Can Professional Sports Help Us to Understand Economics?

For a sports fan like myself, this is a big time of year. The baseball season got under way this week. Golf’s first major – The Masters – tees off on Thursday, April 6. And the NHL regular season ends on Sunday, April 9, with the puck dropping for the playoffs on April 12.

But as an economist, author and former college professor, do sports serve as a good tool to help people think about how the economy works?

Of course, professional sports are notable business endeavors. In 2015-16, the NHL took in $4.1 billion in revenue, and Major League Baseball nearly $10 billion last year. And according to Golf Digest, The Masters earned $115 million in revenue in 2015.

And there certainly are business lessons to be taught as to how sports and individual teams are managed and marketed, and how decisions are made. Currently, for example, Major League Baseball is trying to judge where the market is headed, attempting to balance what’s great about how the game has long been played with potential changes that might – or might not – help going forward given attention-span challenges among Americans.

Getting batters to stay in the batter’s box, and pushing pitchers to deliver the ball quicker to the plate certainly make sense. However, one idea reportedly being tested by MLB is to start a runner at second base during extra innings. Now, that’s stunningly stupid. But business is chock full of bad ideas that have been considered and implemented (as a fan, let’s hope that this is an idea that never becomes part of the game), and students often learn more from mistakes and failures than successes.

As for the NHL, the league just announced that its players would not be taking part in the 2018 Olympics in South Korea. That decision has been sharply criticized in many corners, including among the players, with many arguing that the NHL is abandoning an opportunity to show off their best players on a global stage. The NHL had to weigh the obvious benefits of such exposure for its game versus the difficulties of shutting down the league for a few weeks every four years and the threat of injury to its players.

So, pro sports certainly can lend itself to being analyzed on varying levels as a business.

Problems emerge when sports get used as teaching tools for the overall economy. Let’s look at three examples.

First is the concept of “monopoly.” In the courtroom, classroom and media, pro sports leagues regularly are referred to as monopolies. One periodically hears about Major League Baseball’s antitrust exemption. But in reality, no sports league – whether it be the NFL, the NBA, the NHL or MLB – is a monopoly in any substantive economic sense. Rather, these entities compete broadly with countless other forms of entertainment, sports, and leisure activities for the dollars of consumers.

Let’s understand that the definition of a “monopoly” is an industry whereby there is only one supplier, there are no close substitutes in terms of the product provided, and barriers prevent entry of new competition. A pro sports league fits none of these criteria, especially given that consumers have so many choices in terms of how their entertainment dollars can be and are spent.

Making the mistake of labeling sports leagues as monopolies not only leads to wrongheaded public policy directed at sports, but also establishes a poor precedent affecting other industries. In the public policy arena, monopoly and antitrust enforcement are invoked far too often primarily due to a far too narrow definition of the relevant market. Major League Baseball does not monopolize a major league baseball market, but instead, actually works as a partnership competing in the broad, robust, competition and choice-rich entertainment market. There is no monopoly.

Second is so-called socialism in the NFL. Since the NFL has robust revenue sharing, assorted sports columnists insist on claiming that the NFL operates under a socialist system. In reality, of course, socialism is all about government owning the means of production and distribution of goods and services in an economy. NFL revenue sharing, in contrast, is the choice made by the owners of teams – in effect, the NFL’s partners – for a business model that they believe allows the league to best compete in the broader marketplace. And while socialism always fails, the NFL’s business and revenue model works exceedingly well, as it has become top dog among U.S. sports leagues.

Third, the competition that occurs in, for example, a baseball, hockey or football game does not serve as an accurate metaphor for the competition that occurs in the private marketplace. In a game, there always is a winner and a loser. Applying such thinking to a free market economy leads to the faulty and dangerous notion of the economy being a zero-sum game, that is, when one person gains, someone else must lose. Zero-sum thinking leads to mistaken class-warfare politics and policymaking. In reality, while there certainly are businesses that lose in the competitive marketplace by making incorrect decisions, resources are then reallocated to other undertakings. Ultimately, free enterprise is about entrepreneurs, investors, and employees being free to create and capitalize on new and expanded opportunities, driving wealth creation, and economic, income and job growth forward. Free enterprise is about growth creating more winners.

On Opening Day (April 3), my Cincinnati Reds lost and the Philadelphia Phillies won. But in this economy, even with all of our struggles over the last decade, wealth creation and income growth mean that pro baseball will no doubt have another successful season in terms of fan interest and revenue. Growth and wealth creation also meant that the April 3 game was a sellout and I was able to watch several states away thanks to, for example, innovation and investment in broadband technologies. Our economy is not the equivalent of a win-or-lose game, but instead is about the win-win that is free enterprise.