Not required for ECON 3020: only posted here for the curious.
Towards the end of 2010 in the Fall, 2 students started a discussion about antitrust regulation and sports. I told them to hold on, and I'd write them something longer over break. I pasted that below.
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First off, departments tend to specialize in one sort of research or another. One person hires someone they know who does something similar, and so on, until you have a critical mass of people.
At SUU, we have a group that does sports economics. So we have a class, a textbook, and then classes where sports data are used a lot. So if you're interested ... you might have just found your major.
Dave Berri is the big name guy in this group. He recommended that if you want more information, take his class or buy his book. Josh Price does some upper level data classes where he encourages students to use sports data to learn new techniques. One of our newer guys Roderick He is interested in sports economics, but I'm not sure exactly what he likes to do. Our late chair, Kim Craft, came from a horse breeding family, and was interested in horse racing economics. Mark Evers, whose only here for one more semester, is interested in baseball (although I don't know if he's done any research, or just reads up on it). And (I'm the oldest now and) I kinda' started it all because I did some football and baseball stuff in the 80s, 90s, and 00s ... and was in charge of the hiring committee and saw Dave Berri's name in the stack and thought "we gotta' get this guy" and we did.
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Also keep in mind that I'm biased: being from Buffalo, I know a lot of Buffalo sports history. And that's tied up with antitrust in MLB (in two ways), and the NFL (in two ways). I also lived in New Orleans for most of the 90s, so I know that history pretty well too.
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So, organized league baseball goes back to Reconstruction. And there were other major leagues. One, the AL, was a successful upstart. Another, the Federal League, failed. For a century there have been relatively fixed major and minor leagues (MLB is the
abbreviation for Major League Baseball, composed of two leagues). If you've ever wondered why there are some smaller northeastern cities that have MLB teams but can't sustain teams in all the other sports (Cincinnati, Pittsburgh), and why other cities that can sustain teams in other sports but don't have an MLB team (Buffalo, Columbus, Indianapolis), this is part of the reason - they were in leagues that failed. Another little known reason for the cities that had clubs back then was their locations along the two big passenger railroads: the Pennsylvania and New York Central ... which both ran as far as Chicago and St. Louis. And the cities at the ends of the line usually had more than one team to make the road trips worthwhile.
Anyway, the Federal League sued the NL citing abuse of monopoly power under the Sherman Antitrust Act. The Supreme Court ruled against them. They argued that baseball was not subject to a federal/national law because the travel across state lines was incidental to the game (a not-so-good minor team could play all its games in its state, and be subject only to state laws, but then a team that was better/major to play out of its state shouldn't be judged differently). Also, back then, the 10th amendment was taken more seriously; basically it wasn't viewed as the federal government's business. That was in 1922. In the 1950's, the courts refused to undo this ruling, noting that it's a legislative job to do that, and no one had done anything, so it must still be fine. In the 1970s, the 1922 decision was partially reversed, giving rise to the free agent market we still have. Although, the basic position that MLB is a monopoly, and has legal protection to keep its monopoly, until Congress legislates otherwise, still holds.
One implication of all this is that since MLB is a monopoly, and the clubs are just "components", they can decide amongst themselves how to operate. A lot of the big-market/small- market issues in contemporary MLB comes from the sale of television rights to home games, which are worth more in a bigger market. It's also why there's been much less movement of successful franchises, because the league/owners can block them. It's also why some awfully good bids for expansion cities have been blocked (e.g., Buffalo), since MLB gives existing owners a veto of cities that might compete for fans. The existing owners also love that the monopoly status means they can get top dollar for expansion slots from prospective owners (e.g., Miami). And, many would argue that it's led to a decline in the product as MLB has become more owner-run than commissioner-run over the last 30 years.
The NFL has not been so lucky. Keep in mind that the NFL was not a popular league before the 1958 title game, which was broadcast on TV nationwide (videotape didn't exist then, so only bits and pieces of that can be found on YouTube). College football was a much bigger operation back then. And even Canadian football, which was the first to be broadcast widely on TV, was a serious competitor.
Here the upstart league was the AAFC in the late 1940s. They had richer owners, and were using all the pilots and planes from World War II to have a league that involved more of the country. The NFL's approach was to blacklist everyone involved, and then they cut sweetheart deals with just the owners. The 49ers, and what are now the Ravens got into the league that way.
Out of that came Radovich's suit, brought under the Clayton Act. Radovich had been blacklisted. He won the suit, and a between-the-lines reading of the Supreme Court decision is that baseball's monopoly exemption was kinda' dumb and they shouldn't do it for another league.
But that opened the doors to a competing league, the AFL, which from day one was a pretty serious organization with a lot of deep-pocketed and patient owners.
The new NFL commissioner, Pete Rozelle, did something amazing though. Lower courts, following the Radovitch precedent, had ruled that the NFL could not negotiate a joint TV contract. Rather than appealing to higher courts, Rozelle got the owners to agree, and then pushed through Congress the Sports Broadcasting Act of 1961 which said a league did have a limited monopoly right to bargain as a group for a group TV contract (in the same way that workers can form a union to collectively bargain without being considered in violation of the Sherman or Clayton acts). And they got one in 1961 and ever since the NFL has had games on national TV on Sunday. It's also the reason that NFL and college games aren't generally shown at the same time.
Part of the problem with the AAFC had been the ridiculous domination by the Cleveland Browns (now the Ravens). The AFL was lucky to avoid that, with mini-dynasties in Houston, then San Diego, then Buffalo, then a Chiefs/Raiders/Jets era. Part of the reason they created the Super Bowl was the sense amongst sportswriters that the 1964-65 Bills might have been able to beat the NFL champions during those years. The Bills faded a bit and lost the next championship at home to the Chiefs, who went to the first Super Bowl and got clobbered (the entirety of that game was reconstructed from various sources a few years ago, and the Chiefs hung pretty well with the Packers until the 3rd quarter). But, of course, the AFL won 2 of the first 4 Super Bowls and then dominated the 70s, proving they'd developed a competitive product. So, another win for the upstarts' owners.
Legally though, what brought the AFL and NFL together was another lawsuit. Dallas was not that big a city then (Boston and Buffalo were the bigger, new football markets, the new league brought). Lamar Hunt, the key founder of the league, put his team in Dallas. The NFL responded by awarding an expansion franchise to the Cowboys. Hunt saw the proverbial writing on the wall and moved the team to Kansas City. And sued. Instead of going to court, the leagues quietly negotiated a merger.
The other thing with the AFL was that the owners were rich enough to stick it out, and there were no shenanigans with teams going bankrupt, or players not getting paid.
In other sports, the NBA and NHL never have had any antitrust exemptions. So alternative leagues were a real problem for them. From the mid 1960s the ABA competed fairly successfully against the NBA, mostly based on a more interesting game (the Will Ferrell movie is mostly fictional). And, at least initially, the WHL in the 1970's competed successfully against the NHL, but rising energy costs created big problems for the business of indoor ice rinks (lots of smaller Canadian markets didn't help). Without the antitrust exemption, decent organizations from both leagues were folded into the older leagues, so those were wins for the business model of starting a new league and lasting long enough to be brought in. And lots of players from both leagues became stars, and even Hall-of-Famers in the NBA and NHL (e.g. Dr J. and Wayne Grtezky).
In the 1970s another upstart football league formed, the WFL. It signed some players from NFL teams, but kind of jumped the gun a bit financially. It had no national TV coverage. The people behind it were involved in the ABA and the WHL and the formula just didn't work this time (it's tougher in football because there's a lot fewer games to sell tickets to, so TV ad revenue is a bigger deal). In retrospect, the owners in the league were suspect. And there was a lot of lying about paid attendance. The league collapsed on its own. No lawsuits or antitrust issues needed. The two most solvent franchises, Memphis and Birmingham, wanted to be bought into the NFL, but it wasn't really in the works. Although the Memphis team did sue the NFL and lost ... a lot of its people ended up with the Giants. I was little when this all took place, but I do remember that the WFL was rarely on TV. The quality of the product was not great either: very few decent players (e.g., Danny White who quarterbacked the Cowboys, and Alfred Jenkins who was a starting wide receiver for some pretty good Falcons teams), and no hall-of-famers transitioned from the WFL to the NFL. Quite a few coaches got a leg up from the WFL (e.g., Jack Pardee, Lindy Infante, Marty Schottenheimer, Jim Fassel).
The USFL of the 1980s was a different story (do not mistake it with the current version, which paid for the rights to names and uniforms). The idea for it had been percolating for almost 20 years. The guy who dreamed it up, David Dixon, was a longtime respected pro sports entrepreneur: he was early in the AFL, instrumental in getting the Saints as an expansion team, dreamed up the Superdome (which is still a first rate venue that's busy year round), helped professionalize tennis, and developed the idea of the USFL. Initially, they were very different. Deep pocketed owners, willing to take it slow ... following the AFL story. National TV contract from day one. Teams had regional rights to players to prevent bidding wars. Signed lots of good players, and not just at ball-handling positions. Played in the spring so they could get a dedicated fan base. Located in some solid, smaller, markets: Memphis, Birmingham, Tampa (the Buccaneers were still pretty much a horrible expansion team at that point, and the ownership group had been involved with Memphis in the WFL), Oakland (which had lost the Raiders), Phoenix (which didn't have the Cardinals yet).
I may be a little biased. I was a football fanatic back then, and had some personal reasons to watch the USFL. So I pretty much watched every game that was broadcast. They get a bad rap these days: a lot of those teams were playing solid football from day one, and there were some that made some innovations that the NFL was unwilling to make (like only the QB in the backfield, and smaller receivers). And people have forgotten how many people came over to the NFL after the USFL collapsed, and were successful: Hall-of-Famers like Reggie White, Steve Young, Jim Kelly, Sam Mills, Gary Zimmerman, Marv Levy (a coach), and Bill Polian (a GM).
But, the owners were arguably too free spending. Without an antitrust exemption, a league is more like a cartel than a monopoly. And cartels break down because the owners make decisions that drive their operations towards zero profits (e.g., the USFL champions the first year were also the biggest money loser because they overspent on players). So the character of the league started to change, and so did its decision-making. Extra expansion slots were offered to raise cash. New owners fibbed about their net worth. Teams couldn't get decent stadiums, often because baseball teams didn't want to share space in the spring.
Then, bizarrely, they voted to switch to an autumn schedule for the 4th season. The motivation for this was an argument that a merger could never take place if the leagues played at different times of the year. And they sued the NFL. A bunch of teams folded right away, because they didn't feel they could compete with NFL teams already in their markets (like Denver, and Chicago - the Bears were the most popular team nationwide at that time). Also, without a spring season in 1986, the players had 14-15 months off to think about it, and about 2/3 of those that ultimately made the NFL bailed before the case went to court (including immediate starters around the league like Bobby Hebert, Craig James, Kevin Mack, and Anthony Carter)
The thing is, the NFL mostly let the USFL do its thing. They pursued a much more hands-off strategy this time around.
By then it was clear that the strategy of the group of dominant USFL owners, led by ... wait for it ... Donald Trump (one of the overspenders) was to win punitive damages in court, or settle for a merger to solidify the value of their team.
The case went to court, and the jury decided that 1) yeah, the NFL was a monopoly that had tried to harm the USFL, but 2) they hadn't really done much damage (the USFL had been offered 2 network contracts for spring of 1986 and declined them both), and the prime culprit was poor decision-making by the dominant owners group (who didn't have a TV contract for fall 1986). They awarded the USFL owners damages of $3. Yes, you read that correctly. The league folded a few days later.
This was during NFL training camps for the 1986 season, and the NFL teams snapped up the best remaining USFL players right away. The Redskins took the most, and then won 2 Super Bowls in the next 5 years. The Bills got a bunch too, and of course made it to 4 straight Super Bowls with a couple of starters from the USFL. The Cowboys got Hershel Walker, who put in a few good/great seasons, and then got traded for a bunch of draft picks that formed the core of the team that won 3 Super Bowls in 4 years (Emmett Smith and 4 defensive starters).
A check for $3.76 (including interest) was eventually sent to the former USFL owners in 1990.
Since then, there have been zero leagues that have tried to compete directly with any of the 4 big sports leagues. The reason appears to be that the formula used by the NFL against the USFL worked, and that juries could see through the bad decisions that oligopolists often make.
So, probably more than you expected to get. Feel free to reply back with any questions.
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