SPORTS AND THE FREE MARKET MYTH
Because billionaires desperately need your money to build a place for their millionaire employees to work.
Eighteen of the thirty-two NFL franchise owners are billionaires. The average NFL player's salary is $1.9 million (the median is $770,000). This creation of this wealth is not free market driven but rather a government induced redistribution of wealth to the upper class from the middle class.
$5 BILLION REASONS TO NOT LIKE THE NFL
Since FedEx Field opened in 1997, $5 billion of public funds have been used in the construction of football stadiums - an industry with nearly $10 billion in annual revenue and over $1 billion in profit still needs $275 million a year in taxpayer support. This arrangement may be acceptable if NFL stadiums had a positive economic impact on a city (which they don’t) or if the NFL did not consistently lie about this fact (which they do).
The NFL analysis, that stadiums have a positive economic impact, make two critical errors...First, that individuals would not spend their entertainment dollars elsewhere. Second, that the state's infrastructure spend would not generate jobs elsewhere or more effectively. It also disregards the fact that owners could pay or obtain financing for their stadium without public assistance.
Individuals would spend their entertainment dollars elsewhere, thus new stadiums may actually have a negative economic impact. That's because money that otherwise would be spent in a local community of middle class citizens will flow upward to the wealthy. Instead of spending money at a local restaurant or other venue fans spend an average of $85 for an NFL ticket. As the chart below shows, the middle class does not save their money, thus if people stopped buying football tickets, that money wouldn't be pulled from the economy, but instead spent elsewhere. Do stadiums generate money? Yes. Would that money just as likely have been spent somewhere else? Yes. Ergo, the NFL's not telling you the full story when they state their stadiums generate money for the local economy. Stadiums generate money...they don't generate new or additional money - at best they have a net zero impact.
Since FedEx Field opened in 1997, $5 billion of public funds have been used in the construction of football stadiums - an industry with nearly $10 billion in annual revenue and over $1 billion in profit still needs $275 million a year in taxpayer support. This arrangement may be acceptable if NFL stadiums had a positive economic impact on a city (which they don’t) or if the NFL did not consistently lie about this fact (which they do).
The NFL analysis, that stadiums have a positive economic impact, make two critical errors...First, that individuals would not spend their entertainment dollars elsewhere. Second, that the state's infrastructure spend would not generate jobs elsewhere or more effectively. It also disregards the fact that owners could pay or obtain financing for their stadium without public assistance.
Individuals would spend their entertainment dollars elsewhere, thus new stadiums may actually have a negative economic impact. That's because money that otherwise would be spent in a local community of middle class citizens will flow upward to the wealthy. Instead of spending money at a local restaurant or other venue fans spend an average of $85 for an NFL ticket. As the chart below shows, the middle class does not save their money, thus if people stopped buying football tickets, that money wouldn't be pulled from the economy, but instead spent elsewhere. Do stadiums generate money? Yes. Would that money just as likely have been spent somewhere else? Yes. Ergo, the NFL's not telling you the full story when they state their stadiums generate money for the local economy. Stadiums generate money...they don't generate new or additional money - at best they have a net zero impact.
What's a better infrastructure investment that will spur economic activity - a stadium that will be used ten times a year or roads and bridges? If any state should know this, it's Minnesota. The Vikings have wanted a new football stadium since 2001. In 2007 the I-35W Mississippi River Bridge collapsed in Minneapolis killing seven people yet the Vikings want to generate construction jobs via stadium construction instead of bridge repair. The Vikings numbers may be valid but repairing bridges will also generate construction jobs and have a greater economic impact simply because all businesses rely on roads and bridges; only one business needs a stadium. Pennsylvania financed four new stadiums during the early 2000’s despite having over 5,000 deficient bridges - the highest number in the country. When you drive across a bridge in Pennsylvania there is a one in four chance it’s structurally deficient. Think about that when you cross the Schuylkill or Delaware on your way to Lincoln Financial Field or any of the three rivers on the way to Heinz Field.
NFL BLACKOUTS
Beyond that if you don’t show up, in person, to watch a game at the stadium you paid for…the NFL has (or had) the ability to blackout the game so you can't watch it at home.
The NFL blackout policy has so bad there was bipartisan Congressional support to end the practice.
The NFL has finally decided to suspend its blackout rule in 2015. In prior years teams would not air a game locally unless a certain threshold of seats were sold. Fans not attending would be left staring a black screen on Sunday. Several teams - the Bengals (94% publicly financed stadium), the Colts (89%), and the Packers (57% public financed renovation) - averted blackouts during the 2014 Playoffs when local businesses purchased tickets to help exceed the blackout thresholds. How popular is the NFL? It's Wildcard Weekend and three of the four playoff teams couldn't fill their stadium. In fairness to the Packers kickoff temperatures were a record low.
The increase of ad sales and local affiliate cable revenues meant that the blackout potential was more of a veiled threat than an impending reality so the NFL’s suspension of the policy rings somewhat hollow and misses the point. It’s the existence of this policy - that a billionaire needs taxpayer money for their stadium, then when said taxpayers don’t show up, the billionaire is entitled to not air the game - that demonstrates the smallness and pettiness of franchise owners.
NFL BLACKOUTS
Beyond that if you don’t show up, in person, to watch a game at the stadium you paid for…the NFL has (or had) the ability to blackout the game so you can't watch it at home.
The NFL blackout policy has so bad there was bipartisan Congressional support to end the practice.
The NFL has finally decided to suspend its blackout rule in 2015. In prior years teams would not air a game locally unless a certain threshold of seats were sold. Fans not attending would be left staring a black screen on Sunday. Several teams - the Bengals (94% publicly financed stadium), the Colts (89%), and the Packers (57% public financed renovation) - averted blackouts during the 2014 Playoffs when local businesses purchased tickets to help exceed the blackout thresholds. How popular is the NFL? It's Wildcard Weekend and three of the four playoff teams couldn't fill their stadium. In fairness to the Packers kickoff temperatures were a record low.
The increase of ad sales and local affiliate cable revenues meant that the blackout potential was more of a veiled threat than an impending reality so the NFL’s suspension of the policy rings somewhat hollow and misses the point. It’s the existence of this policy - that a billionaire needs taxpayer money for their stadium, then when said taxpayers don’t show up, the billionaire is entitled to not air the game - that demonstrates the smallness and pettiness of franchise owners.
The government assistance and charity the NFL and other professional sports receive does stop with publicly financed stadiums. That's because...
CABLE BILLS ARTIFICIALLY RAISE SPORTS RELATED SALARIES
Sports television revenue is not completely free market and where it does have free market tendencies it's woefully inefficient and irrational. Local governments create and enable cable company monopolies - Philadelphia, a city of 1.5 million residents, has TWO cable providers. Sofia, Bulgaria, a city of 1.2 million residents has over five...and Bulgaria's internet speeds are faster too. Once sport teams have received the one-off assistance for the publicly financed stadium they continue to receive additional year-over-year assistance via cable subscription fees. The recent trend, which is likely to continue, is that teams have either created their own local network or receive high annual payments for the right of a local cable network to air their games. In the case of the Philadelphia Phillies its a 25 year, $2.5 billion contract. For a team like the Los Angeles Dodgers, which plays in a larger market, the contract is 25 years for $8.35 billion.
These enormous contracts may be justifiable if they were negotiated in a purely free market environment. They are not.
At a network level the government's lack intervention hurts the consumer (the opposite impact of when the government gets involved in cable rights of access). The "free market" of determining a network's subscriber fee makes little mathematical sense. Network subscriber fees, the primary cost of a cable bill, are arbitrary at best and sexist at worst. The primary culprit is ESPN which signs series after series of financial imprudent contracts. These contracts are the primary income for sports leagues and "justify" athletes' salaries, however, the contracts make no sense based upon numerical analysis. ESPN receives a bailout for their poor financial decisions because the cable operators overpay for the right to air the network because...even though actually ratings do not bear this out (shown below)...sports are deemed "Must Have" programming.
Here's the detailed example...
In 2011, ESPN won the rights to extend their Monday Night Football contract from 2014 through 2021. The cost: $15.2 billion - a 73% increase from the prior contract...and since they were negotiating early...they were only bidding against themselves. At $1.9 billion per season that averages to $110 million for a single game or $18.6 million for a thirty minute show...that has limited rerun value.
$18.6 million for thirty minutes of programming goes beyond financial imprudence to pure absurdity bordering on insanity...unless of course you can turn around and extract an equally financially imprudent and absurd rate increase from the cable operating...which they do.
For that price ESPN at least obtains the highest rated cable show during the Fall Season - in 2014 the average audience was 13.3 million viewers. Impressive? Consider that The Walking Dead's Fifth Season (combined Fall and Spring) averaged about one million more viewers than Monday Night Football (despite going up against Sunday Night Football another ratings juggernaut)...and yet...it costs nowhere near $18.6 million to produce nor does Sunday Night Football. An episode of The Walking Dead costs about $4 million or $2 million for the thirty minute cost comparison.
Maybe there's holes in the argument that ESPN subscriber fees are ridiculously high - The Walking Dead airs for an hour, Monday Night Football three hours. Over the course of a television season and a year ESPN is surely the highest rated network which supports the high subscriber fees? Not quite as the chart below illustrates.
Sports television revenue is not completely free market and where it does have free market tendencies it's woefully inefficient and irrational. Local governments create and enable cable company monopolies - Philadelphia, a city of 1.5 million residents, has TWO cable providers. Sofia, Bulgaria, a city of 1.2 million residents has over five...and Bulgaria's internet speeds are faster too. Once sport teams have received the one-off assistance for the publicly financed stadium they continue to receive additional year-over-year assistance via cable subscription fees. The recent trend, which is likely to continue, is that teams have either created their own local network or receive high annual payments for the right of a local cable network to air their games. In the case of the Philadelphia Phillies its a 25 year, $2.5 billion contract. For a team like the Los Angeles Dodgers, which plays in a larger market, the contract is 25 years for $8.35 billion.
These enormous contracts may be justifiable if they were negotiated in a purely free market environment. They are not.
At a network level the government's lack intervention hurts the consumer (the opposite impact of when the government gets involved in cable rights of access). The "free market" of determining a network's subscriber fee makes little mathematical sense. Network subscriber fees, the primary cost of a cable bill, are arbitrary at best and sexist at worst. The primary culprit is ESPN which signs series after series of financial imprudent contracts. These contracts are the primary income for sports leagues and "justify" athletes' salaries, however, the contracts make no sense based upon numerical analysis. ESPN receives a bailout for their poor financial decisions because the cable operators overpay for the right to air the network because...even though actually ratings do not bear this out (shown below)...sports are deemed "Must Have" programming.
Here's the detailed example...
In 2011, ESPN won the rights to extend their Monday Night Football contract from 2014 through 2021. The cost: $15.2 billion - a 73% increase from the prior contract...and since they were negotiating early...they were only bidding against themselves. At $1.9 billion per season that averages to $110 million for a single game or $18.6 million for a thirty minute show...that has limited rerun value.
$18.6 million for thirty minutes of programming goes beyond financial imprudence to pure absurdity bordering on insanity...unless of course you can turn around and extract an equally financially imprudent and absurd rate increase from the cable operating...which they do.
For that price ESPN at least obtains the highest rated cable show during the Fall Season - in 2014 the average audience was 13.3 million viewers. Impressive? Consider that The Walking Dead's Fifth Season (combined Fall and Spring) averaged about one million more viewers than Monday Night Football (despite going up against Sunday Night Football another ratings juggernaut)...and yet...it costs nowhere near $18.6 million to produce nor does Sunday Night Football. An episode of The Walking Dead costs about $4 million or $2 million for the thirty minute cost comparison.
Maybe there's holes in the argument that ESPN subscriber fees are ridiculously high - The Walking Dead airs for an hour, Monday Night Football three hours. Over the course of a television season and a year ESPN is surely the highest rated network which supports the high subscriber fees? Not quite as the chart below illustrates.
In 2015 SNL Kagan, the industry's leading research firm, estimates that cable providers pay over $6 per subscriber for the right to carry ESPN. The median network cost is $0.14. ESPN receives the highest subscriber fees yet isn’t the most watched network - USA Network holds that distinction. In 2013 USA averaged over 400,000 more viewers than ESPN yet earned $0.71 per subscriber to ESPN’s $5.54.
People assume that the NFL and ESPN are popular - they are - just not the most popular programming on TV. Yet inexplicably ESPN has the highest subscriber fees. The accepted rationale is that sports, lead by ESPN, are “Must Have” programming. The numbers, in the form of ratings, do not support this rationale. Basic economics would conclude that the most watched networks, with the highest ratings, would also have the highest subscriber fees. That's not the case which allows ESPN to continually win big contracts, pull events from public broadcast, and extract an unsubstantiated fee that is six times higher than a more popular network.
To be clear there's a difference between the popularity of a local team, such as the Philadelphia Eagles, and the popularity of the entire league. This illustrates that ESPN significantly overpays for content while FOX and CBS pay a more reasonable rate for local broadcasts. ESPN receives $5.54 to show national games while FOX and CBS receive under $1.00 for local games. Imagine what will happen if ESPN or one of its sister networks bids on the local game and transfers the content to one of its sister networks. Or if the broadcast networks start bidding like ESPN. The NFL wants to reach $25 billion in annual revenue in 2027 - they will accomplish this by charging higher fees for fans to watch games on TV in the stadiums they also helped to build. This has already occurred at the college level where certain schools and leagues have their own networks - mostly with assistance from ESPN. As of now most of these channels are a premium, meaning additional fees are required to view the channels - there was a time when Phillies' games were on a premium channel too.
At it's best this "forced to pay a disproportional fee for a network" is irrational and arbitrary...at it's worst it's sexist. It's a select company of men making these decisions who seem to favor their instincts over the raw numbers. Additional data shows that while ESPN is the "graph popping outlier" other second and third-tier sports channels also receive disproportionately high subscriber fees. The Golf Channel receives nearly $0.40 per subscriber yet is not even a Top 70 Channel. Channels with similar nightly ratings to The Golf Channel receive below the median fee of $0.14. The Golf Channel owns the rights to ZERO premier events which means it has ZERO must watch programming yet it still receives the "Must Have" subscriber fee bump.
People assume that the NFL and ESPN are popular - they are - just not the most popular programming on TV. Yet inexplicably ESPN has the highest subscriber fees. The accepted rationale is that sports, lead by ESPN, are “Must Have” programming. The numbers, in the form of ratings, do not support this rationale. Basic economics would conclude that the most watched networks, with the highest ratings, would also have the highest subscriber fees. That's not the case which allows ESPN to continually win big contracts, pull events from public broadcast, and extract an unsubstantiated fee that is six times higher than a more popular network.
To be clear there's a difference between the popularity of a local team, such as the Philadelphia Eagles, and the popularity of the entire league. This illustrates that ESPN significantly overpays for content while FOX and CBS pay a more reasonable rate for local broadcasts. ESPN receives $5.54 to show national games while FOX and CBS receive under $1.00 for local games. Imagine what will happen if ESPN or one of its sister networks bids on the local game and transfers the content to one of its sister networks. Or if the broadcast networks start bidding like ESPN. The NFL wants to reach $25 billion in annual revenue in 2027 - they will accomplish this by charging higher fees for fans to watch games on TV in the stadiums they also helped to build. This has already occurred at the college level where certain schools and leagues have their own networks - mostly with assistance from ESPN. As of now most of these channels are a premium, meaning additional fees are required to view the channels - there was a time when Phillies' games were on a premium channel too.
At it's best this "forced to pay a disproportional fee for a network" is irrational and arbitrary...at it's worst it's sexist. It's a select company of men making these decisions who seem to favor their instincts over the raw numbers. Additional data shows that while ESPN is the "graph popping outlier" other second and third-tier sports channels also receive disproportionately high subscriber fees. The Golf Channel receives nearly $0.40 per subscriber yet is not even a Top 70 Channel. Channels with similar nightly ratings to The Golf Channel receive below the median fee of $0.14. The Golf Channel owns the rights to ZERO premier events which means it has ZERO must watch programming yet it still receives the "Must Have" subscriber fee bump.
AN ALTERNATIVE
The threat that helps sport's leagues obtain stadium financing and high subscriber fees is that fans NEED sports. The opposite is also true - that sports need fans. The NFL is hurt more not having a franchise in Los Angeles than Angelenos are not having a football team. With the exception of a few cities an owners threat to move a team, is that, nothing more than a threat. Both the owners of the Rams and Raiders realize they shouldn't have relocated - both are looking to return to Los Angeles and use PRIVATE funds to construct new stadiums.
The challenge of course is "quitting" sports viewing and realizing that as a fan you don't need sports as much as the sports needs you. It's difficult but once the break is made there's no return. After a break ESPN's coverage looks like TMZ with a daily rotation of JJ Watt, Rob Gronkowski, and LeBron James puff pieces. There's nothing to miss...if so sports repeats would draw high ratings...they don't. Every football season I plan weekend trips. The time I spend traveling local beats anything found in a Chris Berman highlight reel let alone an entire three hour game. It also costs less (with a few exceptions). You can follow along with my own adventures or plan your own from any of the options I have listed on the site or where ever else a Google search leads.
The threat that helps sport's leagues obtain stadium financing and high subscriber fees is that fans NEED sports. The opposite is also true - that sports need fans. The NFL is hurt more not having a franchise in Los Angeles than Angelenos are not having a football team. With the exception of a few cities an owners threat to move a team, is that, nothing more than a threat. Both the owners of the Rams and Raiders realize they shouldn't have relocated - both are looking to return to Los Angeles and use PRIVATE funds to construct new stadiums.
The challenge of course is "quitting" sports viewing and realizing that as a fan you don't need sports as much as the sports needs you. It's difficult but once the break is made there's no return. After a break ESPN's coverage looks like TMZ with a daily rotation of JJ Watt, Rob Gronkowski, and LeBron James puff pieces. There's nothing to miss...if so sports repeats would draw high ratings...they don't. Every football season I plan weekend trips. The time I spend traveling local beats anything found in a Chris Berman highlight reel let alone an entire three hour game. It also costs less (with a few exceptions). You can follow along with my own adventures or plan your own from any of the options I have listed on the site or where ever else a Google search leads.