Cave SportsRightsBroadcast 2001

Sports Rights and the Broadcast Industry
Author(s): Martin Cave and Robert W. Crandall

Source: The Economic Journal , Feb., 2001, Vol. 111, No. 469, Features (Feb., 2001), pp.
F4-F26
Published by: Oxford University Press on behalf of the Royal Economic Society
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The Economic Journal, 111 (February), F4-F26. ? Royal Economic Society 2001. Published by Blackwell
Publishers, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.
SPORTS RIGHTS AND THE BROADCAST INDUSTRY*
Martin Cave and Robert W Crandall
The increasing popularity of televised sports events in the United States and
Europe has had significant effects on the broadcasting sectors and sports
leagues on both sides of the Atlantic. As a result, competition authorities have
shown considerable interest in the evolution of sports broadcast rights on both
continents. In the United States, attention has been focused on professional
and amateur (intercollegiate) leagues alike, while in Europe most attention
has been given to the relationship between broadcasting and various countries'
professional soccer leagues. The recent attempt by the United Kingdom's
leading pay-television operator, BSkyB, to purchase the leading soccer club,
Manchester United, has changed the tone if not the substance of broadcast
sports rights negotiations in the United Kingdom and, perhaps, throughout
Europe.
This paper focuses upon the competition and efficiency issues involved in
the granting of broadcast rights by sports teams or leagues and their resolution
on both sides of the Atlantic. What are the consequences of collective (and
exclusive) selling by sports leagues of their broadcast rights? Does the control
of sports broadcast rights allow the broadcaster to leverage its position and
increase its monopoly power? Can leagues foreclose entry by competitors
through widespread sale of broadcast rights to local or national broadcasters?
Can ownership of sports teams by broadcasters have anti-competitive effects?
Although we do not offer any new insights on these well-researched theoretical
issues, we provide evidence to suggest that such problems are much less acute
in the United States than in Europe.
We begin with a discussion of the evolution of sports leagues in the United
States and Europe. We then turn to the changing structure of broadcasting on
both sides of the Atlantic.
Finally, we analyse the changes in the structure of sports broadcast rights
and their likely effect on league balance, league monopoly power, and market
power in broadcasting.
1. The Sports Marketplace

1.1. Sports in the United States
The United States has a much more diverse set of sports leagues available for
broadcasting than any other part of the world. There are major professional
sports leagues for baseball, football, basketball and hockey which have been in
existence for decades and which have lucrative broadcasting contracts with
* Cave is grateful for helpful comments to Campbell Cowie and Stefan Szymanski.
[ F4 I

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[FEBRUARY 2001] SPORTS RIGHTS AND THE ... F5
various commercial broadcast networks, local broadcast stations, direct broad-

cast satellite services, and cable networks. In addition, college basketball,
college football, professional soccer, professional golf, professional tennis, and
automobile racing enjoy wide broadcast exposure.
The bargaining power of the seller of sports broadcast rights depends in part
on the number of alternative sources of such programming that are available.
In the United States, each of the major professional sports is organised as a
single league. The National Football League (NFL), Major League Baseball
(MLB), the National Basketball Association (NBA), and the National Hockey
League (NHL) currently have no professional competitors in their respective
sports. These dominant positions have existed for at least two decades.
Although entry by new leagues had been quite common in earlier decades,
only one new league has been formed in the past 20 years.
Major League Baseball has been immune from serious competitive entry
threats since World War I. The other professional sports leagues-basketball,
football, and hockey-had substantial new competition in the 1960s and 1970s
before the liberalisation of US broadcast-cable policy, but none since then.
The American Basketball Association was formed in 1967 and lasted until 1976
when it began to fail as three of its nine teams suspended operations. A fourth
team failed at the end of the season, and four of the remaining teams were
simply absorbed into the incumbent NBA league. A rival football league, the
American Football League, was formed to challenge the NFL in 1960, but it
reached a merger agreement with the NFL in 1966 and was fully absorbed into
the NFL by 1970. Two subsequent entrants, the World Football League (1974-
5) and the USFL (1983-5), were much less serious competitive threats to the
NFL, and both quietly folded without any of their teams being absorbed by the
NFL. Finally, in hockey, the World Hockey League mounted a serious
challenge to the NHL in 1972-9, but it finally succumbed with only four of its
remaining seven teams being absorbed by the NHL.
The apparent reasons for this recent lack of entry are (i) the continual
expansion of the incumbent leagues, (ii) the evolution of players' negotiating
power over salaries, and (iii) the pre-emption of broadcast opportunities
through expansion of television coverage by the incumbent leagues. We deal
with the first two of these briefly in this section, leaving the discussion of
broadcast coverage to a later section.1
First, the United States has witnessed substantial population growth and
western expansion. Had the major sports leagues failed to expand from their
original limited eastern and midwestern locations, new leagues would surely
have exploited this failure. Baseball was the first to move west and to expand.
Between 1903 and 1950, there was no change in the identity of MLB's teams.
The southern and western limits of baseball were defined by two of the
league's 16 teams that were located in St. Louis. Beginning in 1958, however,
major-league baseball shifted strongly westward and southward. Today, base-
1 There are numerous sources of information on each of these topics. See, for example,
Fort (1992); Scully (1995); and Sheehan (1996).
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F6 THE ECONOMIC JOURNAL [FEBRUARY
ball has 30 teams, 15 of which are as south or west of St. Louis. In most of the
new cities, local and state tax monies have been mobilised to pay for stadiums
that are leased exclusively to MLB teams during baseball season. Thus, the
ability of a new league to exploit new geographic markets has been substan-
tially pre-empted.2 Similarly, football, hockey and basketball have expanded
dramatically since 1960, with hockey's expansion being the most dramatic. In
1960, the NHL had but six teams, four of which were in the United States;
today, the NHL is comprised of 27 teams. (See Table 1.)
Most large metropolitan areas in the United States are now blanketed with a
baseball, football, hockey, and basketball team. Hockey, a winter sport, is
available in the Arizona desert.
Basketball, a sport most popular in US inner cities, is even available on the
west coast of Canada. Much of this geographical expansion has clearly been
motivated by the desire to pre-empt entry or to absorb teams from the new
leagues which formed in the 1960s and 1970s. Had basketball, football, and
hockey expanded sooner, they may have foreclosed even these entry attempts.
Second, a protracted set of legal battles has substantially liberalised the
player market, allowing players in each league to achieve 'free-agent' status
after a number of years. The result has been a remarkable escalation of player
salaries. According to Quirk and Fort (1992), average real baseball and
professional basketball salaries rose nine-fold between 1960 and 1991 while
real football salaries increased by nearly 400% over the same period. In earlier
years, there were numerous player legal challenges to the monopsony power of
their teams under league rules.3 Until these rules were changed through the
institution of player free agency, players could be lured to a new league when
dissatisfied. In the past two decades, however, most of the successful, star
players have been accommodated to a degree that makes new leagues less
attractive to them.
Table 1
The Expansion of US Sports Leagues, 1960-99
Number of Teams, Number of Teams,

League 1960 1999
Major League Baseball 16 30

National Football League 13 31
National Basketball Assn. 8 29
National Hockey League 6 27
2 It is not surprising that discussions of

tion of entry opportunities in Mexico.
3 The most important of these was Flood v Kuhn, 407 U.S. 258 (1972), a suit brought by Curt Flood, a
star player, against MLB, challenging baseball's 'reserve' clause that limited players' rights to choose
their team and, therefore, to shop for competitive salaries. Similar challenges were mounted by Oscar
Robertson against the NBA andJohn Mackey against the NFL.
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2001] SPORTS RIGHTS AND THE BROADCAST INDUSTRY F7
Free agency may not eliminate the monopoly profits from owning a fran-
chise, but it certainly reduces them somewhat, thereby making competitive
entry less attractive. Free agency also lowers the probability of competitive
entry by reducing the incentives for the most important 'star' players to shift to
a new league. Without these star players, a new league's prospects for survival
are dramatically reduced.
Of equal importance, however, has been the ability of the US professional
sports leagues to adapt to increasing numbers of broadcast outlets by expand-
ing the scope of their broadcast coverage. This has occurred both across the
domain of off-air networks and cable networks. We return to this phenomenon
below.
1.2. European Soccer
The population of Europe exhibits differentiated tastes for participating in

sports and watching them either as spectators or viewers. In the larger
countries professional soccer stands out as the most commercialised sport with
the most valuable rights, and the discussion below focuses upon it.4
Professional sports leagues in Europe, such as the English Football League,
have been under the control of governing bodies which also administer
amateur activities. Sports leagues have traditionally been organised on a
hierarchical basis, with promotion and relegation between upper and lower
divisions at the end of each season. An entrepreneur or firm can thus enter
the business by acquiring an existing club and - if necessary - investing in
promotion, rather than by acquiring new franchises. These arrangements
make the creation de novo of a competing league at the national level less likely
than in the United States.
Increasing revenues for soccer clubs, many of them derived from broad-
casting rights, have, however, encouraged the leading clubs in the United
Kingdom to seek greater independence within the national association. UK
teams had played in a Football League, which has operated under the auspices
of the Football Association (FA) since 1888. Clubs were normally limited
companies, closely held by a small number of shareholders. The League
imposed a maximum wage on players until 1961.
In 1992, clubs in the first division of the Football League agreed to form a
new competition, the Premier League, directly under the control of the FA.
This enabled them to escape from the majority control of the smaller clubs in
the League, and in particular to control directly the sale of broadcast rights
and the distribution of associated revenues. Seven years following the forma-
tion of the Premier League, 10 of 20 Premier League clubs have floated on the
stock market.
UK Premier League soccer clubs enjoyed an increase in turnover between
1991/2 and 1997/8 of 250%, making the Premier League the largest in
4 Formula 1 motor racing is another highly commercialised sport and in 2000 the European
Commission was continuing an enquiry into how its television rights were sold.

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Europe, with an income in 1997/8 three times that of the French league and
42% greater than that of Serie A in Italy. (Deloitte and Touche, 1999, p 62).
The revenues and wage bills of the leading clubs in each of 5 countries are
shown in Table 2. The UK clubs' income comes from broadcast revenue
(27%), match-day revenue (36%) and commercial and other revenue (37%).
If the formation of the Premier League was driven by the desire of the top
clubs to avoid sharing power and broadcasting revenues with inferior clubs,
the proposal in 1998 to establish a separate Super League outside the existing
framework of competitions involving a fixed group of the best European clubs
would have had greater repercussions. Hoehn and Szymanski (1999) argue,
however, that such a trend is inevitable, as participation by some clubs in
supra-national competitions both widens the dispersion of national clubs'
earnings and reduces the incentive to redistribute income in order to maintain
competitive balance at the national level. A closed Super League is thus the
economic equilibrium.
2. The Television Marketplace

2.1. The Structure of the US Video Market
For more than 30 years, the US television industry was highly concentrated as a
result of the explicit spectrum-allocation and cable-television policies of the
Federal Communications Commission (FCC). The FCC protected a stable
three-network off-air oligopoly from various sources of competition on the
dubious premise that such protection would encourage entry into the upper
UHF band. By the late 1970s, this policy had been exposed as futile, and the
Commission-prodded by the courts-responded by easing rules on cable
television signal carriage. As a result, cable subscriptions trebled between 1980
and 1990. The 1990s witnessed new entry into direct-to-home (DTH) satellite
broadcasting with the development of high-powered satellites and small house-
hold receiving dishes. The result of this expansion of cable television and DTH
satellite service has been a much more competitive US multichannel video
programme distribution (MNVPD) market.
Until the late 1970s, three commercial networks dominated programming
decisions during prime viewing hours, including those involving national
Table 2
Financial Data of Leading European Clubs
Country Club Year Revenue ($m) Wage Bill ($m)
England Manchester United 1997 139.4 35.8

France Paris St. Germain 1996 45.0 19.2
Germany Bayern MPinchen n/a 90.4 20.8
Italy Juventus 1997 82.3 46.2
Spain Barcelona 1996 65.5 27.8
Source: Hoehn and Szymanski (1999) p. 209.
) Royal Economic Society 2001

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sports rights, because of the FCC's policy.5 Competition for local broadcast
rights might be more intensive in the few markets that had four or more
commercial VHF stations, but there were only three bidders for national
programming, including sports.
National broadcasts of sports leagues were relatively limited prior to 1962.
Major league Baseball had a 'game of the week' national contract, and the new
football entrant, the AFL, had a $2 million per-year contract with ABC in
1960-5, but the NFL had been barred by a federal antitrust case from pooling
its television broadcast rights into a single national contract. In 1961, however,
the Congress passed the Sports Broadcasting Act, which essentially reversed
this court decision and allowed league-wide sales of national broadcast rights.
The result was a dramatic increase in the value of national network television
sports rights throughout the 1960s as a network triopoly bid aggressively for
the right to broadcast NFL games, and - more modestly - for the rights to
other professional league broadcasts. (See Fig. 1.)
The liberalisation of cable television in 1977-9 by court decisions and
relaxed FCC regulation, combined with the new technology of high-powered
direct-to-home satellite distribution, presented the first challenge to the
national broadcast triopoly and the first opportunity for national sports
Real Value of U.S. Network

Sports Broadcast Rights, 1962-98
1400-
1200 -
1000 ------------------------------- Professional

Football
600
800; -- ------- --------------------------- --------
Basketball
Hockey
1962 1966 1970 1974 1978 1982 1986 1990 1994 1998
Fig. 1. Real Value of U.S. Network Sports Broadcast Rights, 1962-98

Source: Quirk and Fort (1992); Kagan (1998)
5 See Owen and Wildman (1992) for a discussion of FCC broadcast policy.
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FIO THE ECONOMIC JOURNAL [FEBRUARY
leagues to benefit from increased competition for their broadcast rights. As

Fig. 2 shows, there was a modest jump in the real, inflation-adjusted value of
national professional sports television rights in 1978, perhaps in response to
this developing threat. It was not until 1982-7, however, that a new cable
network-ESPN-actually secured broadcast rights to a major sports league's
games. The total value of sports rights thus increased once again in the 1982-5
period.
The entry of a fourth off-air network, Fox, into the market for national
sports rights boosted the value of these rights once again. In 1994, Fox outbid
CBS for a portion of the NFL national contract, thereby escalating the
competition to four national broadcast networks and the one large cable
network. When the 1994-7 contracts expired, CBS re-entered the bidding,
and the value of NFL broadcast rights essentially doubled. At about the same
time, Fox also bid away a large share of the national Major League Baseball
contract from ABC, but the real value of baseball's broadcast rights remained
relatively stable. However, with cable networks in the bidding for NBA broad-
cast rights, the real value of NBA rights more than doubled in 1997, a
reflection of increased media competition and the rising popularity of profes-
sional basketball.
In the past five years, another source of competition for broadcasters and
cable networks has emerged in the form of high-powered direct broadcast
satellite-'direct to home'-satellite broadcasting. DirecTV entered with a new
high-powered service in 1993 and EchoStar (DISH Network) followed in 1996.
10,0000
Annual
Broadcast
Hours
I 0 0 0 4__ --e-- -- -- -- --- - - - - - - - - - - - - - --- - -- - -- - -

* >
Ann
Cost of
Rights
1 0 0 I I I I I I I I I I I I I I I I I I I I I I I I I I
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997
Fig. 2. Off-Air Network Sports Hours and the Real Value of Off-N
Source: Quirk and Fort (1992); Kagan (1998).

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2001] SPORTS RIGHTS AND THE BROADCAST INDUSTRY Fll
These two companies have slowly built their subscriber bases to 6.5 million and
3.5 million, respectively, but their growth has been hampered by regulations
and copyright provisions that limit their ability to retransmit local broadcast
signals in areas where subscribers can receive these broadcasts off air. Never-
theless, DirecTV is a particularly important bidder for national sports rights,
and has succeeded in obtaining the national rights to NFL, MLB, NHL, and
NBA games. DISH's sports programming is more limited, confined largely to
an offering of 22 regional cable networks, a golf channel, and the English
Premier League.
2.2. Television Markets in the United Kingdom

Television programming is now delivered in the United Kingdom on terres-
trial, satellite and cable platforms. Free-to-air services are transmitted in both
digital and analogue form by the BBC (funded by a licence fee) and three
advertiser-supported channels. In late 1999 2.3 million subscribers received
satellite pay-TV services in analogue form from BSkyB, and 1.3 million in
digital form. (The company intends to transfer all its analogue subscribers to
digital by 2001.) In addition 3.1 million households received pay television
services in analogue form on cable, which is now dominated by two providers.
A roll-out of digital cable services began in late 1999 in some areas. Digital
terrestrial transmission (DTT) pay services attracted 0.4 million subscribers.
(Competition Commission, 2000, p 73).
Pay TV channels comprise basic channels (normally bought in bundled
form and representing a channel by channel unravelling of the threads found
in free to air services, such as news, comedy, travel, general entertainment,
etc.) and premium channels - sports and movies - available on an a la carte
basis to households subscribing to a basic package. In addition to sports
programming available on free-to-air television, pay TV subscribers can gener-
ally purchase a sports channel (Eurosport) as part of a basic package and up to
three premium sports channels (Sky Sports 1-3).
Audience shares of the five main free-to-air channels and of pay TV services
are shown in Table 3, both for all households and for cable and satellite TV
households.
While pay broadcasters have many sources of supply of basic channels, the
supply at the wholesale level of premium sports and movie channels is
dominated by BSkyB, which, as well as retailing them directly by satellite,
supplies them to broadcasters using rival cable and DTT platforms. These
arrangements attracted the attention of the Office of Fair Trading, which in
1996 investigated the price and other conditions of supply (OFT, 1996). The
Office concluded that BskyB's method of selling its premium channels to its
retail competitors had the potential to distort the behaviour of other Pay TV
broadcasters, but it found no evidence of broader anti-competitive conduct.
BSkyB agreed to submit its wholesale rate cards for approval by the Office.
One of the issues investigated by the OFT was the structure of BSkyB's
charges for premium channels at both retail and wholesale level. A subscriber
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Table 3
Share of Viewing by Channel (Second Quarter 1999)
All Homes Cable and Satellite TV Homes
BBC 1 & 2 39.7 27.3

ITV 30.7 24.1
C4 10.1 6.7
C5 5.3 4.3
Total free-to-air 85.7 62.3
Pay TV Channels of which - 14.4 37.7
Basic 11.0 28.9
Premium, of which 3.4 8.8
Sky Sports 1-3 1.8 4.8
Total 100.0 100.0
Source: BARB
who purchased a basic package was then entitled to buy one premium channel
at, say, ?10 per month. A second could be bought for ?6 per month, a third for
?3 per month and so on. This form of price discrimination, described as 'deep
discounting', was recognised as having desirable efficiency properties com-
pared with a flat rate structure, given the high fixed and zero marginal costs of
providing a channel to a new subscriber. Such pricing does, however, consti-
tute a barrier to entry if one broadcaster gains a monopoly or dominant
position in the supply of, say, premium sports programming for which there
is no ready substitute. In such circumstances, deep discounting makes
entry difficult for a firm seeking to supply premium movie channels, although
the same problem would not apply to an entrant in pay-per-view movies. In
the event, the OFT did not find 'deep discounting' by BSkyB to be anti-
competitive.
2.3. Television Markets in Other European Countries

The UK pattern of cable or wireless pay TV superimposed upon a strong free-
to-air broadcasting system is replicated in other major European countries. As
in the United Kingdom the wholesale pay TV market is dominated by a single
supplier, Canal Plus in France, Telepiu in Italy, Canal Plus Espana in Spain
and Premiere in Germany, although most of these are subject to some
competition. Table 4 summarises the situation for these countries and the
United Kingdom.
3. Sports Rights - Institutional and Legal Considerations

3.1. The United States
The importance of broadcast revenues to the major US professional sports

leagues may be deduced from two recent estimates displayed in Table 5.
Professional football derives more than half of its revenues from broadcasting;
baseball and basketball about one-third; and hockey much less. The growth in

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Table 4
Pay TV Channels in Five European Countries
Country Deliveiy Platforms Main Competitors
France Cable, Satellite Canal Plus, AB Sat, TPS

Germany Cable, Satellite Premiere
Italy Cable, Satellite Telepiu, Stream
Spain Cable, Satellite Canal Plus, Espana, Via Digital
UK Cable, Satellite, Sky, Cable Operator
Digital Terrestrial On Digital
Source: Cable and Satellite Europe: various issues.
the value of these rights over the past three decades has far outstripped the
growth in US economic activity. For example, in 1962 the National Football
League signed its first national television contract that paid $4.7 million per
year.6 By 1998, the NFL's television contracts were yielding them $2.2 billion
per year,7 reflecting a 17% nominal annual growth rate. Similar increases were
registered by Major League Baseball. However, the greatest growth in national
television revenues in recent years has been registered by the NBA, which
actually surpassed baseball in 1995. (See Table 5)
Throughout the modern history of sports broadcasting in the United States,
there has always been controversy over the ability of leagues or sports associa-
tions to limit individual members' rights to broadcast their games. A new law,
the Sports Broadcasting Act, was required in 1961 before sports leagues could
offer their rights to national networks in a package. The 1953 U.S. v NFL case
invalidated as a violation of the Sherman Act a league-wide television contract
that limited the ability of individual teams to broadcast their games into other
teams' home territories. Later, the same court ruled that a 1960 NFL contract
that barred individual teams from selling their games to competing broad-
casters was similarly a violation of the Sherman Act.
With the passage of the 1961 Act, professional sports leagues were now free
Table 5
Sports Broadcast Rights' Share Total Revenues in U.S. Sports
Leagues 1991 and 1997
Sport 1991 Revenue Share 1997 Revenue Share
Professional Football 0.60 0.56

Major League Baseball 0.50 0.32
Professional Basketball 0.30 0.39
Hockey 0.25 0.09
Source: Financial World (1991) as quoted in Quirk and Fort (1992); Kagan (1998).
6 Quirk and Fort (1992), p. 509.

7 Kagan (1998).

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to enter into national television contracts that limited broadcasts into teams'
territories during the days in which the teams were playing home games. The
NFL has had such contracts with national television networks since 1962 that
essentially eliminate the teams' own negotiations for local coverage. The
revenues from these contracts have been spread evenly across all teams, there-
by serving to ameliorate the financial disadvantages of teams in smaller
geographical markets.8 No other US sports league relies solely on national
rights, and none has as large a share of broadcast revenues in total revenues.
The 1961 SBA does not legalise many other forms of restrictive agreements
that may be sought by sports leagues in selling broadcast rights. In particular,
the courts have invalidated a national broadcasting plan that was devised by
the National Collegiate Athletic Association (NCAA) to control the telecasts of
all member universities' football games. This plan sharply limited the total
number of football games that could be telecast, prohibiting individual teams
and leagues from negotiating their own packages. The courts found that were
no pro-competitive justifications for such sweeping control of college football
broadcasts, and it therefore sustained the rights of the two universities to break
from the NCAA contracts with ABC and CBS by negotiating their own
agreement with a rival network, NBC, in 1982.9
In addition, individual teams may still have the ability to sell their broadcast
rights even if the league has a national contract. League limitations on a team's
right to sell broadcasts of its games to local outlets, regional sports networks,
or other broadcasters must be based on a compelling argument that such
limitations are required to preserve competition within the league. For
example, nearly every basketball, hockey, and baseball team sells broadcast
rights to local broadcasters and to regional sports networks. These broadcasts
may be transmitted outside the team's own territory and may even be viewed in
a rival team's market. The league may not limit such broadcasts without a
sound argument that these broadcasts might undermine the ability of the
offended teams to compete in the league. Thus, even sports teams in leagues
with national network contracts may sell broadcast rights in games in which
the league has no broadcast rights even though such games may dilute the
value of the national contract.10
The 1992 Cable Act requires cable companies with 'attributable' interests in
satellite-delivered programming to make such programming available to other
distribution technologies on comparable terms. While this provision of the law
has been applied only to basic-cable networks thus far, it is quite likely that
extensive media ownership of sports teams or leagues could lead to its
application to sports programming as well. However, given the limited media
8 This pooling of broadcast revenues does not eliminate the advantages of large-market teams in
securing talent, and therefore it does not necessarily contribute to competitive balance.
9 See NCAA v. Board of Regents of the Univ. of Oklahoma & Univ. of Georgia Athletic Assn., Supreme Court
of the United States, 468 U.S. 85, 1984.
10 See Chicago Professional Sports, Ltd. & WGN v. NBA, U.S. Court of Appeals, Seventh Circuit, 961 F.
2d 667, 1992.

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ownership of sports teams thus far, such integration is not a major issue in the
United States.
3.2. Europe
UK broadcasters' payments for sports rights are heavily skewed in favour of live
soccer rights (see Table 6), and their value has grown over time. (See Table 7).
Before 1964 Football League matches were not televised, either in live or
highlight form. A Saturday evening highlights programme was then intro-
duced. Live broadcasts began in 1983. However, the two broadcasters in a
position to bid for the rights (BBC and ITV) acted collusively (Szymanski and
Kuypers 1999, pp 58-9).11 As a result, revenues from broadcast rights remained
low until 1992, when Sky Television, the fledgling satellite pay broadcaster,
entered the market and won a substantial package of live rights for ?37 million
per year, bidding in conjunction with the BBC which maintained a highlights
programme on free-to-air television. When the rights were re-auctioned for
1997-2001, the annual payment went up fourfold (See Table 7).
The dominant role of soccer rights in general and of Premier League rights
in particular is shown by the fact that soccer rights in 1997/8 accounted for
over three quarters of the annual expenditure on sports rights of BSkyB - the
only supplier in the United Kingdom of a premium sports channel. The
popularity of soccer in the United Kingdom is shown by the fact that of
the most 100 watched free-to-air sports broadcasts in 1998, 77 were of soccer.
In the case of pay TV, 96 of 100 were soccer.12
Table 6
Value of Live Sports Rights in the U.K., 1999
Broadcaster(s)
F = free Duration Annual Charge
Sport Competition P = pay (Yrs) (Em)
Cricket Domestic Tests BSkyB (P) 4 26

C4 (F)
Motorsport Formula 1 ITV (F) 5 12
Rugby League Super League BSkyB (P) 5 11
Rugby Union England Internationals BSkyB (P) - live 5 18
Snooker Embassy World Championship BBC (F) 4 10
Soccer Premier League BSkyB (P) 4 167
Soccer Champions League On Digital (P) 3 87
ITV (F)
Tennis Wimbledon Championships BBC 4 7
Source: TV Sports Markets.
" The fact that there was no formal investigation of the duopoly illustrates the lack of interest sho
by competition authorities in televised sport.
12 TVSportsMarketsJan 15, 1999, pp 11-2.

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F16 THE ECONOMIC TOURNAL [FEBRUARY
Source:MC(19)pa4.3
Table7
StarDeofCnc
TheCostfRigLvScrauMmpDnEld,198320
Numberoflivatchspn10648 Anualrightsfe(?m)2.631875 Rightsfe(?m)5.21364970 Lengthofcra(ys)20.54 19835627

Fesprlivmatch(?)0.2643179 BroadcsteC/ITV1Sky
?) Royal Economic Society 2001

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Televised soccer dominates sports programming in other major European

countries as well, with similar effects on the value of rights. Thus the winning
bids to broadcast the European Champions League from 1999-2002 were as
high in France, Germany, Italy and Spain as in the United Kingdom. Occa-
sional sporting events, such as the Tour de France, attract audiences in each
country, but viewing of soccer dominates.
There are, however, differences among the five European countries in the
manner in which rights for the top domestic leagues are sold. In the United
Kingdom a limited number of games are sold for live broadcast to a single
broadcaster (which also makes them available to other platforms) on the basis
that no further rights are sold by individual clubs. (This was the subject of a
competition law case described below.) In France, the league itself ended this
form of exclusivity despite explicit legislative protection. In Spain, clubs sell
rights individually. In Italy, the Parliament passed a regulation which prohibits
a single broadcaster from controlling more than 70% of live matches, and the
Competition Authority prohibited collective selling by the League of live
matches. In Germany, by contrast, the Parliament passed a law which specifi-
cally exempted its football league from anti-cartel legislation.
Collective and exclusive agreements in Germany and the United Kingdom
are still subject to the provisions of European competition law, and in 1999 the
European Commission's Competition Directorate was studying both agree-
ments.
In Europe there is a further specific form of regulation of the sale of rights
to sporting events. Under European Union regulation, each member state is
entitled to 'list' certain sporting or cultural events that the Government
believes are of national interest. The holders of rights to such events must first
of all offer them to free-to-air broadcasters with universal coverage on fair and
reasonable terms. Once this requirement has been satisfied, additional rights
may be sold to pay broadcasters. In the United Kingdom, for example, the
rights in question cover events such as the Olympic Games and Soccer World
Cup, and the finals of soccer, rugby and tennis competitions. Elsewhere in
Europe, cultural events are 'listed'.
This procedure recognises the fact that sports programming is highly valued
by viewers and may also be characterised by a relatively inelastic demand curve,
with the consequence that greater revenues can be generated from it by
charging directly for it rather than indirectly through the sale of advertising
time (see Owen and Wildman, 1992). 'Listing' is thus motivated by a desire to
prevent such 'siphoning' of programming.13 This advantage for consumers is,
however, gained at the expense of rights holders, who complain that the
quality of their sports suffers as a result of being deprived of the true value of
the rights.
13 An FCC examination of siphoning in the United States concluded that it was not occurring (
1994).
( Royal Economic Society 2001

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4. Competition Issues
The sale of sports broadcast rights raises at least two related competition
issues:
(1) Do restrictive agreements among a league's teams reflect a desire to

increase the 'competitive balance' of the league or are they simply a means to
limit competition and reduce sports fans' choices?
(2) Is vertical integration between broadcasters and sports leagues detri-
mental?
4.1. Sports Leagues as Cartels

The argument that a sports league is not a cartel relies upon special features of
the relationships among its members. In most industries, a firm would benefit
from eliminating or weakening its competitors. However, a member of a sports
league clearly requires the participation of its competitors to make the
competition possible, and, given the evidence that spectators are attracted by
competitive balance within a league,14 it is not in any team's long-term interest
unduly to weaken its competitors. Moreover, interest in any league match is
based in part upon interest in the competition as a whole. According to this
view of the matter, the combination of competitive and co-operative arrange-
ments distinguishes members of a sports league from the members an
industrial cartel.
However, it is possible to separate the various activities undertaken by a
sports league and its members into those which have to be undertaken
collectively to maintain a viable league and those which should be undertaken
independently by league members so as to allow the public to benefit from
competition.15 Agreement on a set of rules and a centrally coordinated
calendar of match dates clearly comes into the first category. However, other
activities, including the sale of match tickets, are undertaken by clubs individu-
ally. Because the sale of broadcast rights falls into the category of activities that
each club could undertake separately without harm to the league's ability to
offer competitive matches, it is more natural to regard a joint decision by the
clubs to restrict output as the operation of a cartel, although the cartel may
seek to justify the restriction on public interest grounds.
One argument in favour of a league restriction on the number of broadcast
matches is that it enables clubs to avoid diversion of spectators from live games.
This can be viewed as action taken by the league to protect another revenue
stream. In any case, the evidence on the extent of diversion at current levels of
televised matches of Premier League matches in the United Kingdom is
inconclusive. Tickets to many games are subject to such excess demand that
14 Because uncertainty of the results of any match, or of the competition as a whole, generates
spectator interest.
15 A possible analogy is the approach taken in competition law to collaboration among firms in p
competitive R & D, which may be justified, but is followed by competition in production and selling.

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grounds would remain full even if some matches were concurrently televised.
(Kuypers, 1996)
One of the justifications for league-wide contracts rather than individual-
team sales of broadcast rights is that the former provide support to the teams
in smaller, less lucrative markets through more or less equal distribution of
broadcast revenues. But this does nothing about imbalances in live gates and
other forms of revenues.
In any case, Fort and Quirk (1995) have shown that national league-wide
contracts do nothing to alter the competitive balance in a league because they
do not affect the teams' marginal value of talent. Imbalance occurs when one
team - presumably the team in the larger market - has a higher marginal
value of talent when the talent is equally distributed across teams. As a result,
the team from the larger market bids away talent from the others until
marginal values of talent are equated - a position attained only when the large
market team has more than its proportional share of the talent pool. Since the
sharing of national broadcast revenues does not reflect talent shares and,
therefore, win-lose percentages, such sharing does not affect the league's
competitive balance. This result is not unwelcome to the league that shares
broadcast revenues because it is likely to benefit from the maintenance of the
competitive imbalance that favours large-market teams.
As Fort and Quirk point out, national broadcast revenues are greater when
large-market teams reach the league championship series because more view-
ers are interested in the result. Broadcast-revenue sharing implicitly involves a
transfer from more successful to less successful teams, but it may nevertheless
appeal to the more successful teams. First, if the national contract reduces
competition among teams in the sale of broadcast rights, it may increase total
broadcast revenues sufficiently to offset the successful team's reduced share of
revenues. Second, a national contract may keep marginal teams in business,
thereby foreclosing an entry opportunity for a second or third league. Thus
national contracts may be a form of industry entry barrier.
4.2. The United Kingdom

In a recent case before the UK Restrictive Trade Practices Court, the Director
General of Fair Trading argued that the clubs in the Premier League were in
effect behaving like a cartel through their decision to sell live broadcast rights
to a limited number of their matches (60 out of 380) to a single broadcaster,
on the basis that the remaining matches would be not available for broadcast.
In his argument before the Court, the Director General made it plain that he
had no objection per se to collective sale of matches by the Premier League.
Indeed he suggested that two or more packages of rights could be sold to
separate broadcasters, each granting exclusivity over the matches in question,
provided that this was supplemented by giving the clubs the right to sell
further matches on an individual basis. In the Director General's view, this
would combine the benefits of giving certain broadcasters a guaranteed
package of rights with the availability of further matches for sale to other

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broadcasters.16 Premier League righ

multiple packages, possibly with limited opportunities for clubs to sell indivi-
dual matches for delayed broadcasting.
In the United States, the Sports Broadcast Act opened the door for restrictive,
league-wide offerings of broadcasts, but it did not foreclose the option of
independent team licensing of some games. The only league that relies solely
on national network telecasts of its games is the National Football League. At
first, these games were played almost entirely on Sunday afternoons. Thus, the
NFL contract would limit choices only during autumn Sundays. Teams could
not independently license the broadcasts of their home games to local,
regional, or other national broadcasters. As the number of networks ex-
panded, the NFL extended its contracts to three and then four networks by
broadcasting games on Monday and Thursday nights. Finally, the NFL offered
all of its Sunday games to the DTH service, DirecTV. As a result, viewers may
now obtain virtually any game from any viewing location on a Sunday after-
noon. All NFL broadcast revenues are divided evenly among the teams.
Other US leagues employ a mixture of national broadcasts, negotiated by
the league, and a mix of local and regional broadcasts, negotiated by each
team. The result is a less equal distribution of broadcast income and a greater
potential for disputes due to overlapping regional broadcasts. The most
intense of these disputes involve off-air 'superstation' broadcasts, broadcasts by
local stations which are retransmitted nationally by satellite.
Ultimately, these superstation broadcasts, involving principally New York,
Atlanta, and Chicago basketball, baseball, and hockey teams, are limited
through negotiations between the league and the stations' home teams. The
optimal number and mix of broadcasts is difficult to model because no one
has ascertained the effect of different broadcast output levels on the competi-
tive balance within leagues or the viewer intensity of demand for sports
broadcasts of different teams. As a result, no one knows whether the current
mix of broadcasts by local off-air stations, off-air networks, regional cable
networks, national cable networks, and DTH services is optimal.
Nevertheless, the recent US experience with telecasts of college football is
suggestive of the problems with league-wide contracts. Prior to 1984, the
National Collegiate Athletic Association (NCAA) negotiated a single national
contract for televising football games of major US universities. When two
universities attempted to break away from this arrangement and negotiate
their own contracts, they were sued by the NCAA. The NCAA lost the suit,17
thereby freeing all member universities to negotiate their own television
contracts. The result was a sharp increase in the number of games telecast, a
16 The Court found that the clubs were not acting as a cartel, and that the form of collective sale
employed vas not unlawful (Judgment 1999).
1 National Collegiate Athletic Association v Board of Regents of the University of Oklahoma et al, 468 U.S.
(1984).

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large decline in the value of the television contracts per game, and an increase
in competitive balance in college football.18
It is unlikely that current television contracts in most US professional
leagues involve an important restriction of output. In the first place, most
teams now offer a large number of their games through regional cable
networks, local broadcast stations, or a combination of the two. Second, major
'superstations' export large number of games for the teams from the larger
markets to the entire country. Finally, the new broadcast satellites services,
particularly DirecTV, offer large packages of games for every major profes-
sional sport. A viewer may purchase packages that allows him or her to view
virtually any game being played on a given day or night. Thus, in practice, any
viewer has access to virtually every major professional sports event in the
country, constrained only by occasional invocations of league 'black-out' rules.
Were there greater competition among leagues, the prices of these now
ubiquitous US telecasts might be lower, but the output of televised sports
events would probably not be much greater. National broadcast networks
already offer as many as 600 hours per year of sports programming. DirecTV
offers as many as 40 professional basketball games per week, 30 professional
hockey games per week, and 16 professional football games per week over its
national footprint.
5. Vertical Integration Between Broadcasters and Sports Clubs

There is a theoretical basis for concluding that vertical integration between
broadcasters and sports teams could result in a lessening of competition in the
market for sports broadcast rights. The argument that broadcaster ownership
of a sports league may be anti-competitive relies in part upon the so called toe-
hold effect (Bulow et al, 1999). A firm bidding for a common value object of
which it is already partial owner will find that its net outlay on purchase will be
reduced correspondingly, in relation to the highest unsuccessful bid. This
interacts with the 'winner's curse', causing other bidders without a toe-hold
rationally to reduce their bids for fear that they have over bid in a contest with
a competitor which already has an advantage. The operation of this mechan-
ism will thus give a vertically integrated bidder an advantage to the detriment
of the owner of the object. This advantage could, however, be substantially
reduced by adopting an auction procedure, such as sealed bid tendering, in
which the 'winner's curse' plays a less important role.

Media ownership of sports teams is quite limited in the United States Indeed,
one of the most important early examples of such ownership, the CBS
purchase of the New York Yankees baseball club for $14 million in 1964,
resulted in large losses and an eventual sale at a $4 million loss nine years later.
18 Fort and Quirk (1997); Bennett and Fizel (1995).

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The most important media companies with major professional sports invest-
ments are News Corp, Disney, Time-Warner, Comcast, and Cablevision. The
Time Warner investments occurred as the result of Time-Warner's purchase of
Turner Broadcasting; Ted Turner had owned most of the major sports teams
in Atlanta. News Corp recently purchased the Los Angeles Dodgers and
options to purchase interests in the Los Angeles Lakers basketball team and
the Los Angeles Kings hockey team. Cablevision and Comcast own several
sports teams in NewYork and Philadelphia, respectively. (See Table 8.)
Table 8
Media Ownership of US Sports Teams, 1999
Media Company US Ownership Interests
Comcast Corp. Philadelphia 76ers (NBA); Philadelphia Flyers (NHL); Philadelphia Phantoms
(WBA)
News Corp (Fox) Los Angeles Dodgers (MLB); options to purchase share of Los Angeles Lakers
(NBA) and Los Angeles Kings (NHL)
Walt Disney Co. Anaheim Angels (MLB); Mighty Ducks of Anaheim (NHL)
Cablevision Systems NewYork Knicks (NBA); NewYork Rangers (NHL); NewYork Liberty (WBA)
Time Warner, Inc. Atlanta Braves (MLB); Atlanta Hawks (NBA; Atlanta Thrashers (NHL)
Source: Kagan (1998).
Vertical integration between broadcast media and sports teams is so limited,

that its effect on the supply of games broadcast is simply not an issue in the
United States. There is simply no evidence on the degree to which broadcasters
in New York, Philadelphia, Atlanta, and Los Angeles have used their ownership
of sports teams to gain an advantage in bidding for national broadcast rights.
Nor is there any evidence that this ownership has led to reduction of the
amount of programming available in the teams' own geographical market.
Since some of these ownership positions have been in existence for a consider-
able period of time, particularly in New York and Atlanta, there has been ample
time to study such effects, but we are not aware of any attempt to do so.
5.2. Europe
In Europe, there are a limited number of examples of broadcast firms owning
sports clubs, especially soccer clubs. The most prominent are the ownership of
AC Milan by Mediaset and of Paris St. Germain by Canal Plus. Some restraint
on broadcasters' ownership of football clubs is exercised by national and
European football association rules, which prevent a single firm from having a
controlling stake in two or more clubs playing in the same competition.
The recent attempted take-over in the United Kingdom of Manchester
United, the largest and most successful football club, by BSkyB, the monopoly
supplier of premium sports programming, was blocked in 1999 following an
enquiry by the Monopolies and Mergers Commission. The parties to the
proposed merger argued that, whatever position BSkyB occupied in the broad-
cast market, Manchester United was one of twenty Premier League clubs, with,

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under current arrangements for the collective sale of broadcast rights, no

power of independent action over the pricing of its rights. A vertical merger in
which one party exercised no market power would have little incremental
impact on competition in either broadcasting or soccer.
The conclusion thus hinged upon questions of market definition: if the
broadcast market were broadly defined, to include free-to-air and both basic
and pay television for example, then the acquisition by any broadcaster of a
particular set of sports rights would do little to enhance its market power; but
if premium pay TV, or premium sports channels, represented a separate
market, that would be a different matter especially if dominance in that market
could be leveraged more widely.
There are difficulties in applying the standard procedures for market
definition in application to broadcast markets. Examining the impact of
relative price changes is bedevilled by the fact that free-to-air television is by
definition available at zero financial cost. At the same time, the quality of pay
television offerings is likely to vary over time as a result of increases in the
number of channels in basic packages and changes in the programming in
premium channels.
European competition authorities have addressed this question on several
occasions. In 1996, the OFT concluded that the relevant market for the supply
of programming at the wholesale level was pay TV in the United Kingdom, and
that the pay TV market could be further sub-divided into distinct and
separable markets for premium sports and movie channels (OFT, 1996). The
European Commission's Services have argued that the market seems to be
evolving in such a way that it will be no longer possible to define it as a market
for sports programmes in general, but for some specific sports, for example for
football or for Formula 1 motor racing (EC, 1998 p. 21). In the Premier
League case, the Director General of Fair Trading argued that, in the sale of
live rights, the economic market was either Premier League matches, or
Premier League matches supplemented by other televised matches involving
Premier League clubs.19 In the MMC report, the same conclusion was but-
tressed by:
i) The higher prices per match paid at wholesale level for Premier League
matches than for other football matches.
ii) The higher audience figures for Premier League matches or matches
involving Premier League teams than for other football matches.
iii) Surveys of pay TV subscribers which suggested that the Premier League
and the FA Cup were regarded by respondents as the most important football
competitions on Sky Sport. (MMC (1999) paras 4.123-136.)
At the retail level, the MMC (1999) concluded that the relevant market is for
pay TV sports premium channels, (paras 4.53-121). This analysis underlay the
Commission's further conclusion that a higher barrier to entry into premium
19 The Court did not accept this argument, noting inter alia that the legislation required it to
approach market definition in a different way from that conventionally employed by competition
authorities. (Judgment 1999)
( Royal Economic Society 2001

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sports channels would cause the prices for BSkyB's sports channels to be
higher than would otherwise be the case. Reduced entry into the sports
premium channel market would feed through into reduced competition in
the wider pay TV market. (MMC 1999, para. 2.225). The Commission con-
cluded that a vertically integrated broadcaster would have an advantage in the
process, if not from the toe-hold effect then from better information about the
progress of events. (MMC 1999, para. 2. 106-117). This consideration seems
to have played a part, if a limited one, in the Commission's decision to
recommend that integration should not be permitted.20
It is notable that similar concerns have not been expressed in the United
States. The United States has one of the most vibrantly competitive video
distribution markets in the world. There are now at least six national or quasi-
national off-air networks and more than 125 cable networks, approximately 30
regional sports cable networks, as well as two rapidly-growing DTH systems that
provide their own sports packages. Several of the national cable networks, such
as TNT and USA, provide substantial sports programming while ESPN offers
three networks exclusively devoted to sports.
There is simply no evidence that entry into the video distribution market has
been constrained by the absence of sports licence agreements from major
sports leagues. Indeed, DirecTV's ability to obtain rights to all of the major
sports leagues' games suggests that these leagues fear antitrust prosecution,
federal regulation, or the threat of entry by new leagues if they deny new
distribution media their broadcast rights.
5. Conclusions
It is clear from the foregoing that there are significant differences between the
United States and the major European countries, both in the organisation of
sporting events which generate sports rights, and in the organisation of the
retail market for sports programming. In particular:
1. In the United States, interest in sports on the part of the public, either as
spectators at sporting events or as viewers of sports broadcasts, is much more
balanced across sports than in France, Germany, Italy, Spain and the United
Kingdom where soccer plays a pre-eminent role.
2. In the United States, the broadcast market, especially the pay-broadcast
market, has not exhibited the dominance by one or a small number of firms
which has characterised the development of pay-broadcasting in the major
European countries.
Each of these points reflects in part the much larger size of the market in
the United States. We have argued above that in Europe a combination of
skewed consumer tastes for soccer and of limited opportunities for entry into
20 Since the prohibition of the take-over of Manchester United, BSkyB and two other UK broa
casters have brought stakes of less than 10% in eight Premier League Clubs. These have the same 'toe-
hold' effects.

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the broadcasting market on the back of other sports has created a situation in
which rights holders can, through collective selling, exploit a dominant or
monopoly position in the rights markets and - if they choose to - can leverage
that market power in broadcasting.
The problem is exacerbated by significant political influence wielded both
in the upstream market where the sports rights are generated and in the
downstream market where sports and other rights are packaged and sold by
broadcasters. In the former case, this is demonstrated by the success of
legislation in both the United States and Germany which has exempted
sporting organisations from certain provisions of national competition law. In
the latter case, governments are often reluctant to antagonise broadcasters
who may wield significant political influence.
Concentration of ownership of sports rights thus can become the source of
significant competition problems. US and European experience suggests that
collective sale of rights by a sports body is not inherently objectionable, but
only becomes so when combined with exclusivity - the sale of a limited
number of matches to a single broadcaster with further sale being prohibited.
In the United States, the professional sports league that sells all of its
matches to national broadcasters, the NFL, has demonstrated a preference for
doing so to a variety of competing broadcasters. In several European countries,
a collective contract does not prevent clubs from selling individual matches to
other broadcasters. The English and German soccer leagues, by contrast, have
sold through collective and exclusive contracts which run the risk of leveraging
dominant positions in pay broadcasting. Such deals are likely to be anti-
competitive and against the public interest in almost all circumstances, when
they apply to leagues dominant in their markets.
European experience suggests that, because of the strength of vested
interests, competition authorities are the only bodies likely to be prepared to
intervene to protect consumers of broadcast services. For this reason, their
vigilance in the scrutiny of collective selling agreements is clearly warranted. In
order to carry out this function, they need to devote considerable attention to
market definition at wholesale and retail levels, and to have a full under-
standing of the complexities of the broadcasting market, arising from the co-
existence of services financed in quite different ways.
Brunel University
The Brookings Institution
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(? Royal Economic Society 2001

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F26 THE ECONOMIC JOURNAL [FEBRUARY 2001]
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Sports Rights and the Broadcast Industry

Author(s): Martin Cave and Robert W. Crandall

Stable URL: https://www.jstor.org/stable/2667955

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SPORTS RIGHTS AND THE BROADCAST INDUSTRY*

Martin Cave and Robert W Crandall

1. The Sports Marketplace

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various commercial broadcast networks, local broadcast stations, direct broad-

? Royal Economic Society 2001

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Number of Teams, Number of Teams,

Major League Baseball 16 30

2 It is not surprising that discussions of

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1.2. European Soccer

The population of Europe exhibits differentiated tastes for participating in

? Royal Economic Society 2001

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2. The Television Marketplace

Country Club Year Revenue ($m) Wage Bill ($m)

England Manchester United 1997 139.4 35.8

Source: Hoehn and Szymanski (1999) p. 209.

) Royal Economic Society 2001

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Real Value of U.S. Network

1000 ------------------------------- Professional

800; -- ------- --------------------------- --------

Fig. 1. Real Value of U.S. Network Sports Broadcast Rights, 1962-98

?o Royal Economic Society 2001

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leagues to benefit from increased competition for their broadcast rights. As

I 0 0 0 4__ --e-- -- -- -- --- - - - - - - - - - - - - - --- - -- - -- - -

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2.2. Television Markets in the United Kingdom

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All Homes Cable and Satellite TV Homes

BBC 1 & 2 39.7 27.3

2.3. Television Markets in Other European Countries

3. Sports Rights - Institutional and Legal Considerations

The importance of broadcast revenues to the major US professional sports

? Royal Economic Society 2001

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Country Deliveiy Platforms Main Competitors

France Cable, Satellite Canal Plus, AB Sat, TPS

Source: Cable and Satellite Europe: various issues.

Sport 1991 Revenue Share 1997 Revenue Share

Professional Football 0.60 0.56

6 Quirk and Fort (1992), p. 509.

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Cricket Domestic Tests BSkyB (P) 4 26

Source: TV Sports Markets.

? Royal Economic Society 2001