Tuesday, May 02, 2006

The Economist Magazine on the NFL

Socialism, as we know, stifles competition. But, when applied to something that is inherently competitive such as the NFL, it can be done successfully. There are free-riders, as Cincy was for years, but they are at least disliked on a highly public stage. I've thought this for some time, and it's nice to see it spelled out so well in this recent Economist article:

Two sets of incentives have been especially important: the teams' owners share roughly 70% of their revenues with each other; and they stick to a strict salary cap that limits the amount each team can spend on players' salaries. It is little wonder, then, that Art Modell, the former owner of a franchise that moved from Cleveland to Baltimore, once referred to NFL team owners as �32 fat-cat Republicans who vote socialist� on football. But these two policies, taken together, have done wonders for profits, by giving all 32 owners a chance to field teams that are both financially viable and athletically competitive, even though some are in much richer local markets than others. The contrast with English football's Premier League�the richest soccer league in the world�is striking. The lack of a salary cap and the fact there is little revenue sharing means that the league is dominated by the same teams, year after year, while the poorer and less successful teams lose support and flirt with bankruptcy.

As a counterpoint, I can say that the best teams in the Premier League are better than the best teams in the NFL. In the NFL, this leads to primarily following your local team and ignoring others as no team is much fun to watch. In the EPL, I can watch Chelsea, Man U, or Arsenal play any day of the week. But, as far as monetary value, the NFL as a whole is worth much more.

They also make an interesting observation about the benefits of not having a team in Los Angeles, although I think they may overstate the case:

Like any good syndicate, the NFL under Mr Tagliabue has also mastered politics. Mr Vrooman points out that the league likes to leave one prominent city without a football franchise, �like an empty seat in musical chairs�, so that teams in other cities can threaten to move if they do not get their way. This invariably prompts state and local governments to contribute public money to help teams that replace old stadiums with new ones. Los Angeles residents have been scratching their heads about why the country's second-largest city has had no football team since 1994. But the NFL has made far more money from new stadiums that have been built using Los Angeles as a threat, says Mr Vrooman, than it could have made by actually putting a team there. There is a lesson in all this for Mr Tagliabue's successor: competition is nice, but if you want it to be profitable, it helps to write your own rules.

Of course, this overlooks the fact that you aren't making as much money as you could in LA, but it's still a valid point. Anyone interested in the economics of professional sports should read the whole thing.


At 5/10/2006 01:10:00 PM, Blogger JesusIsJustAlrightWithMe said...

How does MLB factor in? It also has no revenue sharing etc. but has much more parity over the last 20 years than the NFL.

Also, that line about 32 fat cat Republican owners should be 31. The Packers are owned by the City of Green Bay.

At 5/12/2006 02:07:00 PM, Blogger Mike said...

MLB has had more parity? I don't think that they have, and they certainly had more in the 80's, when almost every team won their division at least once. At least it seems to me that the NFL has more parity. Is there evidence to the contrary?


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