Time for Policy Makers to Think About Sports Differently
Today’s guest is Jonathan A. Knee the Michael T. Fries Professor of Professional Practice of Media and Technology at Columbia Business School where he co-teaches Sports Economics and Policy. Professor Knee is also a Senior Advisor at Evercore. His most recent book is The Platform Delusion: Who Wins and Who Loses in the Age of Tech Titans.
Sports have long played an outsized role in American culture. Nonetheless, the extent to which the industry has come to dominate much of our daily lives in recent years reflects a change not just in degree but in kind. Yet the sector continues to be governed by a collection of often archaic precedents, practices and institutions established in a very different environment. Sports, meanwhile, have become one of the last broadly-shared social experiences nationally, and policy makers should ensure continued access to this crucial piece of social fabric.
Policy maker have largely ignored this urgent reality. So when Disney (the owner of 80% of ESPN), Fox and Warner Brothers Discovery announced their intention earlier this year to launch a streaming service that combined their respective sports assets, rather than applauding the potential for an improved consumer experience and a counterweight to the trends in escalating sports rights costs, the Justice Department quickly leaked that it was scrutinizing the joint venture for possible violations of antitrust law.
The Biden Administration and Monopsony
At one level, this is not surprising. Antitrust law prohibits collusion among buyers just as among sellers. But there is one important difference between “monopsony,” (a single buyer) and monopoly (a single seller). When sellers collude, they do so to raise prices and artificially constrain production. When buyers collude, they are looking for a deal from suppliers, which can often reduce prices and increase product availability. This doesn’t mean that we should allow hospitals in a region – the monopsony buyers of nursing services – to conspire to rob these essential workers of a living wage. But it does suggest the wisdom of balancing competing considerations in coming to the right public policy approach depending on the market and the circumstances.
The merger guidelines that have been applied for decades until President Biden’s antitrust enforcers updated them earlier this year took this balancing approach. The new regime, however, is committed to rejecting the consumer welfare standard that was not only reflected in the old rules but had been broadly adopted by the courts. The updated Biden guidelines, accordingly, state flatly that any such consumer benefits will never be enough to justify a substantial reduction in competition among buyers.
Public Policy for Past Practice
The extent to which sports now dwarfs other forms of entertainment is reflected in our collective viewing habits. As recently as 2005, the top shows were dominated by non-sports offerings. Not just reality offerings like American Idol but series like Grey’s Anatomy and Desperate Housewives drew far larger audiences than Monday Night Football. By 2015, the script was flipped. Among the top 20 most watched shows that year, outside of sports only the Academy Awards and Walking Dead made an appearance–except for the post-Super Bowl episode of The Blacklist, which slipped in at number 20. The gulf has only widened and in 2023 sports claimed 96 of the 100 most-watched slots.
What’s more, an increasing percentage of sports events have moved from free over the air broadcast TV to behind a proliferating number of paywalls. First it was in the basic cable package, then regional sports nets, then a variety of online and offline niche offerings and now by pay services sponsored by the likes of Google (NFL Sunday Ticket), Apple (Major League Soccer globally) and Amazon (Thursday Night Football, many others globally and most recently rumored to be close to an NBA deal).
With more media buyers clamoring for sports rights, prices have skyrocketed. The cost of sports rights have consistently grown at a mid-single digit annual percentage over the last decades, almost double the rate of inflation. If your grandfather once was able to watch whatever sports he wanted on free TV, today the average viewer is estimated to be paying $20-$25 a month for the sports embedded in their viewing packages, and a real sports freak could easily drop well over $100 between Fubo, NFL Sunday Ticket, ESPN + and DAZN.
Many have described the continuous growth in contract values as “unsustainable,” but no one has pointed to anything concrete that will make it stop. On the one hand, sports represent an essential lifeline to traditional broadcast and cable networks desperate to slow the inevitable decline of the cable bundle that still supplies the bulk of their dwindling cash flow. On the other hand, the collective cash just sitting on the balance sheets of the tech giants mentioned dwarfs the collective market value of the entire traditional media sector.
The inflexible approach of the new merger guidelines is reflective of regulators’ collective failure to fully appreciate the ways in which blindly following past practice in sports policy yields terrible public policy. The unrelenting rise in the price of sports rights over the last decade has resulted in a huge transfer of wealth to billionaire team owners and celebrity sports figures funded primarily by the average sports fan. What makes this particularly unconscionable is that often those sports fans have already subsidized the billionaires’ businesses through misguided state and local stadium tax incentives. Before attacking a market arrangement like the proposed JV that could make it easier and cheaper for the natives to get their shared sports fix, regulators should focus on more nuanced approaches that take account not just of escalating costs in sports but the increasing economic and social relevance of the sports ecosystem more generally.
Sports Rights in the Public Commons
In some cases, however, nuance alone will be insufficient to create sensible outcomes – entirely new laws will need to be enacted. One idea would be to affirmatively allow bidders for sports rights to collude in order to help keep rights costs in check. This is analogous to the recently proposed Journalism Competition and Preservation Act that would allow publishers and broadcasters to negotiate collectively with the big tech platforms. It could also be viewed as a logical expansion of the “universal service” policy imperative already enforced by the FCC. Another straightforward approach to dealing with proliferating paywalls is to, as many other countries do, simply prohibit the most important sports events from ever going behind a paywall in the first place.
Whatever policies are ultimately adopted should reflect the new reality of the role that sports now plays in our social, cultural and economic life. That would be a radical change.
