Antitrust and Inefficient Joint Ventures: Why Sports Leagues Should Look More Like Mcdonald's and Less Like the United Nations
48 Pages Posted: 24 Feb 2016
Date Written: 2006
Antitrust law generally favors joint ventures that allow separate firms to integrate economic functions while continuing to compete as independent entities. In evaluating the risks to competition that joint ventures could pose, insufficient attention has been paid to the risk that joint ventures with market power may be structured so that the parties, acting in their independent self interest, will prevent the venture from providing innovative goods and services responsive to consumer demand. In these cases, it may be better if a single firm provided services rather than having them provided jointly.
We illustrate this problem by challenging the conventional wisdom that sports leagues must be organized and run by clubs participating in the sporting competition. The fastest-growing competition in the United States is organized by NASCAR, a distinct business entity that is not controlled by the drivers who participate in stock car races. We suggest that the club-run sports leagues in the major North American sports impose significant costs on sports fans in a variety of markets. If instead, relevant rules were decided by an independent Board of Directors of "NFL, Inc.," "MLB, LLC," or the like, we suggest that franchise allocation, broadcast rights, effective club management, marketing and sponsorship, and labor markets would be regulated more efficiently and more responsively to consumer demand.
Our analysis blames significant transactions costs for the inability of club owners who run leagues to reach efficient, consumer-responsive results. These same transaction costs may prevent an efficient restructuring of sports leagues. Thus, we apply conventional antitrust doctrine in innovative ways to argue that courts could view the current structure as an unlawful refusal of club owners to participate in a sporting competition that they themselves cannot control, which we argue unreasonably restrain trades and unlawfully maintains monopoly power.
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