If a major sports league such as the NFL or NBA decided to restructure itself into a single-entity league, they would try to manipulate things to maximize their profit at the expense of players and fans. The high salaries of its players would be diminished as a result of the team managers exercising more monopsonistic powers. They would no longer have access to free agencies, and revenue or performance based salaries would no longer be options. There would likely be more labor disputes and legal action regarding antitrust laws as well.
Because of the profit-maximizing nature of this practice, more money from the revenue would go towards to the managers, leaving fewer funds available for other practices such as broadcasting or merchandising that maintain open channels between the team and their fans.
Furthermore, the single-entity would likely be in competition with the world market, and its players might find themselves tempted by more lucrative offers from other countries. This would make it harder for the entity to retain a solid fan following in its home country.
The monopolistic competition is a type of market structure, which is characterized by many firms enter in the market, no barriers to entry and exit of the firm, selling differentiated products, the firm has some control over the price.
According to the resources market, the free agency is a club that holds exclusive rights of the professional players, which allow all professional player to play with the clause of a contract for a specified number of years or declare any time.
Eroded the monopsonistic power of professional sports teams:
The free agency of the sports club has a clause that give baseball clubs monopsony power to hire the players. The free agency policy and contract distinguish market power. Hence, the reserve clause gave the monopsony power to the sports clubs to hire the players. Since the players of the team realize that agency paying less salaries than that could be obtained in a competitive market. Hence, all the players organized and fought the owners in the antitrust court. Therefore, based on the independent arbitrator overturn on the reserve clause, the player and owners reached a compromise, which is that any player can hold exclusive right to play in a club with the agreement for a specified number of years but also can declare from the agency when the highest bidder offer better service. Hence, with the new clause with player, the sports club loses the monopsonistic power of professional sports teams.
Professional sports league
Professional sports league refers to group of professional sports teams that compete against each other in particular sport.
Cartel is formed by two or more producers through formal agreement to protect its own interest. The objective of cartel is to maximize profit by regulating the market either by manipulating price or regulating supply.
Maximization of joint profit for sports league:
Since, professional sports leagues are considered as a cartel, which allow the professional sports teams to maximize joint profit by putting restrictions on output and increasing price. Professional sports leagues ensure the professional sports team to survive long enough through sharing joint profits generated through output
Professional sports leagues generate revenue through sale of ticket and concession, merchandising rights for team souvenirs and novelties, and radio and television broadcast rights. The league has specific rules for division of revenue generated through the sale of tickets between host team and visiting team. The league also regulates the business of merchandising products that carry team logos and trademarks. This helps in discouraging counterfeiters and allows league to promote merchandising products for the entire team and reduce interclub competition. And major source of revenue comes from selling of television broadcast rights. Professional sports leagues generate revenue by selling television broadcast rights of all games as "package deal" to the highest bidder.