ARE PUBLIC POLICIES NEEDED
TO LEVEL THE PLAYING FIELD
BETWEEN CITIES AND TEAMS?
MARK S. ROSENTRAUB*
Indiana University
ABSTRACT: The owners of professional sports franchises, once minor players in the manipulation
of locational choices to receive subsidies, now routinely anticipate substantial incentive packages
from the public sector. Teams demand and receive subsidies because many communities want teams
and the leagues dictate the supply of franchises. Periodic disdain over these subsidies and resentment from communities that have lost teams has not produced public policies to balance the interests of team owners and cities. Ironically, the federal laws that have been passed have enhanced
the economic power of the leagues. This article explores the impact of the cartel structure of professional team sports and a justification for changing the existing laws. Two different strategies
are discussed designed to end the sports subsidy game and thwart the incentives that convince
some teams to move from one area to another.
The provision of subsidies to influence the location of capital has been a constant and frustrating
component of local economic policy (Eisinger, 1988). Market forces, a preference for suburban lifestyles, national transportation and housing programs, and the imperatives of global competition have
led many municipal leaders to conclude they must offer subsidies to attract capital. Kantor and David
(1988) underscored some of these themes and concluded that economic competition and the structure
of markets had created a highly dependent position for cities. Communities can always refuse to meet
demands, and some cities have indeed abandoned bidding wars for firms when the costs became
too high (Hudnut, 1993; Nunn & Schoedel, 1995). In most situations, however, corporations have
successfully manipulated the dependent status of local communities to enhance profits and increase
the political costs for officials who refuse to provide inducements (Hudnut, 1993; Nunn, Klacik, &
Schoedel, 1996).
The owners of professional sports franchises, once surprisingly minor players in the manipulation
of locational choices to receive subsidies, now routinely anticipate substantial incentive packages
from the public sector. For example, the Dallas Cowboys is among the most valuable sports franchises in America. Yet, in January 1999, team owner Jerry Jones made it clear he expected either his
host city, Irving, or the state of Texas to provide a subsidy to help renovate the team’s current stadium
*Direct all correspondence to: Mark S. Rosentraub, School of Public and Environmental Affairs, Indiana University, Indianapolis, IN 46202. E-mail: MRosentr@IUPUI.Edu
JOURNAL OF URBAN AFFAIRS, Volume 21, Number 4, pages 377–395.
Copyright © 1999 Urban Affairs Association
All rights of reproduction in any form reserved.
ISSN: 0735-2166.
378 6 JOURNAL OF URBAN AFFAIRS 6 Vol. 21/No. 4/1999
or build a new one (Street and Smith’s Sports Business Journal, 1999a). Left unsaid was that the
failure to provide a subsidy would lead to a move of the beloved Cowboys to a more supportive
environment. In the past two years, the Yankees, another of professional sports’ most profitable teams,
have echoed a similar refrain in their efforts to secure a new ballpark in the metropolitan New York
City area.
The modern practice of providing subsidies to attract teams may have begun in 1953. Baltimore,
eager to be home to a Major League Baseball (MLB) team, promised a second deck on its Municipal
Stadium and a generous lease to rescue the American League’s Browns from their losing battle for
profitability in St. Louis. The Browns accepted Baltimore’s offer and became the Orioles in 1954
(Morgan, 1997). In 1956, Los Angeles provided land and other incentives to convince the Brooklyn
Dodgers to overcome MLB’s reluctance to place franchises in California. Incentives to influence the
locational choices of team owners now range from tax abatements and expenditures for infrastructure
to public guarantees to buy unsold tickets and luxury suites. The vast majority of teams now play in
publicly funded ballparks, stadiums, and arenas and have leases that eliminate the need for teams to
be responsible for all or a majority of a facility’s capital and operating costs (Noll & Zimbalist,
1997).
Periodic disdain over these subsidies and the resentment from communities that have lost teams
have led to several unsuccessful efforts to develop public policies to balance the interests of team
owners, cities, and fans. To date, however, no laws have been passed that effectively address the
factors that influence the provision of subsidies: the leagues’ control over the supply and location of
teams and the distribution of revenues and talent between large and small market teams. Ironically,
the laws that have been passed have enhanced the economic power of the leagues by allowing mergers and the packaging of broadcast rights.
The four major sports leagues, MLB, the National Football League (NFL), the National Basketball
Association (NBA), and the National Hockey League (NHL), are able to decide how many teams
will exist and where they will play. The leagues also decide how revenues and playing talent will be
distributed and shared among teams playing in markets of very different sizes. The leagues’ unfettered control over the supply of franchises means communities without teams must induce a move or
satisfy the conditions stipulated for an expansion team. Increasingly, this has meant that the public
sector builds a subsidized playing facility and permits a team to retain the vast majority of the revenues collected at the new ballpark, stadium, or arena. Moreover, the differential in earning power
between teams in market areas of varying sizes leads to pressures for larger subsidies from smaller
communities. Team owners in these areas frequently demand subsidies to ensure that their gross
revenue and profit levels match those secured by franchises in larger markets. The extra revenues
available to teams in larger communities are a function of the ability of those owners to prohibit other
franchises from entering their market.
Any discussion of the need for new or different public policies to influence the supply of franchises
or the distribution of revenues and talent must be framed by at least three sets of critical questions.
First, what is the public interest in professional team sports that justifies the implementation of policies that would constrain the property rights of owners? If communities are free to provide subsidies,
they are also free to decide against the provision of a locational inducement. In such an environment,
the public interest may well be in permitting an expression of each community’s interest in hosting
a team through the level of subsidies a city or state is willing to provide. Government interventions
that increase the supply of teams will change the value of all teams. Is such intervention warranted?
Second, have the leagues made an effort to meet the demand for teams, or have they artificially
restricted the supply of franchises? Even if the leagues are cartels that control the supply of franchises, are any communities that want teams without them? Third, do the leagues attempt to share
revenues to ensure competitive balance and eliminate the pressure on smaller communities to provide
subsidies? These questions are systematically addressed in the sections that follow, and they help to
frame a discussion of the policies that could be used to reduce or eliminate the subsidies provided by
communities.
6 Public Policies and the Playing Field Between Cities and Sports Teams 6 379
THE PUBLIC INTEREST IN PROFESSIONAL SPORTS TEAMS
AND THE JUSTIFICATION FOR POLICY INTERVENTION
While there might be a certain caché in expressing contempt for the popularity of sports and the
value and importance placed on teams and games, the available evidence suggests that professional
teams are both extremely popular and critically important cultural symbols. The popularity of sports
can be readily demonstrated from a review of attendance statistics and media penetration. In 1998,
for example, almost 15 million people attended NFL regular season games, and 70.5 million fans
went to MLB games. More than one million tickets were also sold to MLB’s playoff games, and
several hundred thousand people attended NFL playoff games and the Super Bowl. NBA teams attracted more than 20 million fans to their games in the 1997/98 season, and NHL games attracted
more than 17 million fans that same year (ESPN Information Please Sports Almanac, 1999; Street
and Smith’s Sports Business Journal, 1999b). These figures, of course, include multiple visits by the
same fans.
Some might argue that even if the 71 million tickets to MLB games represented visits by separate
fans, then fewer than one-third of all adults in North America would have attended a baseball game.
Is that level of popular interest deserving of government regulation and legislative oversight? The
popularity of sports, however, far exceeds the number of fans at games. Many people enjoy games
that are televised or broadcast. For example, the NFL’s Super Bowl regularly attracts viewers in more
than 40 million homes. Games involving NFL teams account for more than one-third of the 60 most
watched television programs in history, and sporting events routinely rank as the most watched programs on cable networks (ESPN Information Please Sports Almanac, 1999). While there would seem
to be little debate with the conclusion that sports is popular, does popularity imply an importance that
requires the establishment of public policies?
If substantial popularity was an insufficient justification for public policies regarding the supply
and competitiveness of teams, there is an extensive body of scholarly work that could be used to
underscore the social significance of team sports for societies. Anthony King, for example in summarizing the value of English football, noted, “The significance of football lies primarily not in its
financial value but rather in the fact that many individuals—particularly males—in English society
have regarded it as critical to their lives” (1998, p. 16). Sport and the rituals created by it become a
“service industry which sells (the) symbolic values” that define a society (A. King, 1998, p. 28).
Duke and Crolley (1996) underscored these themes for various nations in analyzing the defining
elements of football (soccer) for the United Kingdom, Spain, Belgium, Italy, and Argentina. They
also pointed to the work of Tomlinson (1994), who noted that “nations attain their fullest expression
in two ways—war and sport” (Duke & Crolley, 1996, p. 4). For many people, this relationship was
underscored by Honduras’ war with El Salvador following the 1969 World Cup soccer matches. Such
observations are not limited to European or Central and South American nations. Houlihan (1997)
focused on the transnational importance of sports. Similarly, Pope (1997) traced the level of importance for sport in American society from 1876 through 1926. Edwards (1973), Shropshire (1996), and
Danielson (1997) have discussed the critical role of team sports for present-day Americans and cities.
While sport is an important element in a society, does it follow that the four major sports leagues
should be subject to special public policies that address the availability and distribution of their assets? After all, a myriad of sports leagues exist at varying professional levels, and there are collegiate
and high school teams. Have professional team sports, as the pinnacle of this sports pyramid, established some level of preeminence that warrants the intervention of public policy? The answer to this
question is yes.
Numerous courts, Congress, and various state legislatures and local governments have underscored the economic and intangible value of the four major professional sports leagues. Other data
also attests to the critical value and importance that people place on the four major sports leagues
(Swindell & Rosentraub, 1998). Community leaders and elected officials frequently point to the value
and importance of a professional sports team. In 1966, for example, Louisiana Congressman Hale
380 6 JOURNAL OF URBAN AFFAIRS 6 Vol. 21/No. 4/1999
Boggs urged Congress to permit the merger of two competing professional football leagues. Noting
that New Orleans would receive a new franchise if the merger were approved, Congressman Boggs
declared,
The New Orleans area is ready for a professional football team. It is what New Orleans and Louisiana wants. It is what the South wants. We have a growing industrial area, one of the fastest
growing in the United States. . . Professional sports are an integral part of growth patterns. We have
come of age and we deserve a team (U.S. House of Representatives, 1966, p. 102).
Senator Thomas Eagleton led the drive to bring the NFL back to St. Louis after the Cardinals had
moved to Arizona. When asked why he supported the provision of extraordinary subsidies to attract
the NFL’s Rams to St. Louis, he responded, “Why do the deal for the Rams? Because some people
around the nation think St. Louis’s best days are behind us. We had to do something dramatic” (Rosentraub, 1997, p. 286). When asked why a large public investment in a ballpark was important for
Denver, Federico Pena, the mayor who brought MLB to Denver, was quite clear on the importance of
the four major sports leagues. “I think if you’re going to compete in the global marketplace you’ve
got to step up to the plate, so to speak, in many areas, and one is you have to have all the major sports
teams in your city” (Whitford, 1993, p. 30). In 1997, the Indiana legislature declared it a matter of
public purpose to preserve and insure the continued existence of the economic and intangible benefits
of the Indiana Pacers (Indiana Code, 1999). To this end, the legislature supported a $109 million,
tax-supported plan to build a new arena for the NBA’s Pacers. The city of Indianapolis diverted tax
dollars to the project and then passed a tax on rental cars to improve the finances of the NFL’s Indianapolis Colts. To these state and local actions can be added Congressional acts protecting the sports
leagues from anti-trust actions to permit them to operate their special business in the best interest of
the country (U.S. House of Representatives, 1966).
New Orleans and Louisiana, St. Louis and Missouri, Denver and Colorado, and Indianapolis and
Indiana each have numerous civic assets and access to a myriad of sports teams. Yet, community
leaders and legislative bodies recognized that hosting major league sports teams was critical to their
community’s future and identity. In this regard, the public policy importance of the four major sports
is found in Congressional and state and local legislative actions. The justification for public policy to
affect the supply and distribution of teams, as well as their potential to be competitive lies in the
social importance placed on team sports and in their immense popularity. If the four major sports are
cartels that ignore the public’s interests, then public action to influence the supply and location of
teams is warranted.
CAN SPORTS CARTELS REPRESENT THE PUBLIC’S INTEREST?
The development of public policies to affect the business decisions of private sports organizations
can only be justified if the leagues are indeed cartels using their status to thwart market forces and
economically harm consumers or taxpayers. If the leagues are merely organizations that have successfully competed with other forms of recreation for consumers’ scarce dollars, then oversight of
their rules for expansion and revenue sharing is an inappropriate intrusion of governmental authority.
If the leagues are cartels that fail to respond to the demand for competitive teams, then corrective
actions may be justified.
Some have argued that the leagues are just one form of entertainment and that if any market irregularities exist, they involve the relationship between teams and their players. While a consumer
can select among competing forms of entertainment for their recreational dollars, a football or baseball player can sell their services to only one league if no other exists. Further, if the existing leagues
limit the ability of players to market their services to different teams through capitation methods
(ceilings on salaries or team expenditures) or restrictions on free agency, then the power of the leagues
relative to labor is magnified. This has been an issue at the heart of many of the labor disputes in
professional sports. However, for the present discussion, the issue for cities that want to host teams
6 Public Policies and the Playing Field Between Cities and Sports Teams 6 381
capable of competing for championships is how league practices and policies have influenced the
supply, distribution, and competitiveness of teams. Are the four major sports leagues cartels that
maximize their economic position through unfair control over a scarce resource? This is the question
that is central to those communities that want teams and the justification for any public policies that
interfere with the leagues’ rights to control the supply of franchises.
Leagues were initially created to ensure the existence of competitive teams for the staging of games,
protect market areas and the economic stability of each franchise, and provide a season of games that
led to a championship. At first it was believed that teams did not compete with each other in an
economic sense (Federal Baseball Club of Baltimore v. National League of Professional Baseball
Clubs, 1922). Within this perspective, teams were seen as partners in a joint economic enterprise
created for the sole purpose of staging athletic competitions (Quirk & Fort, 1992). Events across the
last few years have dispelled this notion. In an era when teams must compete with each other to
attract and retain talent, a baseball team in Chicago is more than a source of competition for the
staging of games. If a team in Chicago uses its resources to attract and retain the best players, this
competition can have a damaging effect on teams in other cities without access to similar levels of
revenues (Lombardo & Kaplan, 1999). When the New York Mets agreed to pay Mike Piazza a record
$91 million for seven seasons, most experts concluded the contract had effectively forced smaller
market teams to strain to attract and retain their free agent stars (B. King, 1998). As winning percentages are correlated with expenditures for players (Scully, 1995), if any one team raises salary
levels, all of its athletic competitors are threatened. In this manner, a team’s athletic competitors
quickly become their economic competitors.
The Implications or Outcomes From Self-Regulation:
The Supply Of Teams
There are clear incentives for all owners to restrict the supply of teams. As long as the number of
teams is less than the number of cities that want one, owners can bargain for the best possible deals
from different communities. While one would expect a cartel to restrict the supply of teams, has this
actually taken place?
The ability of any community to support a team is a function of the size and wealth of its population. Preferences for different sports also are quite important. In 1995, the New York Times performed
an analysis of the number of baseball teams that could be supported in the United States. This examination focused on four criteria enumerated for each metropolitan area: the number of men between the ages of 18 and 54, per capita incomes, population growth, and the potential for the sale of
luxury suites (the number of firms and wealthy households in an area). The Times found nine areas
without MLB teams that could definitely support a team, five areas that could possibly support a
team, and as many as five areas that could support at least one additional team. With 28 teams based
in the United States, the analysis by the New York Times would suggest MLB should have at least 37
teams and possibly as many as 47 (Ahmad-Taylor, 1995).
In 1997, the Cleveland Indians earned a pretax profit of almost $10 million with gross revenues of
approximately $140 million. The Indians play in a metropolitan region of 3.9 million people (July
1996 population of Cleveland’s media market). If four million is the population base needed for a
very profitable and successful team, both the New York City and Los Angeles metropolitan regions
could clearly support additional teams. It may not be possible to conclude that as many as four or five
MLB teams could exist in these markets, but at least one additional team would be quite profitable.
If one focused only on the increased population of the US, there would also appear to be too few
teams. There are nine metropolitan areas with populations larger than the smallest area with a MLB
baseball team. If one focused on the number of large corporations in an area as a measure of the
financial viability of a region to support a franchise, additional teams should exist in the Northern
Virginia and Austin/San Antonio areas, Portland, and in the San Bernadino area. The current US
population and the distribution of large businesses are sufficiently robust to support 33 or 34 major
league baseball teams. In the NFL, Buffalo is the smallest market with a NFL team, but 14 other
382 6 JOURNAL OF URBAN AFFAIRS 6 Vol. 21/No. 4/1999
metropolitan areas with larger populations are without teams. As many as 42 NFL teams could be
supported if population and local wealth were the factors determining supply and demand. Using
wealth and size of the population it would seem that too few teams exist. In a free market setting it is
reasonable to expect that there would be more teams. The fact is that cartels have restricted the supply
of teams.
The Implications or Outcomes from Self-Regulation:
The Distribution of Revenue
The distribution of revenue is critical to the integrity of athletic competition in a league. If teams
have very different levels of income, then high-income teams will have a greater potential to attract
and retain the best players. If this occurs, a group of teams can dominate a league and effectively
eliminate competition. Some argue that the supply of talented players is such that all teams can compete for the players needed to win. It is the contention here that there is a limited supply of the best
players. In the absence of revenue or talent sharing programs, teams in larger markets will attract
better players, forcing teams in smaller markets to demand subsidies to enhance their revenues to the
point that they can maintain profit levels and pay for the best players. The four major sports leagues
have had very different commitments to revenue sharing. The NFL shares the greatest proportion of
total league revenues and the NHL shares the least. The NBA also has a very limited revenue sharing
program, but salary caps for teams and for every player place some limits on what can be spent.
Major League Baseball
In 1996, prior to MLB’s new revenue-sharing program, team’s averaged $66 million in total revenues (see Table 1). Fifteen MLB teams, however, had revenues below this average, and seven had
revenues that were at least 33% larger. The high-revenue teams played either in large market areas
(New York, Boston, and Chicago) or in subsidized facilities (Texas, Cleveland). The 1997 MLB
baseball season was played with a new revenue-sharing plan, but when the smoke had cleared in 1998
from this redistribution effort, as the season began not much had changed. In Sports Illustrated’s
annual baseball season preview issue, Tom Verducci noted:
The five biggest spenders last year all made the post season leaving just three playoff spots for the
remaining 23 teams. The three clubs who got those spots . . . were gone from the post season quicker
than footprints in the sea at high tide.
“It may not seem that long ago that Oakland, Minnesota, and Kansas City were World Series teams,”
says Athletics president Sandy Alderson. “But that’s ancient history. The dynamics of the game are
drastically different from what they were ten years ago—even five years ago. The change is easily
explained. It was the construction of stadiums with public money coupled with the drop in TV
money after the last CBS contract. Almost overnight the poor (teams) got poorer and the rich (teams)
got a lot richer.”
As the gap between the haves and have-nots widens, those clubs in between are the most foolhardy.
They are the ones spending enough money to dream of a pennant but not enough to compete with
the big-revenue clubs (1998, p. 68).
The five teams that paid the “luxury tax” in 1997—the Yankees, Orioles, Indians, Braves, and Marlins—
paid a total of $12 million to offset the revenue differences in baseball. Such a small sum has no
ability to change the economics of baseball. Ozanian’s 1998 analysis of MLB found 3 teams with
gross revenues in excess of $130 million while 11 franchises earned no more than half of this total.
Five teams had gross revenues in excess of $100 million, while 14 MLB teams did not earn as much
as $80 million (see Table 2).
TABLE 1
Team Revenues and Expenditures and Selected Community Characteristics: MLB Teams in 1996 (all figures in millions of dollars except population)
Team
Gate
Media
Facility
Total
Player
Salaries
Public Investment
New York Yankees
Baltimore Orioles
Colorado Rockies
Cleveland Indians
Los Angeles Dodgers
Boston Red Sox
Texas Rangers
Atlanta Braves
Chicago Cubs
Chicago White Sox
Toronto Blue Jays
St. Louis Cardinals
New York Mets
Houston Astros
Seattle Mariners
Florida Marlins
San Diego Padres
San Francisco Giants
Philadelphia Phillies
Oakland Athletics
Cincinnati Reds
Detroit Tigers
Kansas City Royals
Anaheim Angels
Milwaukee Brewers
Minnesota Twins
Montreal Expos
Pittsburgh Pirates
42.6
51.0
46.0
48.0
31.9
39.0
35.5
40.1
28.3
22.2
36.3
27.3
18.2
21.8
31.0
21.5
21.7
14.3
18.7
12.5
14.9
12.4
14.5
15.0
14.9
13.8
14.8
12.3
69.8
30.6
22.8
21.6
31.8
30.9
24.3
30.3
29.3
24.3
28.4
25.7
30.9
22.3
17.2
23.9
16.5
25.5
21.4
25.2
21.5
24.7
16.5
18.3
15.1
20.4
19.4
17.7
17.5
21.4
23.9
22.9
22.0
16.4
25.5
6.3
16.9
20.9
3.1
14.9
16.8
14.4
7.5
7.3
12.1
9.6
8.0
9.8
7.0
5.4
10.2
7.1
9.7
5.0
4.8
7.7
133.3
105.3
95.6
95.4
88.6
88.4
87.7
79.1
76.6
70.3
70.2
69.8
68.3
62.4
57.6
55.8
52.8
51.8
50.0
49.4
45.3
44.4
43.1
42.5
41.6
41.1
40.9
39.9
63.0
55.8
41.6
51.4
39.1
42.2
42.8
55.4
32.2
47.5
30.7
42.6
26.2
28.4
44.3
30.0
33.3
37.8
31.9
21.4
45.3
21.6
20.9
27.7
17.5
23.4
17.7
20.5
38.3
19.0
23.0
15.6
13.5
16.3
18.9
−0.4
18.3
−5.2
14.5
3.2
11.0
11.5
−1.7
2.8
2.5
−6.0
−6.5
11.3
−14.0
3.8
4.7
−2.4
6.6
−1.3
6.2
1.4
19.8
7.8
3.8
5.9
15.6
7.3
5.1
4.4
8.8
8.8
4.3
3.0
19.8
4.6
4.0
3.7
2.7
6.5
7.7
6.5
9.4
6.0
3.3
15.6
2.2
3.9
3.3
2.9
Note 1
$200 Million
$215 Million
Approximately $215 Million
Note 2
Private Facility
$135 Million
Note 3
Private Facility
$150 Million
$262 Million (Canadian)
Private Facility
Notes 4,5
$180 Million
$360 Million
Note 5
$250 Million; $450 Million Private
Note 6
Note 5
$130 Million
$250 Million
$240 Million
Note 7
Note 8
$232 Million
Note 5
Note 5
Note 5
Average revenues of MLB teams in 1996, $66 million; Average revenues of 1996 playoff teams, $89 million
Average revenues of 6 teams with highest player payrolls, $88.1 Million; Population, in millions, refers to media markets.
Notes: (1) Yankee Stadium was remodeled at the public’s expense, but the team is now seeking new facility; (2) The Dodgers were given the land upon which their stadium was built. (3) Atlanta
Braves paid approximately $50 million for the remodeled 1996 Olympic Stadium. (4) New York City built Shea Stadium in the 1960s; (5) Seeking new stadium or new stadium has been
approved. (6) Building privately financed stadium. (7) Team is now community owned. (8) Private financing for remodeled public stadium.
Sources: Financial World (Website), Alan Friedman and Paul J. Much, 1998.
6 Public Policies and the Playing Field Between Cities and Sports Teams 6 383
Income
1996
Population
(in millions)
Revenues
384 6 JOURNAL OF URBAN AFFAIRS 6 Vol. 21/No. 4/1999
TABLE 2
MLB Team Values, Revenues, and Operating Income in 1997 (all figures in millions of dollars)
Team
Market Value
Revenues
Operating Profit
362
323
322
303
299
254
251
236
230
214
204
193
190
188
174
161
159
157
141
137
136
133
131
127
118
108
94
87
144.7
134.5
134.1
116.6
119.6
97.6
89.8
94.3
92.1
82.3
81.5
80.5
68.0
69.8
82.9
57.6
88.2
62.6
67.1
50.6
50.2
49.3
57.1
46.9
56.4
51.2
46.8
43.6
21.4
18.7
15.4
38.3
18.2
9.1
11.4
0.9
7.7
−4.2
8.1
8.1
2.3
0.2
2.4
−6.7
−5.5
−9.6
−20.5
−0.4
−19.9
7.5
−2.5
−4.8
7.5
−11.8
−16.5
−3.7
New York Yankees
Baltimore Orioles
Cleveland Indians
Colorado Rockies
Atlanta Braves
Texas Rangers
Seattle Mariners
Los Angeles Dodgers
Boston Red Sox
Chicago White Sox
Chicago Cubs
New York Mets
Houston Astros
San Francisco Giants
St. Louis Cardinals
San Diego Padres
Florida Marlins
Anaheim Angels
Toronto Blue Jays
Detroit Tigers
Cincinnati Reds
Pittsburgh Pirates
Philadelphia Phillies
Milwaukee Brewers
Oakland Athletics
Kansas City Royals
Minnesota Twins
Montreal Expos
Source: Michael K. Ozanian, Selective Accounting, Forbes, December 14, 1998, pp. 124–134.
National Basketball Association
In 1996, the 8 most successful teams had average revenues $8.9 million above the league average.
For the 1997–98 season, 9 teams had player payrolls in excess of $35 million, while 17 teams spent
less than $30 million. Differences of this magnitude, when a team may have as few as 12 players can
have a substantial impact on winning percentages. NBA teams do not share any arena-related income,
ticket revenues, or income generated through local media contracts. The league does share its national television contract, but that accounts for less than 30% of team revenues. By the end of the
1997/98 NBA season, the revenue disparities in this league had also created a world of haves and
have-nots. Two teams had gross revenues that exceeded $100 million, while 8 earned less than $50
million. Seven teams had gross revenues in excess of $80 million, but 20 teams earned less than $60
million, creating a revenue mismatch that had effectively destroyed any competitive balance (see
Tables 3 and 4).
After the 1997/98 NBA season, team owners invoked a clause in the existing contract with the
NBA Players Association that enabled them to terminate the agreement. The players’ share of league
revenues had exceeded the agreed-to level. A lockout began that led to the cancellation of 31 games
for each team. The NBA’s new agreement placed a cap on team salaries by limiting the amount of
money that could be paid to any one player. Players with 5 or fewer years of experience could not
earn more than $9 million. Those with between 6 to 9 years of service could earn no more than $11
million, and the most any one player could earn with more than 9 years of service was $14 million.
The union also accepted a total salary cap of $30 million per team for the 1999 season. For the
TABLE 3
Team Revenues and Expenditures and Selected Community Characteristics: NBA Teams, 1996 (all figures in millions of dollars except population)
Revenues
Gate
Media
Facility
Total
Player
Salaries
Income
1996
Population
Public Investment
New York Knicks
Chicago Bulls
Portland Trailblazers
Los Angeles Lakers
Phoenix Suns
Detroit Pistons
Boston Celtics
Cleveland Cavaliers
Houston Rockets
Orlando Magic
Utah Jazz
San Antonio Spurs
Seattle Supersonics
Charlotte Hornets
New Jersey Nets
Sacramento Kings
Toronto Raptors
Golden State Warriors
Indiana Pacers
Washington Wizards
Philadelphia 76ers
Miami Heat
Minnesota Timberwolves
Denver Nuggets
Vancouver Grizzlies
Dallas Mavericks
Atlanta Hawks
Milwaukee Bucks
Los Angeles Clippers
41.2
38.0
40.9
31.0
27.5
24.4
29.8
25.7
27.9
27.6
27.2
29.4
26.6
23.5
19.2
19.9
23.7
18.6
22.4
17.5
14.1
17.2
13.6
16.2
17.8
18.5
12.3
14.2
10.1
30.0
27.3
22.6
36.5
32.5
33.1
22.6
19.5
25.0
25.1
15.6
20.2
19.5
19.8
24.7
15.8
17
20.9
16.8
16.2
24.5
18.8
19.9
18.6
14.5
17.7
17.7
15.6
19.1
19.6
12.2
15.2
6.8
10.9
24.5
7.4
13.4
4.4
4.8
11.5
6.0
3.9
6.2
5.3
9.4
4.5
4.9
4.7
7.0
2.3
4.4
6.8
4.6
3.8
2.3
5.8
2.8
2.5
99.9
86.8
86.1
81.3
78.8
77.3
64.6
64.5
62.8
62.8
61.4
59.7
55.7
53.7
52.9
50.4
49.4
48.2
47.8
45.9
44.6
44.3
44.0
43.6
42.3
42.2
41.3
36.4
35.5
45.9
25.2
25.6
34.9
39.0
25.6
27.6
29.6
27.4
39.1
24.0
28.0
27.7
24.2
24.6
26.1
18.1
24.7
25.6
23.8
27.1
23.5
23.9
24.8
19.4
23.3
24.1
24.9
22.6
22.9
33.2
33.5
19.9
15.3
25.7
16.4
11.9
13.4
8.5
14.8
15.2
12.0
14.9
7.3
4.3
14.4
7.8
9.1
4.6
2.1
4.8
6.7
4.4
5.4
4.6
−2.8
−3.5
−1.4
19.8
8.8
2.6
15.6
4.4
6.0
7.3
5.9
4.6
2.7
2.2
3.1
4.0
6.8
19.8
3.2
4.3
6.4
3.2
7.8
7.7
3.7
3.9
3.8
1.8
5.1
4.4
2.2
15.6
Private Facility
Reduced Taxes
Infrastructure
None in New Arena
At Least $50 Million
Private Facility
Private Facility
At Least $100 Million
New Facility Planned
$98 Million
Land Was Provided
$186 Million/Note 1
Note 2
$52 Million/Note 1
$85 Million/Note 1
$70 Million Loan
Private
$28 Million
$107 Million
$60 Million for Infrastructure
Infrastructure Only
$6.5 million/year; Note 4
At Least $50 Million
$20 Million
Private Facility
$125 Million
$62.5 Million
$90 Million
$5 Million
Notes: (1) Teams pay rent, which reduces a portion of the public subsidy. (2) Renovation cost of $110 million paid by city but supported by facility revenues. (3) The public sector investment
is limited to infrastructure. (4) The new arena will be privately built, but the public sector is responsible for maintenance costs of $6.5 million per year. (5) City provided $4.5 million for
infrastructure, $2.25 million in sales tax rebates, and $2.1 million in annual property tax reductions.
Sources: Financial World (Website), Alan Friedman and Paul J. Much, 1998.
6 Public Policies and the Playing Field Between Cities and Sports Teams 6 385
Team
386 6 JOURNAL OF URBAN AFFAIRS 6 Vol. 21/No. 4/1999
TABLE 4
NBA Team Values, Revenues, and Operating Income in 1997 (all figures in millions of dollars)
Team
Chicago Bulls
New York Knicks
Los Angeles Lakers
Portland Trail Blazers
Phoenix Suns
Washington Wizards
Detroit Pistons
Utah Jazz
Philadelphia 76ers
Boston Celtics
Seattle Supersonics
Houston Rockets
Cleveland Cavaliers
New Jersey Nets
Indiana Pacers
Miami Heat
Atlanta Hawks
Orlando Magic
Vancouver Grizzlies
Golden State Warriors
Charlotte Hornets
San Antonio Spurs
Toronto Raptors
Dallas Mavericks
Sacramento Kings
Minnesota Timberwolves
Denver Nuggets
Los Angeles Clippers
Milwaukee Bucks
Market Value
Revenues
Operating Profit
303
296
268
245
235
207
206
200
196
176
169
166
161
157
152
145
140
134
133
130
124
122
121
119
119
119
110
102
94
112.2
109.7
92.4
94.1
87.0
76.5
85.9
80.1
69.9
65.0
64.9
72.1
61.9
65.5
56.4
50.0
46.6
63.7
51.1
48.0
56.4
55.3
44.9
41.2
51.9
51.8
37.8
39.3
42.7
8.6
18.3
24.8
34.2
15.3
8.2
30.0
20.7
8.6
10.5
3.3
20.3
13.5
8.4
−4.8
−7.5
−9.1
−1.9
1.3
−2.5
9.2
0.7
1.6
−6.8
−5.2
5.8
−6.8
−4.9
−3.2
Source: Michael K. Ozanian, Selective Accounting, Forbes, December 14, 1998, pp. 124–134.
1999/2000 season, the cap will expand to $34 million, but thereafter the cap will grow by approximately $1.5 million a year.
With salaries capped, it was hoped that smaller market teams with new revenue-rich (and subsidized) arenas would be able to have competitive teams and to retain their stars. This potential certainly exists; however, the NBA’s achievement of a plan to balance competition and protect smaller
market teams did not involve a sharing of revenues. Rather, the cost of putting a competitive team on
the court was controlled by limiting the money players could earn. No caps on profits were established.
National Football League
By virtue of sharing revenues from the national broadcast contracts and from the sale of tickets, the
NFL redistributes more money than any other league. However, the revenues that are not shared have
led to critical revenue differentials. In 1996, seventeen teams earned less than the league average of
$77.7 million, and seven teams earned more than $80 million. The Cowboys benefited from being the
team with the most in-stadium revenues and earned a total of $121 million in 1996. In 1997, the
Cowboys, Redskins, and Dolphins had income after expenses that dwarfed the revenues of every
other team in the league (see Tables 5 and 6). One other team that was quite successful financially, the
St. Louis Rams, plays its home games in a new stadium that was built by the public sector without
contributions from the team. Smaller market teams typically earned less revenue. For example, the
TABLE 5
Team Revenues and Expenditures and Selected Community Characteristics: NFL Teams, 1996 (all figures in millions of dollars except population)
Revenues
Media
Facility
Total
23.3
26.2
25.9
24.6
23.9
25.1
23.6
22.2
25.0
23.8
20.8
20.2
24.2
24.4
23.0
20.4
32.5
19.3
20.6
22.9
22.7
20.2
17.5
20.0
19.1
20.2
20.2
21.8
30.8
14.6
47.0
44.4
46.7
44.7
44.1
45.8
44.9
48.0
44.8
44.9
46.4
42.9
44.1
43.9
43.4
45.2
19.4
43.2
43.5
46.7
43.6
43.0
43.6
45.0
43.9
45.7
42.8
43.2
20.0
44.4
41.5
20.0
9.3
12.0
10.0
5.2
8.3
5.7
4.9
6.5
7.0
9.3
5.9
3.0
5.7
5.2
16.2
7.8
6.6
0
2.7
1.4
6.9
2.6
4.5
1.2
3.2
0.8
11.6
3.2
121.3
95.4
85.9
85.8
82.0
80.6
80.3
79.5
79.3
79.2
79.1
79.0
77.7
75.8
75.6
75.4
75.1
74.9
74.2
73.4
72.5
72.1
72.1
71.2
71.1
70.7
69.7
69.4
67.3
65.7
61.1
49.5
58.8
51.9
50.1
65.4
51.6
55.8
56.2
54.3
57.0
58.6
60.7
47.8
51.3
62.2
49.9
46.5
46.4
56.4
49.6
44.0
47.5
49.4
52.1
41.1
52.4
47.0
53.1
43.5
Income
1996
Population
(in millions)
Public Investment
30.2
20.7
3.6
16.4
10.9
−0.6
6.7
2.9
3.6
5.4
0.1
4.7
−2.5
9.0
6.7
−8.0
1.7
7.2
8.9
0.7
4.9
10.1
8.9
3.3
0.8
7.5
3.0
3.3
−4.8
5.2
5.1
3.7
6.5
3.0
3.3
19.8
7.7
8.8
6.5
4.4
7.3
2.5
2.6
7.8
2.7
19.8
6.8
5.1
3.9
3.8
2.9
6.9
3.5
4.0
4.4
7.8
3.2
6.0
1.4
4.6
New Stadium Discussed
$12.5 Million
$100 Million
$280 Million
$43 Million/Note 1
$78 Million/Note 1
$50 Million/Note 1
New Stadium Requested
$197 Million/Note 1
$214 Million/Note 1
$375 Million+
$134 Million/Note 1
$180 Million/Note 2
$220 Million
$105 Million/Note 1
$78 Million/Note 1
$50 Million
$960,000
$55 Million/Note 3
$260 Million
$35 Million/Note 1
$400 Million/Note 1
$300 Million
$325 Million
New Stadium Requested
$71 Million for Infrastructure
Note 4
$240 Million
$121 Million/Note 1
$292 Million
Notes: (1) Team pays a small rent, which reduces the public subsidy. (2) Original stadium cost was $85 million; a state aid package passed in June 1998 provided $63 million for stadium
improvements, $18 million in capital to help the team, and $2.9 million to cover the team’s rental payments to Rich County. (3) Team is requesting a new stadium. (4) In 1997 the city of
Indianapolis changed the lease to give more revenue to the Colts—the public costs for the RCA Dome will be in excess of $80 million.
Sources: Financial World(Website), Alan Friedman and Paul J. Much, 1998.
6 Public Policies and the Playing Field Between Cities and Sports Teams 6 387
Dallas Cowboys
Miami Dolphins
San Francisco 49ers
St. Louis Rams
Kansas City Chiefs
New York Giants
Philadelphia Eagles
Chicago Bears
Oakland Raiders
Atlanta Falcons
New England Patriots
New Orleans Saints
Buffalo Bills
Baltimore Ravens
San Diego Chargers
New York Jets
Carolina Panthers
Green Bay Packers
Minnesota Vikings
Denver Broncos
Pittsburgh Steelers
Cincinnati Bengals
Tampa Bay Buccaneers
Seattle Seahawks
Arizona Cardinals
Washington Redskins
Indianapolis Colts
Detroit Lions
Jacksonville Jaguars
Tennessee Oilers
Gate
Player
Salaries
388 6 JOURNAL OF URBAN AFFAIRS 6 Vol. 21/No. 4/1999
TABLE 6
NFL Team Values, Revenues, and Operating Income in 1997 (all figures in millions of dollars)
Team
Dallas Cowboys
Washington Redskins
Carolina Panthers
Tampa Bay Buccaneers
Miami Dolphins
Baltimore Ravens
Seattle Seahawks
Tennessee Oilers
St. Louis Rams
Denver Broncos
Detroit Lions
Cincinnati Bengals
Pittsburgh Steelers
Jacksonville Jaguars
New York Giants
New York Jets
Kansas City Chiefs
San Francisco 49ers
New England Patriots
Buffalo Bills
Philadelphia Eagles
San Diego Chargers
Green Bay Packers
New Orleans Saints
Chicago Bears
Oakland Raiders
Minnesota Vikings
Atlanta Falcons
Arizona Cardinals
Indianapolis Colts
Market Value
Revenues
Operating Profit
413
403
365
346
340
329
324
322
322
320
312
311
300
294
288
259
257
254
252
252
249
248
244
243
237
235
233
233
231
227
118.0
115.1
83.0
76.8
103.1
73.2
77.1
71.5
91.9
76.3
74.2
69.2
75.1
66.8
82.3
76.2
85.6
84.7
84.0
78.7
83.0
82.5
78.8
80.9
79.0
78.3
77.7
77.6
76.9
70.9
41.3
31.7
0.7
2.6
31.6
−1.0
−10.9
−0.4
17.1
2.5
−20.9
1.7
−1.6
−14.1
0.4
2.1
3.7
0.6
8.1
6.6
13.0
6.1
−1.2
18.5
2.7
2.5
6.7
−0.8
8.5
0.4
Source: Michael K. Ozanian, Selective Accounting, Forbes, December 14, 1998, p. 132.
Indianapolis Colts, the Arizona Cardinals, and the Seattle Seahawks each earned at least $6 million
less than the league average and more than $10 million less than the teams with the largest revenue
bases. The Seahawks will soon play in a new, publicly subsidized stadium, and the Colts received a
revised lease that will enhance their revenues and that led to higher local taxes. The Cardinals have
tried in vain to get governments in the Phoenix area to build a new stadium and have threatened to
move if a new facility is not forthcoming. To help another small market team, the Buffalo Bills,
taxpayers in New York provided more than $60 million for stadium renovations.
National Hockey League
Substantial revenue differentials exist in the NHL. In 1996, 6 teams earned more than $50 million,
while 13 earned less than $40 million. Teams are dependent on their own local revenues, and those
franchises with subsidized facilities have a potential to earn far more money than those teams that
do not. In 1997, while 15 teams earned less than $50 million, 3 earned more than $70 million (see
Tables 7 and 8).
To summarize, in three of the four sports leagues, there are very large differences in the revenues
earned by teams. These differences inevitably affect the distribution of playing talent. Teams in smaller
market areas frequently demand subsidies to ensure that they earn sufficient revenues. In the NFL,
TABLE 7
Team Revenues and Expenditures and Selected Community Characteristics: NHL Teams, 1996 (all figures in millions of dollars except population)
Team
Gate
Media
Facility
Total
Player
Salaries
Public Investment
Chicago Blackhawks
New York Rangers
Detroit Red Wings
Boston Bruins
St. Louis Blues
Philadelphia Flyers
Pittsburgh Penguins
Toronto Maple Leafs
New Jersey Devils
Vancouver Canucks
San Jose Sharks
Los Angeles Kings
Montreal Canadiens
Anaheim Mighty Ducks
Calgary Flames
New York Islanders
Colorado Avalanche
Washington Capitals
Dallas Stars
Florida Panthers
Ottawa Senators
Buffalo Sabres
Edmonton Oilers
Tampa Bay Lightning
Carolina Hurricane
Phoenix Coyotes
38.7
36
37.5
35.9
38.1
34.1
35.6
24.7
27.1
26.3
25.5
27.8
22.7
22.6
22.3
19.8
25.9
22.1
26.9
23.2
17.7
19.3
13.7
12.9
16.6
11.9
6.0
8.3
8.3
11.8
5.2
7.9
7.0
8.4
7.2
7.3
4.2
7.0
7.2
5.5
5.0
10.9
3.0
4.7
4.3
5.4
5.5
5.1
5.0
5.5
4.1
4.6
24.5
20.7
15.0
12.8
8.6
8.7
4.6
8.8
8.5
4.8
10.5
4.8
6.4
9.0
8.4
5.0
6.6
7.3
1.9
2.7
6.4
4.1
6.1
5.7
2.2
3.3
73.1
70.4
65.2
64.9
54.8
53.6
48.6
46.2
43.6
42.7
42.4
40.4
40.2
39.5
38.6
37.1
36.9
36.5
33.9
32.6
31.9
29.3
27.6
25.0
23.8
20.6
23.8
34.1
30.6
22.2
28.5
22.4
24.2
23.4
23.4
26.5
18.9
28.4
20.1
15.8
17.1
18.0
21.5
18.5
21.4
17.8
13.8
19.9
11.7
15.4
22.4
22.8
26.9
10.2
9.1
17.8
6.3
9.7
10.1
3.4
4.3
−0.3
8.1
−2.0
−0.4
6.9
7.8
3.9
−0.6
0.5
−0.1
−0.9
0.1
−3.3
−0.1
−4.2
−9.2
−11.7
8.8
19.8
6.0
7.3
3.0
7.7
2.9
4.3
19.8
1.8
6.5
15.6
3.3
15.6
0.8
19.8
3.8
7.8
5.1
3.7
1.0
2.6
0.9
3.5
2.4
4.4
Tax Reduction Only
Private Facility
$57 Million/Note 1
Private Facility
$34.5 Million
Infrastructure Only
$22 Million
Private Facility
$85 Million/Note 1
Private Facility
$162.5 Million/Note 1
New Private Facility
Private Facility
Note 2
$176 Million/Notes 1,3
$31 Million
Note 4
$60 Million/Note 5
$125 Million
$185 Million/Note 1
$200 Million/Note 3
$122 Million/Note 6
$14 Million/Notes 3, 7
$139 Million
$130 Million/Note 8
New Facility Requested
Notes: (1) Teams pay a small rent reducing the public subsidy. (2) Private sector assumed debt for facility. (3) Canadian dollars. (4) City provided $4.5 million for infrastructure, $2.25 million
in sales tax rebates, and $2.1 million in annual property tax reductions. (5) The public sector investment is limited to infrastructure. (6) Ticket charge reduces public subsidy to approximately
$32 million. (7) Team may move to U.S. city. (8) Team will share new facility with a university, team pays $20 million, and public sector pays $88 million.
Sources: Financial World (Website), Alan Friedman and Paul J. Much, 1998.
6 Public Policies and the Playing Field Between Cities and Sports Teams 6 389
Income
1996
Population
(in millions)
Revenues
390 6 JOURNAL OF URBAN AFFAIRS 6 Vol. 21/No. 4/1999
TABLE 8
NHL Team Values, Revenues, and Operating Income in 1997 (all figures in millions of dollars)
Team
New York Rangers
Philadelphia Flyers
Boston Bruins
Detroit Red Wings
Washington Capitals
Chicago Blackhawks
Montreal Canadiens
St. Louis Blues
Colorado Avalanche
New Jersey Devils
Toronto Maple Leafs
Dallas Stars
New York Islanders
Mighty Ducks of Anaheim
San Jose Sharks
Florida Panthers
Los Angeles Kings
Tampa Bay Lightning
Vancouver Canucks
Ottawa Senators
Buffalo Sabres
Pittsburgh Penguins
Phoenix Coyotes
Carolina Hurricanes
Calgary Flames
Edmonton Oilers
Market Value
Revenues
Operating Profit
195
187
185
184
178
170
167
154
138
125
119
118
111
109
108
105
104
101
100
94
91
89
87
80
78
67
69.6
74.6
66.1
80.1
74.2
63.1
61.8
70.0
53.2
54.4
47.5
45.6
46.2
49.6
49.2
32.7
38.5
41.9
41.8
42.8
41.5
52.6
41.2
25.1
38.9
33.6
−3.9
2.0
18.0
−1.9
14.1
13.6
8.3
13.6
−6.9
4.4
6.8
−2.6
12.9
6.3
−2.6
−9.3
1.0
−1.7
−10.4
1.2
−1.3
8.7
0.7
−13.4
0.6
2.3
Source: Michael K. Ozanian, Selective Accounting, Forbes, December 14, 1998, p. 134.
where approximately 80% of league revenues are shared, the disparities are smaller. However, these
differences are sufficiently large that smaller communities must provide subsidies or face the loss of
their team (Rosentraub, 1999).
The Implications or Outcomes from Self-Regulation Revenues
and Winning Records
As pointed out by Verducci (1998), the era of the small market baseball champion may well be a
poignant part of baseball’s lore. Of the final four teams that played for league pennants in 1998, only
the San Diego Padres had a payroll below $60 million, while the league average was $41.1 million.
In the NBA, since 1980, only four teams from market areas with fewer than 3 million people have
made the NBA finals. The Portland Trail Blazers have appeared twice in the NBA finals (in a market
area of 2.6 million people), the Orlando Magic (2.7 million residents in their market area) and the
Utah Jazz (in a regional market of 2.2 million people) have each made one unsuccessful appearance
in the finals. In 1999 the San Antonio Spurs won the NBA title, and they are lobbying for a new arena
even though their current home, the Alamodome, opened in 1993. In comparison, between 1980 and
1997, the Los Angeles Lakers have been in the NBA finals nine times, the Boston Celtics and Chicago Bulls five times, the Houston Rockets four times, and the Detroit Pistons and Philadelphia 76ers
three times each. None of these markets have fewer than 4.6 million residents.
The NFL’s champions, despite the impressive revenue-sharing program that exists, also have been
from the league’s largest cities. Prior to the victories by the Packers and Broncos in 1997, 1998, and
6 Public Policies and the Playing Field Between Cities and Sports Teams 6 391
1999, the last time a team from a region with fewer than three million residents won the Super Bowl
was 1980 (Pittsburgh Steelers). After the Packers and Broncos won their titles, both teams needed to
raise additional revenue. The Packers sold additional stock that has no real market value, and the
Broncos renewed their demands for a publicly subsidized stadium. Under a threat that the Broncos
would move if a new stadium was not built, voters agreed in November 1998 to subsidize a new
facility for the team.
While Scully and others have shown that there is a statistical association between revenues and
winning, recent cases underscore that revenues create winners. For more than two decades, the Cleveland Indians languished at the bottom of the American League. The team’s revenues have increased
dramatically since heavily subsidized Jacobs Field opened. In 1990, the team earned $34.8 million; in
1997, the team’s earnings had increased to $134.2 million for a real increase of 214%. In the same
period, the team’s payroll increased from $19.1 million to $66.9 million for a real increase of 250%.
In 1990, player salaries accounted for 44.3% of total revenues; this figure increased to 49.3% in
1997.
The team’s increased expenditures for players and revenues have matched their increased winning
percentages. From 1993 to 1994, the Indians increased player salaries by 30% and the team had a
winning season in 1994 for the first time in more than a decade. Since increasing salaries, the team
has never had a losing season. In 1997, the team won the American League pennant and in 1998 lost
the American League pennant in the final rounds of the playoffs. Increased revenues and expenditures for players have changed Cleveland from a two-decade loser to an annual competitor for the
American League pennant.
The importance of revenues for a winning team does not imply that managerial talent does not
matter. Some teams in large markets have consistently done poorly and also have failed to win division titles and championships, despite a willingness to spend dollars to attract the best playing talent.
The Yankees had several poor seasons in the 1980s and early 1990s, as have the Mets, the Chicago
White Sox, the Dallas Cowboys, and the Los Angeles Lakers. Philadelphia’s teams each enjoy the
ability to market their sport in a very large region, but they have consistently failed to offer fans a
winning franchise. Despite these important examples of the role of management, in recent years when
managerial issues have been addressed, the teams that consistently win have been those with access
to either the largest markets, revenue sources that are not shared with other teams, or heavily subsidized facilities.
PROFESSIONAL TEAM SPORTS AND PUBLIC POLICY
There are too few teams relative to the demand for franchises, and the leagues have used their
cartel status to both restrict the supply of teams and increase the pressure on communities to build
subsidized facilities. Since 1985, more than $7 billion in public debt has been negotiated to build new
facilities (Noll & Zimbalist, 1997). Across the next several years, it is anticipated that the total state
and local debt for sports facilities will climb to $15 billion (Cagan & deMause, 1998; Zimmerman,
1998). (Estimates of the public investments in the facilities used by each team are also provided in
Tables 1, 3, 5, and 7.) In addition, on several occasions the leagues have asked Congress to pass laws
to protect them from anti-trust actions, and on at least two occasions the requested laws were passed.
Either different laws or, ironically, a policy of no government intervention, is needed to eliminate the
dependent status of cities relative to their negotiations with professional sports teams.
The need for either a different set of policies or laws or the implementation of a free market system
is probably best underscored by the failure of leagues to meet their commitments to Congress. In
1966, Congress permitted the NFL to merge with the American Football League (founded in 1960).
During hearings on the proposed merger, the NFL’s representatives gave assurances that existing
teams would remain in their current locations and new franchises would be created. The NFL did
create one franchise, but additional expansions did not take place for several decades. In addition,
within 15 years of the merger, franchise movement became a commonplace occurrence in the NFL
(Rosentraub, 1999).
392 6 JOURNAL OF URBAN AFFAIRS 6 Vol. 21/No. 4/1999
What sort of public policies and laws could be considered? A form of deregulation could be implemented. This could be accomplished if Congress repealed the act that permitted the NFL to merge
with the AFL. If the existing NFL were required to revert to two competing leagues, attractive markets without teams would have a greater opportunity to secure a franchise. Competing leagues would
not want profitable markets to become part of the other league. The largest markets (New York and
Los Angeles) could become areas where existing leagues would want to place another team to preclude the existence of a second team from the other league. Currently, the NFL has a very powerful
incentive to keep either Houston or Los Angeles without a team. The availability of a large market
creates pressure on other cities to meet their team’s demands. But if there were two leagues, each
would want to capture the profits possible in the nation’s second and fourth largest markets before the
other league did.
The NFL was the only league to receive authorization from Congress to merge with a competitive
league. As a result, if MLB, the NHL, and the NBA are to be split back into their component parts,
legislation will be required separating the American League from the National League, the American
Basketball League from the NBA, and the World Hockey League from the NHL. In terms of MLB’s
status, repeated Supreme Court opinions have included suggestions that Congress remove any doubts
over the applicability of anti-trust laws to the structure of baseball (Rosentraub, 1999). It is also
possible that a sports deregulation act would be required. In addition, in the case of the separation of
the American Basketball Association and World Hockey League from their older leagues, there would
also have to be an assignment of some of the franchises from the older leagues to the former competitive leagues. The objections and obstacles that might interfere with the establishment of two competing leagues for hockey and basketball are not trivial. Yet, there are sufficient data to sustain a case
that the existing cartels have thwarted expansion and harmed consumers and taxpayers. As a result,
a plan to create competing leagues is justified.
Another step toward increasing the supply of teams and leagues would occur if Congress eliminated the right of any league to sell the broadcast rights to its games to several networks. The power
to do this without fear of violating anti-trust laws was part of the 1961 Sports Broadcast Act, the first
law passed by Congress that protected the market position of sports leagues. Prior to the passage of
the Sports Broadcast Act, leagues could not have their games telecast by more than one network.
Television revenues are critical components of the fiscal success of professional sports, and the ability to involve several networks in a single package to telecast a league’s games reduces the likelihood
that competing leagues will emerge or be successful.
At present, ABC, ESPN, the Fox Network, and CBS broadcast NFL games. TNT, the Fox Sports
Network, and NBC telecast NBA games. If but one network could telecast the games of any league,
then other networks would be far more interested in working with investors to create another league.
It might appear that the existence of at least one network that is not part of a television contract would
create an opportunity for a new league to form. Rumors continue to persist that NBC and TNT will
form a competing football league. There is, of course, nothing to stop ABC, ESPN, CBS, or the Fox
network from forging a relationship with a competitive basketball league, and CBS and NBC could
help form a new baseball league. However, with the leagues able to sell their broadcast rights to more
than one network, at least one factor mitigates against outcomes of this nature.
If any network seeks to work with an emerging league, it may fear being left out of any future
package to deliver games from the premier league. This could leave any one network in a very precarious position. Participation in a partnership with a new league could damage the opportunity to
ever broadcast games from the more established league. Indeed, it would probably be far less costly
to outbid an existing network for a portion of the telecast package than to hope that a new league
could establish a market niche. However, if only one network could broadcast a league’s games, then
no single network could be singled out and excluded from an umbrella package. As a result, each
network would have less risk in dealing with a start-up league. Congress should amend the 1961
Sports Broadcast Act in order to limit to one the number of networks that could be awarded a contract
to telecast a league’s games. Piraino (1996) has established the legal logic within existing anti-trust
laws and court decisions for ensuring investors’ access to the elements of a market that are necessary
6 Public Policies and the Playing Field Between Cities and Sports Teams 6 393
to establish a viable enterprise. Permitting any league to secure contracts with several networks reduces the opportunities for other investors to create viable and competitive leagues as every league
and team needs television revenues to attract and retain the best players and build a fan base.
Both of these policy recommendations—restoring the existence of competitive leagues and ensuring the existence of many television networks that could work with investors seeking to establish a
competitive league—prescribe a minimalist role for the public sector. Public policy with regard to
sports would involve a maximization of competition to enhance the supply of teams. By “undoing”
mergers and refusing to permit a packaging of broadcast rights to numerous networks, the public
sector would be encouraging market-based responses to the demand for sports. Leagues would still
control the supply of teams and their location. However, competition between the leagues would
mean more teams in more cities.
If a more proactive role for government is to be considered, then other policies could be implemented. For example, the right to establish franchises in a league could be granted to cities in a
partnership with the existing leagues. How could such a system work? It could be modeled after the
system used by the NFL to place an expansion franchise in Cleveland.
To establish a new Browns’ team (to replace the one that had moved to Baltimore), the NFL held
an auction. After bids were submitted, an ownership group acceptable to the NFL was granted a new
franchise. The city agreed to build a new stadium, and the NFL helped the new owners finance their
share or contribution to the facility’s capital costs. The NFL gave the new franchise the first draft pick
in 1999 and gave the new owners an equal share of all pooled revenues. The winning bid was $535
million and the revenues were then divided among the NFL and its existing owners.
This system could be easily adapted to fit any sport. Any city that wished to be home to a new team
in a league could apply for a team and the league could then hold an auction for the franchise. The
bids received would reflect the present value of access to the league’s pool of shared revenues and
local profit potential. If the existing owners shared the franchise fee, as they did in the NFL’s expansion into Cleveland, then no existing team owner would suffer a loss in the value of its franchise.
With more franchises, there are more jobs and more teams to bid for players, so they too gain. To
protect the interests of existing owners, a minimum bid level equal to the median value of league
franchises could be established. A minimum bid level would also ensure that markets too small to
produce an adequate return would not attract investors.
Would such a system mean there would be hundreds of teams? The experience of numerous American cities with gaming enterprises illustrates that a bidding procedure is quite efficient. The first
cities that award franchises for casinos are generally successful. But when too many franchises are
awarded, the market shares required for each to be profitable are constrained and franchise auctions
fail to attract bidders (Felsenstein, Littlepage, & Klacik, 1999, this issue). In this regard, some cities
may want teams, but when an auction is held it is possible that no acceptable bids are received. If the
public sector could require that an auction be held to determine if there are acceptable investors, areas
such as Houston, Birmingham, Washington, DC, the Northern Virginia area, and Norfolk could acquire the teams they want. In addition, larger metropolitan areas might be able to get an additional
team if investors had interests in taking that risk (e.g., New York, Chicago, Dallas/Fort Worth, and
Los Angeles).
These are but two public policies that can be considered to level the playing field between cities
and the four professional sports leagues without jeopardizing the property rights of owners and the
ability of players to earn high incomes. Other countries have experimented with variants of the second policy option with success. In Italy, for instance, any city that wishes to have a soccer team and
is able to find an investor can have a franchise. However, that team is assigned to the lowest division.
Each year the two best teams in the lower division replace the two teams with the worst records in the
higher divisions. As a result, if an investor wanted a team and was willing to pay the fees required to
attract the best players, that team could progress through the ranks and eventually enter the premier
division.
Existing laws and the cartel structure of the four major sports leagues have created a dependent
status for cities that want professional sports teams. A structured return to competitive leagues would
394 6 JOURNAL OF URBAN AFFAIRS 6 Vol. 21/No. 4/1999
reduce the need to subsidize teams. Requiring the leagues to hold auctions for expansion teams would
also eliminate the subsidy wars between cities. Allowing the current system to continue, however,
will simply mean that the dependent status of cities will remain unchanged and the provision of
subsidies will continue. Congress, perhaps unintentionally, contributed to the creation of the subsidy
system. It is now time to reverse the calls made years ago and level the playing field between cities
that want teams and the cartels that restrain the supply of teams.
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