2.2 (Market Power perspective)

According to the market power perspective club owners seek to ensure monopoly profits

Vis-à-vis players

Vis-à-vis broadcasters

Vis-à-vis local authorities

Players maximize their earning potential in a system of free agency in which they can “auction” their human capital to thhe highest bidder

-Perfectly mobile players can simply leave and play for another club

-They can extract rent from their human capital because their threat to leave is credible

Several meachanisms (e.g. draft rules, salary caps, reserve clauses) systematically reduce the players’ earnings potentials and shift the economic rents from players to the club owners

-Team owners will argue with competitive balance but not address that this also shifts the economic rents to the clubs

-European Leagues: Once your contracts end, you become a free agent and are treated as an employee. Only if you want to move within a contract you have to pay a fee

-Collective selling as an instrument to create a supply side cartel and increase market power and thus joint revenues

-A share of the total sales prices tends to be a higher than what the majority of clubs could get if they negotiate individually with the broadcasters

-Most North American major leagues leave (at least) one prominent city without a team

-Teams in another city can credibly threaten to move to that «empty seat»

-This invariably prompts state and local governments to contribute public money (e.g. for a new stadium)

However useful the market power perspective may be at the level of economic policy, it does not make clear prescriptions at the level of internal league organization

Literally all organizational structures, enabling collective action by team owners, provide the institutional infrastructure for a cartel:

-Long-term contractual agreements

-Some form of cooperative association

-A franchise system

-A league owner with employed team managers (firm structure) --etc.

Market power perspective fails to give an answer to the question as to why the team owners of all the successful leagues decided to set them up as corporate associations of the playing teams and not choose a different structure