Quiz 9: The Economics of Professional Sports: What Is the Real Score

Business

The professional sport business: The professional sport business is an activity that includes creating, expediting, indorsing, or organizing any activity that is solely focused on sports. Under this business, professional players received the payments based on their performance. Due to the presence of mass media and better leisure, it brings larger audiences. As the audiences have increased, the sports organizations churned into large incomes. Corporation between professional sports teams: In the quest of making profitable professional sports team, they face a myriad of economic decisions. Competition is lifeline for all sports. A professional sport team is required to compete on the field against other teams, and this brings the attention of the ticket-buying fans. Thus, a professional sport team will not be able to operate independently, but it has to seek cooperation from other professional sports teams to entertain the public. This is required for the institutionalization of professional sports teams into professional sports leagues.

Cartel Cartel is formed by two or more producers through formal agreement to protect their own interest. The objective of cartel is regulating the market either by manipulating price or regulating supply. Requirement for successful cartel: The requirement for successful cartel is that all cartel members must be accountable for the output supplied in the market. The greater proportion of total market is supplied by cartel members, and the carter has greater degree of monopoly in the market. To maintain the monopoly in the market, the cartel must restrict the entry of new players in that market or integrate new players into the cartel as members. Another requirement for successful cartel is that goods produced by cartel member must be homogenous. Pricing and output agreements allow cartel members to enforce and maintain homogenous products. Third requirement for successful cartel is that cartel member must agree to determine the methodology to share the combined market power. In professional sports, the professional sports league structure determined the market territories and output quotas. The last requirement for successful cartel is the preventive method to check on "cheating" cartel member.

Sports league: Sports league refers to a group of professional sports teams that compete against each other in a particular sport. Professional baseball is exempt from Sherman Antitrust Act, which protects the league from getting sued for violations of federal antitrust. Sherman Antitrust Act of 1890 is a legislation that was passed by congress under the presidency of Benjamin Harrison. This legislation provides ammunition to check the oppressive practices with cartel activities and unjust monopolies. It is used to remove illegal behavior and promote free and fair business activities. In the United States, the professional sports teams of football, hockey, and basketball are exempted from Sherman Antitrust Act of 1890.