South-Western College Publishing - Economics  
Not Every Team May Win, But The National Football League Sure Knows How To Operate A Cartel Successfully
Topic Oligopoly
Key Words National Football League, professional sports, cartel, cooperation
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Reference ID: A145027485

News Story The National Football League (NFL) has shown that it can operate a cartel successfully--so much so that other professional sports leagues like the NBA, NHL, and MLB can only sit on the sidelines and hope someday to be able to adopt the NFL's practices.

Since 1990, the NFL has been able to limit labor cost increases to only 9%, compared to 12-16% for the other three professional sports leagues in the U.S. - basketball, hockey and baseball. Further, the NFL has the highest revenues of the four, as well as the highest popularity, and sports an average team market value of 4 times revenues, compared to only 2-3 for the other leagues. Why?

First, it's had an exceptional leader in Paul Tagliabue, the departing NFL commissioner. He was extremely successful in getting the team owners to think collectively, as opposed to individually. In fact, teams share 70% of revenues with each other, and maintain a strict cap on total players' salaries. This gives each team the ability to be financially viable, even in small markets.

Second, most decisions are made collectively. Television rights are negotiated as a whole, rather than by individual teams. This allows the NFL to pit networks against each other. Collective decision-making also lowers risk. A team can have a bad year, and still remain profitable, allowing it to be competitive for the next season.

Third, unfortunately for the individual players, football players tend to have short career spans - only about four years. This makes it difficult for a players' union to build up and have much power over management, owing to smaller increases in players' salaries over the last 20 years. Baseball players, on the other hand, have much longer careers, allowing the players' union to have much more clout in negotiating with owners in the decision-making process.

Other sports leagues have tried to model themselves after the NFL, but with limited success. Baseball teams tried to engage in revenue sharing, but the wealthier teams were unwilling to part with significant sources of revenue. The same happened to the hockey league. Wealthy teams did not want to give up their money for the collective good of the sport.

Questions
1. Should the NFL be considered a cartel under antitrust legislation? Why or why not?
2. Does such an agreement create an incentive for a team to free-ride on the other teams?
3. The NFL has seen 17 new stadiums built since 1987 around the country. What impacts does this have outside the stadiums?
Source "In a League of its Own." The Economist April 27, 2006.
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