Fighting over the ball

Judging from comments last week, this opinion piece of mine in The Age today is likely to upset many. How dare I suggest that sports organisation might different. Anyhow, read carefully. I am just suggesting that they need to go through the same processes as business to get exemptions from our competition laws and that there is a case to be made. Also, these ideas have a solid research base in sports economics. See, for example, the work of Roger Noll (here and here and here).

No level playing field for TV rights

The Age, 30th July, 2007.

Home teams should sell their own broadcast rights in a competitive market, says Joshua Gans.

THE C7 decision announced on Friday may have looked like a victory for “The Rest of the Media” team against Seven but with $200 million in costs still to be split up and over a year of court time lost, victory is surely bittersweet.

The judgement reads like a schoolyard brawl — fought out under the rules of the Trade Practices Act. In actuality, there were no little guys being protected, and where the consumer really stands in all this no one really knows.

But the issue in the C7 case is not all this. That is really a sideshow to the cause of it all; the prize of rights for NRL and AFL television broadcasts. But the question I have is: why does this prize exist?

In normal industries, when an entity has something to sell, they sell it and compete with similar companies in the marketplace. There is rarely a winner or loser. The companies compete and get a share of the rewards. In the process, consumers and others also get their share. The system works so well that our competition policy’s entire rationale is to protect it.

But sports such as the football codes in Australia don’t fulfil this picture. The natural competitive entities are teams. They are independently owned and managed. They have prices for ticket sales, they have employees (the players) and they have profits to accrue.

But for one of their main commodities, television broadcast rights, they cede control over the marketing and pricing to a supra-organisation. That organisation collectively deals with television and cable networks.

In any other industry, those “consumers” would be screaming about the collusive nature of the cartel. But as the C7 case shows, for some reason, they take the prize as a fact of life and then bludgeon each other in order to win it.

It need not be this way. Picture an alternative arrangement whereby home teams were responsible for selling broadcast rights. Carlton might sell its rights to Ten and Collingwood might sell its rights to Seven. Fans would have more options in terms of watching their favourite games. Teams that could generate the most devoted fans would reap the rewards.

But here is the kicker: broadcast rights could not lock a network out of the game. The likely scenario is that each would get a share. This is precisely what happens in some European soccer markets that do not have these arrangements.

Sometimes it is argued that “equality” is why such arrangements exist, so that the weak teams get some of the benefits. But because rights are with home teams, the weak teams will benefit when the more popular ones come to play.

It is surely time for the Australian Competition and Consumer Commission to take a closer look at these arrangements and sort out if they actually comply with our competition laws.

It may be that there are public benefits to having power over broadcasters — and for that matter, players — that outweigh the loss of usual competitive forces. But to give them a free kick does not seem fair in the world of business. Dare I say it, it may be un-Australian.

Joshua Gans is professor of economics at the Melbourne Business School. He maintains a blog at economics.com.au

3 thoughts on “Fighting over the ball”

  1. Hello Joshua,

    I really enjoyed this piece, but I think that your proposal to reward home teams for the TV rights would see the poorer teams suffer in a competition regardless of the compensation they would recieve as the host. I also think that such a proposal would treat the producers of the “product” that is the game differently to the producer of other products in the market, and this highlights the difference between the two activities.

    To the first point, I think it is sensible to assume two different classes of sportsfans – the die hard fan who would watch all matches played by their team, and the big game fan who watches matches between highly skilled teams but who avoid matches between highly placed and lowly placed teams because of the lack of competition, or between two lowly placed teams because of the lack of skill.

    The best clubs would more frequently get both types of fans viewing, but the worst clubs will generally only get the die hard fans viewing. This would lead to decreased revenues for the lowly placed clubs which could potentially prevent them from attracting better places which will reinforce their status as a lowly placed team.

    This could be fixed with some sort of proportional tax on TV earnings that is redistributed by the league, perhaps, but this would move the model further away from the realities of a fully competitive business environment.

    To the second point, it is also not clear to me why the home teams should get the revenue. This also seems contrary to intuition if you are trying to sell the TV rights as a product similar to other products. If Company A works with Company to produce a widget, and Company A contributes 80% of the resources to make the widget, Company A would expect to recieve 80% of the revenue, all other thing being equal.

    But in your example, with two unevenly matched teams, the better team might contribute 80% of the skill/talent to produce the spectacle, but if playing away, they would bet no revenue for it. Even if, at the end of the season, the revenue evens out for all clubs, the better teams would be contributing more than the worse teams, and yet their revenue would be the same.

    Broadly, I think that sports administrators are interested in particiant equality to a far greater extent than “market” administrators and this is why sport is different to business and needs to be treated differently.

    Anyway, thanks for the article.

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  2. Me too. As a critic of the former post, this was music to my ears. In short, (subject to revising my views if someone gives me a good reason to) I like the collusion where it leads to greater equality of payment between the players. And I’d like it even more if it led to greater equality between players incomes and the rest of us. Not that that’s the only thing in life, but in sport there are so many other rewards that there are no reasons to hand out more at everyone else’s expense. If I understand what you’re proposing correctly I expect that it reduces total returns to the AFL (and its clubs)and returns them to the public (via lower advertising costs) which seems like a good idea to me.

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  3. Joshua,

    ‘Interesting’ that you cite the potential of Collingwood and Carlton to sell broadcast rights. What about Footscray or North Melbourne? Might their rights be purchased for the whole season? Maybe on a game by game basis? Maybe Channel 31 could pick up a bargain. And how about the $200m that the AFL is intending to invest in ‘game development’ to ensure the code develops and recreational participants have good and safe facilities and football grounds? Will Collingwood and Carlton make those investments? What IS un-Australian is ignorance of the broader role of sporting organisations like the AFL as national governing bodies and not just the ‘super-organisation’ regulating a cartel of profit maximising clubs! Interesting article in The Age? Maybe. Sensitive to the nature of the economics of sport? Maybe not.

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