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Abstract:
The fundamental difference between the structure of team sports in the U.S. and in the rest of the world is openness. In the U.S., sports leagues are closed: membership of the league is in the gift of the existing members, who typically only grannt the right of entry in exchange for a substantial fee. Outside of the U.S., teams sports leagues are open: membership of the league is contingent on success. Sports are organized in ascending tiers (generally called divisions) and every year the worst performing teams are relegated to the nnext lowest division and replaced by the best performing teams from that division. This system operates in soccer, rugby (league and union), European basketball, cricket and almost all other team sports. Our main argument in this paper is that the institution of promotion and relegation tends to raise consumer welfare by increasing effective competition among the teams in a league. Because teams seek to avoid relegation as well as to win championships, they have greater incentives to invest in players than teams participating in closed competitions. For lesser teams in lower divisions tha allure of promotion to the top division enhances the inncentive to invest in players and provides added interest to junior league competition. Moreover, promotion provides a market-based means of permitting new entry to check the power of incumbent clubs to exercise market power - most notably their ability to secure tax subsidies for stadia. Promotion and relegation is in fact an ideal structure for surgical antitrust intervention to promote entry, since it involves replacing the least efficient (in terms of wins) incombent with the most efficient entrant. Moreover, entry is only conditional on continuing success, so that a relegated incumbent has an opportunity to recapture its position the following season. In this sense, promotion and relegation is analogous to the Baumol-Willig efficient components pricing rule (ECPR), which requires incumbents to grant than the incumbent can enter the market. We justify antitrust intervention through an argument that the decision by current clubs to maintain a closed-league structure constitutes an unreasonable restraint of trade.

Abstract:
Rejecting the conventional wisdom that sports leagues must be run by the clubs that participate in the competition, we adopt the approach of Australian courts and view sports leagues as products created by the vertical integration of upstream "competition organizing services" and downstream "clubs participating in the competition." We detail the concern that, assuming that a league does not face reasonable substitutes (i.e., a rival league), a club-run structure leads to inefficiencies in the determination of the number and location of franchises, the sale of broadcast, marketing, and sponsorship rights, the effective oversight of club management, and the efficient allocation of players among teams. Specifically, we identify transactions costs as a significant impediment to efficient agreement in club-run leagues. We next identify the core function of a league as the organization of competition, and explain why key decisions relating to the identity, number, and location of participating clubs should be made by an economic entity independent of the participating clubs. We argue that a vertical separation between leagues and clubs, with responsibilities assigned in franchise agreements between the league and each club, provides the best way to facilitate the efficient organization and marketing of the competition. We illustrate this thesis with some predictions as to how a league organizing a sporting competition independent from its clubs might allocate responsibilities more efficiently, and identify some of the legal benefits to the league that would follow from such a restructuring. We predict that these efficiencies should result in an increase in the combined value of an independent competition-organizing entity (perhaps "NFL, Incorporated") and club-franchisees compared to the combined current value of the franchises in a club-run league. Although investment bankers and outside investors should find it profitable to seek to purchase the assets and rights necessary to become the competition organizer, the same transactions costs that preclude efficiencies among club-run leagues also operate to inhibit a voluntary restructuring resulting in a more efficient league. Thus, we address antitrust and eminent domain theories that might bring about the involuntary restructuring of sports leagues along the lines discussed in this Article.

Abstract:
Current baseball talks of contraction exemplify the monopoly power that Major League Baseball exercises. Baseball owners are able to exploit monopoly power by, inter alia, holding the number of franchises down to a sub-optimal level in order to facilitate bidding (in terms of stadium subsidies) by communities, as well as by failing to invest at optimal levels in their own teams, secure that the threat of entry is minimal. The article argues that the international practice of "promotion and relegation" tends to raise consumer welfare by increasing effective competition among teams in a league. Teams faced with the threat of relegation will efficiently invest to develop a better product for their fans. Communities without major league clubs have the ability, through support of a new entrant into a lower-tier league, see investment in that team rise to a level to secure promotion to the major leagues.

This article develops the welfare-enhancing potential of promotion and relegation, and compares the two above-described features of monopolistic behavior in North American sports leagues with evidence that competition-through-entry does have salutary effects in English soccer. With this economic background, the article turns to the development of a legal argument that maintenance of a closed monopoly league constitutes a violation of federal antitrust laws, applying general principles used to evaluate the exclusion of rivals from monopoly joint ventures. Finally, the article discusses various issues of how to implement such a remedy.

Abstract:
The significant contribution of the "Chicago School" of antitrust has been to demonstrate persuasively, through the use of economic theory, how some business activities historically viewed with suspicion actually benefited consumers and promoted economic efficiency. The landmark Supreme Court decision in Continental T.V., v. GTE Sylvania Inc. can be fairly read as accepting the argument the courts should not use the antitrust laws to interfere with demonstrably efficient conduct in order to promote broader political goals. The doctrine created by Sylvania, however, does not provide a clear answer in other cases, most notably where conduct by a dominant defendant appears to result in some efficiencies, but simultaneously has demonstrably exclusionary effects. Sylvania suggests that courts are up to the job of balancing the pro-and anticompetitive effects of such conduct, focusing on whether consumers are better or worse off, regardless of the effect on the political goals of antitrust. One important implication of network effects theory is that in a number of situations economic tools (and, a fortiori, courts applying an economic standard) can not practically determine accurately whether the benefits to consumer from challenged practices outweigh the harms. This calls into question the applicability of Sylvania's key assumptions, specifically the "objective benchmark" that the Court sought in Sylvania in rejecting the use of political goals to condemn efficient business conduct. Where network effects exist, and where ascertaining the net welfare effects of challenged conduct is practically impossible, courts must then determine the appropriate antitrust response. A laissez-faire approach would be to do nothing - to limit antitrust to condemning conduct only where there is a high probability of demonstrably inefficient conduct. This seems to be the approach adopted by the D.C. Circuit in its initial Microsoft opinion. However, for the last 300 years judges interpreting the common law and the Sherman Act have rejected the view that they should do nothing unless a practice is clearly inefficient. This article suggests an alternative approach more consistent with the purposes of the antitrust laws and our nation's antitrust and political traditions. It proposes that, where monopolistic conduct significantly inhibits the ability of rivals to engage in fair competition by means that to some extent frustrate consumer preferences, and network effects suggest that courts cannot practically determine if claimed efficiency benefits outweigh these harms, courts should employ a "Jacksonian" value of equal economic opportunity to proscribe the conduct and give others a meaningful chance to compete with the dominant firm.

Abstract:
This paper proposes a general framework to assist policymakers in framing the key issues and objectively weighing the relevant evidence and policy considerations for the purpose of determining whether to create, modify, or eliminate any statutory immunity to the federal antitrust laws. The framework also sets forth procedural standards for passage of immunities that could be useful to state legislatures. The two key provisions are a sunset provision (so that the effects of the statutory provision could be studied) and the requirement of a detailed legislative history. The latter requirement would greatly enhance the likelihood that the courts would make a proper determination of whether state action doctrine applies in a particular case. Should the legislative history set forth the reasons for the statute, the perceived benefits and costs of the statute, and other factors, it would be easier for the courts to determine whether the conduct at issue fits within the scope of the authorized activity under the statute, and whether the conduct is consistent with the intent of the legislature.

antitrust, immunities and exemptions, cost-benefit analysis

Abstract:
In an effort to draw support for his agenda of revenue sharing and salary limits, Major League Baseball Commissioner Bud Selig commissioned a "Blue Ribbon Panel" consisting of Richard Levin, Paul Volcker, George Will, and George Mitchell to make recommendations on reforming the national pastime. This commentary reviews and critiques the report. It concludes that the creation of the panel and its focus on competitive balance was a constructive step. In particular, the commentary praises the Report for focusing discussion on ways to ensure that all clubs have a regularly recurring reasonable possibility of postseason play.

However, in several important respects, the commentary explains why the Report is unsatisfying. Its reasoning lacks the rigor and comprehensiveness one might have expected from such an expert Panel. The report establishes payroll disparity as a proxy for competitive imbalance but fails to provide a detailed analysis of causality in light of a history of competitive balance despite disparity. Its recommendation that weak teams be encouraged to increase payrolls, while wealthy teams be punished for maintaining high payrolls, harms the Panel's credibility as disinterested observers and creates the appearance of bias in favor of owners. Building on the Report, this Commentary suggests five concrete and plausibly acceptable proposals to improve competitive balance. Permitting cash sales of players subject to the Commissioner's oversight, establishing a mandatory minimum payroll at a level likely to permit clubs to viably contend for postseason play, imposing payroll maxima only on dominant teams, changing the Rule 5 "minor league draft" to limit the players on top teams that can be protected, and establishing procedures to reform or rid the industry of inept management, are all designed to give observers of the game the same "hope" for the future of our National Pastime that each fan perhaps will have, if these proposals are implemented, each springtime.

Abstract:
This article analyzes the Canadian Superior Propane decision, apparently the first merger decision in world history to consider explicitly what to do when a merger was predicted to lead to both higher consumer prices and to net efficiencies. The article advocates analyzing the merger under a "price to consumers" or "consumer welfare" standard, rather than a total efficiency standard, and advocates that the enforcers and the courts block such mergers.

mergers, consumer welfare, total welfare, Canadian antitrust, price standard, cost savings, efficiency, efficiency standard

Abstract:
Antitrust law distinguishes vertical and horizontal restraints. A horizontal restraint is one which exists between competing firms supplying rival products in a market, and a vertical restraint is one which exists between firms that jointly contribute to supplying a particular product in a market. Horizontal agreements receive much closer antitrust scrutiny because they often enable firms to limit competition at the expense of consumers, while vertical restraints may be legal or illegal depending on whether they tend to enhance or reduce competition or the exploitation of market power. This paper argues that there are important vertical restraints that operate in sports leagues which have been mostly neglected in the literature but have a significant impact. We focus on intraleague restraints, where member clubs of a league agree to control the organization of league competition, and interleague restraints, where horizontal agreement such as the Reserve Clause relies on agreements not to compete for players competing in senior or junior leagues.

Abstract:
This commentary seeks to define the limits of dynamic interpretation and to increase the transparency of judicial reasoning, both as a means of allowing a better judgment about the quality of judicial interpretation, and as an avowed way of constraining judicial activism, now increasingly in vogue with conservative judges. First, the commentary analyzes Dynamic Statutory Interpretation as well as subsequent work by William Eskridge, in particular his analysis of the hermeneutics of Hans-Georg Gadamer, to emphasize that dynamic interpretation does not reject "outdated" expectation but "fuses" original and present horizons. Second, the commentary critiques the pathbreaking Eskridge & Frickey "Funnel of Abstraction," a two-dimensional model, suggesting that a three-dimensional "Cube of Statutory Interpretation" better models judicial decisionmaking. In particular, the Cube highlights three analytically distinct modes of reasoning: 1) sincere efforts to effectuate the legislative directive; 2) interpretation based on "normative" canons of interpretation designed to effectuate judge-made rules; 3) judicial efforts to achieve the best policy or most just result in the case at hand. Third, the commentary analyzes three distinct ways in which judges can use dynamic interpretation: (1) evolutive considerations render original expectations unintelligible or unreliable, so that a judge may justify resolving the issue based on modern-day policy considerations or a preferred normative canon; (2) an interpretation consistent with modern doctrines reflected in related areas of the law differs from original expectations, so that a judge may justify a decision that results in greater horizontal coherence of the corpus juris; or (3) evolutive considerations allow the judge to more effectively carry out the original legislative directive than an approach that more simplistically resolves a case in today's world in the precisely identical way that the same legal issue would have been resolved in the very different world of the enacting legislature.