, says Ross, amount to unreasonable trade restraints.

Recognizing that Congress is unlikely to require that the National Football League split into two competing leagues, Ross proposes two lesser solutions:

  • Prohibit tax subsidies to lure or retain franchises. “It seems entirely appropriate for the same national legislature that granted a special antitrust exemption to allow the creation of a monopoly football league to insist that such a league not play one community off against another through tax subsidies.”
  • Require luxury box income to be shared by all members of the league. “One way to correct this problem, and take away a significant incentive for owners to relocate, would be to require that stadium-related income be shared with co-owners to the same degree as other principal sources of revenue.”

Robert Baade of Lake Forest College says “nowhere is the exercise of sports’ excessive and potentially destructive financial ambition more apparent than in the construction of new sports stadiums.” He points out that “the modern stadium caters to a more elite audience while at the same time asking for public support,” and a new stadium complex can “resemble a small walled city” that deprives the surrounding neighborhood of any economic benefits.

Baade summarizes his own research showing that professional sports franchises and new stadiums produce few economic benefits. Economic impact studies that suggest otherwise usually fail to consider that most spending is merely shifted from other parts of the local economy or, when highly paid athletes live outside the area, is exported away from the community. He recommends three reforms:

  • “Perhaps cities should request federal legislation that would prohibit the use of state or local government funds to attract a franchise currently residing in another city.”
  • “[C]ities that are abandoned by a team . . . could be compensated by the league. In such an instance, an expansion club could be immediately awarded the abandoned city, and that city would not be required to pay a franchise fee for that team.”
  • “Perhaps legislation could be drafted to encourage local ownership of franchises. In this regard, the local ownership of the Green Bay Packers could be used as a template.”

Heartland Policy Study No. 77: Academics

Based on “Should Congress Stop the Bidding War for Sports Franchises?” Heartland Policy Studies #74-77 (Chicago, IL: The Heartland Institute, August 1996). Copies of the studies are available from The Heartland Institute for $10 each or $25 for all four volumes. You can also download the full text, free of charge, in Adobe’s PDF format; click on the links in the Executive Summary above.

Permission is granted to reprint or quote from this Executive Summary, provided appropriate credit is given.

Copyright 1996 The Heartland Institute. Nothing in this Executive Summary should be construed as reflecting the views of The Heartland Institute, nor as an attempt to aid or hinder the passage of any legislation. Permission is hereby given to reprint or quote from this Executive Summary; please send tearsheets to The Heartland Institute, 19 South LaSalle Street #903, Chicago, Illinois 60603.

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4. Academics: Many approaches are available to stop the bidding war.