An economic model of a professional sports league

This paper investigates the economic structure of professional sports to determine the extent to which the current operating rules justify exemp-tion of professional sports leagues from some aspects of antitrust statutes. We construct a formal decision-making model incorporating certain fundamental features of the industry. Within the context of the model we find that, under current rules of operation, equalization of playing strengths is generally not consistent with profit maximization by teams. However, we suggest a rule that guarantees convergence to a path of equal playing strengths under decentralized control of teams. As an example we study baseball leagues. Some refinements of the model are introduced, for example, incorporating time lags and training costs that result when teams train their own players. Over the past twenty years, the U.S. Congress has held a number of hear-ings on various bills designed to exempt certain practices of the profes-sional sports industry from prosecution under the federal antitrust statutes. While two bills providing such exemption for special aspects of sports have passed the Congress, one dealing with the AFL-NFL merger in professional football and the second dealing with television and radio contract pooling, the issue of exemption for other phases of professional sports still has not been resolved. It is the purpose of this paper to investigate the economic structure of professional sports to determine the extent to which the current operating rules of professional sports justify such an exemption. Thus this paper considers some of the problems investigated by Rotten-berg (1956) in his excellent study of the labor market in baseball, but from a somewhat different point of view and with emphasis on somewhat different aspects of professional sports. The approach adopted here is t