THE
QUARTERLY JOURNAL
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OF ECONOMICS
Vol. LXXVIII February, 1964 No. 1
THE PECULIAR ECONOMICS OF PROFESSIONAL SPORTS *
A CONTRIBUTION TO THE THEORY OF THE FIRM IN SPORTING
COMPETITION AND IN MARKET COMPETITION
WALTER C. NEALE
Louis-Schmelling paradox, 1.— The inverted joint product or the product
joint, 2.— League standing effect, 3.—Fourth estate benefit, 3.— Multifirm
plants, 5.—Diminishing quality returns, 8.— Input-enthusiasm effect, 8.—
Roger Maria cobweb, 12.— Bobby Layne rigidity, 12.— Archie Moore invisi-
bility, 13.
Professional sport promoters and owners of professional teams
have long claimed a special position in respect to the monopoly
laws and the constitutional prohibition against slave labor, and re-
cently they have been deservedly successful in appeals to Congress.
This paper presents the results of serious thought about the prob-
lem, serious thought engaged in after choosing sides on the issue. I
submit that the "firm" in professional sports is indeed in a peculiar
position vis -a -vis our accepted way of looking at the firm in a com-
petitive market. The basic proposition can be called the
Louis-Schmelling Paradox.
If we ignore for the moment the legal reasons in the United
States for avoiding a monopoly position, it is clear that the ideal
market position of a firm is that of monopoly, whether to maximize
profits or to maximize the comfort of life. If we consider the
monopoly laws, the ideal position is as close to monopoly as the
antitrust division will permit without prosecution. In brief, a firm
is better off the smaller or less important the competition, and it
will try to attain a situation in which it is the sole supplier.
But now consider the position of the heavy-weight champion
of the world. He wants to earn more money, to maximize his profits.
* For the original stimulus to this paper I am indebted to Mr. Charles
Conerly of Mara University and to Coach Ole Pro of Falstaff University.
Pages 1-509 reprinted by Kraus Reprint Corporation.
2 QUARTERLY JOURNAL OF ECONOMICS
What does he need in order to do so? Obviously, a contender, and
the stronger the contender the larger the profits from fighting him.
And, since doubt about the competition is what arouses interest, the
demonstration effect will increase the incomes of lesser fighters
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(lower on the rating scale or lighter on the weighing scales) . Pure
monopoly is disaster: Joe Louis would have had no one to fight
and therefore no income.
The boxing champion is the striking case, but the problem is
equally great for any professional team. Suppose the Yankees used
their wealth to buy up not only all the good players but also all of
the teams in the American League: no games, no gate receipts, no
Yankees. When, for a brief period in the late fifties, the Yankees
lost the championship and opened the possibility of a non-Yankee
World Series they found themselves — anomalously — facing sport-
ing disgrace and bigger crowds.' If the Yankees, then, do not wish
to monopolize their own league, why don't they buy out the National
League? The answer is, of course, all those World Series receipts.
"Oh Lord, make us good, but not that good," must be their prayer.
Now we must face the question of whether it is possible that
there is a business which, contrary to all we have learned about the
business world, finds monopoly unprofitable. The answer, econo-
mists will be pleased to learn, is np — that a business monopoly is
profitable in the sporting business as well as in the business of life.
The first peculiarity of the economics of professional sports is that
receipts depend upon competition among the sportors or the teams,
not upon business competition among the firms running the con-
tenders, for the greater the economic collusion and the more the
sporting competition the greater the profits. The paradox appears
because the firm in law, as organized in the sporting world, is not
the firm of economic analysis; and the item sold by the sporting
firm is not the product of these firms, or not entirely. We have, in
fact, the phenomenon of
The Inverted Joint Product or the Product Joint . 2
We have long been used to the idea of a firm producing several
products from an indivisible process. The sporting firms produce
1. When the San Diego Chargers of the American Football League ran
roughshod over their competitors in the fall of 1961 the fans began to stay
away.
2. Since a joint product refers to two products technologically resulting
from a single process, we need another term for a single product resulting
from discrete technological processes, and following the profession's tradition
of jumbling words (value of marginal product, marginal value product) we
here invert the words to symbolize single product of two processes.
PECULIAR ECONOMICS OF PROFESSIONAL SPORTS 3
an indivisible product from the separate processes of two or more
firms (in law). But the product itself is a peculiar mixture: it comes
divisible into parts, each of which can be and is sold separately, but
it is also a joint and multiple yet indivisible product.
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To be specific, professional baseball teams produce a complex
product; or in common parlance several interrelated streams of
utility. There is first the saleable unit of the seat in the ball park
during the game, the service sold by each firm (Yankees, Senators,
and intermediates) and generally regarded as the business of and
the utility produced by the sporting firm. Then there is that
strange sale of the utility of TV viewing where we the people
enjoy the utility while nonsporting businesses pay the bill for us 3 .
However, there are two other streams of utilities. There is the pen-
nant race enjoyed by all and paid for by none. This we call the
League Standing Effect.
ect.
Of itself there is excitement in the daily changes in the stand-
ings or the daily changes in possibilities of changes in standings.
The closer the standings, and within any range of standings the
more frequently the standings change, the larger will be the gate
receipts. Thus the free provision of the race utility has a favorable
feed-back effect upon gate receipts, and we may treat this effect
as a kind of advertising. Note that this advertising is also free
to the advertising sporting firms — it has no opportunity cost —
and that it too illustrates the Louis-Schmelling Paradox in that the
more successful in sporting competition the firm is, the less effective
is the advertising feed-back of race utility. The "league standing
effect" is not limited to the consumer utility stream and the adver-
tising feed-back because it is also a marketable commodity, but
not for the producers. This quirk we may call the
Fourth Estate Benefit.
Newspapers report the play, the outcomes, and the resulting
"league standings" of games, and these reports are a major cause
of sales and therefore of direct and advertising revenues to news-
papers (and of course to sports magazines) : in fact, a case of econo-
mies external to the industry. Two separate sets of activities are
needed to produce the game write-up — the game and the reporter-
newspaper-printer-distributor complex. The former could occur
without the latter, but the latter cannot occur without the former,
3. Which raises an interesting question about whose marginal rates of
substitution on what indifference map.
QUARTERLY JOURNAL OF ECONOMICS
yet the latter is the financial beneficiary of this product joint from
two different economic spheres (although we must allow for the
advertising feed-back to gate receipts from press stories).
So far as the argument has carried us we may conclude that
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the product of professional sporting activity is not merely (1) the
match, but also (2) the "league standings" (or championship), the
progress towards a championship or changes in the standings, topics
of conversation, and press reports. Furthermore, (3) a business
firm — Joe Louis or the New York Yankees — cannot produce any
of these streams of utilities alone. It must have the cooperation of
a second business firm even to produce the game; to produce the
other utilities it must have the cooperation of several business
firms. 4
The conclusion, then, is that the business firm as understood
in law (and therefore in common discussion) —Louis or the
Yankees — is not the firm as understood in economic theory.
Rather, the firm is the league, or all professional heavyweights.
Once this point is realized, the theoretical conclusion is clear: each
professional sport is a natural monopoly. The several joint products
which are products joint of legally separate business firms are really
the complex joint products of one firm, and this firm is necessarily
an all-embracing firm or natural monopoly.
A natural monopoly as commonly understood is an industry in
which a single firm can satisfy the market in the declining portion
of its long-run average total cost curve. If defined as one in which
a single firm can satisfy demand at a lower long-run average total
cost than can be achieved if two or more supply the industry's
product, it would be possible to have a natural monopoly where
long-run costs are constant, if their level varies with the number
of firms, or where average costs are rising if the minimum and
rising portions are so low that any division of the market between
two firms results in higher costs for both on the declining portion
of the cost curve because of diseconomies external to the firm al-
though internal to the industry.
In law a firm is regarded as a person, persons, or organization
having the right to own property and to contract. In economics a
firm may be defined as a "decision-making unit whose major ob-
jective is profit" (however Harry Wismer may define the term),
but this definition assumes that the "decision-making" and the
4. It might be argued that any firm buying inputs from another firm
requires the cooperation of the second firm, but this is stretching the meaning.
The cooperating firms in sports are not willing buyers and sellers from and to
each other but together (and with the press) sell to third parties.
PECULIAR ECONOMICS OF PROFESSIONAL SPORTS 5
"profit-taking" units are identical, whereas in professional sports,
while the legal firm takes the profits, the league makes the deci-
cions. Professor Robert Dorfman suggests parallels to the league
in trade associations, the Eastern Railway Conference, the com-
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bination of various firms for construction jobs, and the joint ventures
of Gimbel's and Macy's in the United Parcel Service and the bridge
connecting the stores, holding that in none of these cases have the
business firms merged. But each of these organizations is a firm
by the definition, "a decision-making unit whose major objective
is profit." The railways make decisions jointly about through-
routing and rates, to maximize their .profits, and so small a coopera-
tive effort as common billing by a trade association is a joint deci-
sion made to reduce costs (i.e., increase profits) . In short, although
legally separate, in substance the associations and conferences act
as would the management of a trust or holding company insofar as
they reach joint decisions on marketing and pricing, and therefore
can be regarded as merged.
If department stores were to withdraw from all business ex-
cept the joint ownership of a delivery firm, or if railway companies
were to restrict their activities to the joint management of a termi-
nus, one would think of them as merged for any questions of eco-
nomic substance. Operations such as the cooperative selling to each
other and to other buyers by plumbers, carpenters, and builders in
the construction industry do parallel sporting firms in that both are
Multifirm Plants.
Familiarity with the concept of a multiplant firm should not
blind us to an occasional reversal of form created largely by the
peculiarities of our law of property. The "plant" of the construc-
tion trades is the building site. At a minimum one might say that
the "plant" of the sporting firms is the playing field, but without
the league the playing field is incapable of producing the champion-
ship product, so the concept of "plant" must be enlarged to encom-
pass the league. Furthermore, the parallel between the building
industry and the sporting firms is not complete, for the sporting
firms sell an indivisible product (once divided it is no product at
all) to the consumer and contribute exactly the same inputs. The
parallel should be with two or more plumbing companies joining
together to sell their services as a single source of supply. Where
there is joint decision-making because it is cheaper to do so, the
resulting arrangement may be more easily seen as a monopoly if a
(partial) cartel may be considered, as I would, a firm.
6 QUARTERLY JOURNAL OF ECONOMICS
As for Gimbel's and Macy's, my mother-in-law assures me that
"everyone knows they are in each other's pockets." b
An objection may be raised that one can have several leagues,
and that these leagues are, or should be, competing firms. As one
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surveys the history and present state of the sporting trades one
must admit the possibility, but one must also recognize that as a
matter of observation there appears to be a strong tendency toward
a single league, and this for one good reason: only a single league
can produce that most useful of all products joint, the World Cham-
pion. Analytically we must regard the National League and the
American League as one, for they come together each autumn to
produce the World Series. Despite the differences in form, the sub-
stance of this World Series product is identical with the single
league championship in the National Football League arrived at
by business collusion in cooperative sporting competition between
an "eastern division" and a "western division" team. Hereafter
we should therefore refer to the two major leagues in baseball as
"divisions" within the larger league-firm.
At the present time the trade of professional football is divided
in two in the United States, with a competitor in Canada. There is
no meeting on the field of play between the National and the Ameri-
can Football Leagues. The result is an absence of sporting competi-
tion, but very strong interfirm competition between the old and
new leagues. Do we therefore have oligopoly? Yes, in the short
run, in the same way that some American railroads have tried to
compete; but in the long run, No, because this is inherently a tem-
porary state of affairs. We witnessed a similar situation just after
World War II when the All-America Conference challenged the
National Professional Football League. The result in that instance
was the demise of the Conference with the older League absorbing
some of the teams of the bankrupt Conference. Logically we may
distinguish four cases or four possible histories of interleague busi-
ness competition:
1. The Major League Baseball solution: the joining of eco-
nomically competing oligopolistic firms into sportingly competitive
natural monopolies.
2. The professional football solution of the forties: bankruptcy
for one or the other of the economically competing firms.
3. The survival of two or more leagues because they are not
economically competitive. This case occurs when the leagues are
5. Mrs. Paul B. Sheldon, New York City, oral communication, March 23,
1963.
PECULIAR ECONOMICS OF PROFESSIONAL SPORTS 7
operating in different geographical areas or are inherently non-
competitive in both the sporting and economic sense, as in the case
of boxers of different weights, or, a few years ago, baseball players
of different colors.
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4. The survival of two or more leagues which are economically
competitive and which could be sportingly competitive.
The first two cases have been historically the common ones.
The third case is actually rarer than one might expect. Of course,
when it is patently ridiculous to compete in sport — to match a
heavyweight with a flyweight — two leagues or championships co-
exist, but where sporting competition is prevented by geographical
difference the tendency is to enlarge the area of sporting competition
until in fact there is only one league. Thus we find that Australian,
West Indian, Indian, Pakistani, and English cricket, separated about
as much as is possible (or was possible before Gagarin) merge in that
great international cartel, the Test Matches. Again, soccer (mis-
takenly called football by literally minded foreigners), which is for-
mally organized in teams merged in national leagues, has become a
cartel of international matches. Since cartelization is necessary not
only to maximization of profits but also, even especially, to maximi-
zation of output, the geographical division of the market is an inher-
ently unstable situation usually replaced by a naturally monopolis-
tic firm whose market region is everywhere that the sport is played. 6
Whether or not two leagues can survive within the market
area — our fourth logically possible case — depends on the facts
of the matter, or, put more realistically, on the relative shapes and
positions of the demand and cost functions. From the sports pages
it is difficult to glean solid data to which to fit functions, but one
does form the impression from the history of sports that such sur-
vival is unlikely. In effect, the argument here depends upon the
acceptance of premises for which direct evidence is thin on the
grounds that the conclusion reached from the premises is con-
sistent with observation.
The long-run cost curve of seats-at-games for the league-firm is
6. The apparent exceptions of United States and Japanese baseball and
of the sportingly independent United States and Canadian football leagues
partly reflect difficulties of amalgamation across national boundaries, but more
important, both Japanese and Americans agree that the Japanese teams could
not win an international World Series and it is thus unnecessary to prove by
formal competition that the American winner is the champion. But even here
when exhibition games begin to show the American superiority at its own
sport is questionable, one should expect cartelization into an international
league. Perhaps, too, the pressure for Canadian-United States competition
is low because it is not widely believed that the Canadians might win.
QUARTERLY JOURNAL OF ECONOMICS
probably flat or almost flat. As one expands the firm the quality
of the product is affected by two contrary tendencies. The first is
Diminishing Quality Returns
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because the quality of raw materials declines as less efficient inputs
are drawn into the sport. One may treat this as producing an in-
ferior product for which there is another, lower demand function
for lower quality "game seats" (which means a reduction in rev-
enue per game seat) 7 Alternatively one may regard the diminish-
.
ing quality returns as an increase in the cost of producing the
same quality of game seat. In either case there is a limit to the
size of the most efficient (least minimum average cost per constant
quality game seat) league-firm, given by the cost function. The
limit on size applies no matter how few or many leagues there are,
so that one large league can provide any quantity of product as
cheaply as two or more smaller firms. Thus there is no efficiency
argument against monopoly, and there is a likelihood that the first
league in the sport — like the first utility in a city — will become a
monopoly. But any upward shifts in costs (or downward shift of
quality and therefore the substitution of a new demand curve) are
counteracted by the
Input-Enthusiasm Effect.
Whereas one finds that human abilities in various directions are
randomly distributed in any population, one also finds that skilla-
bilities in sports are concentrated regionally. How else can we ex-
plain the disproportionate number of first class tennis players and
cricket batsmen from Australia, or runners from Australia, England
and Scandinavia, or of passing quarterbacks from Texas, other
than by reference to the public attention and private concentration
put into the development of these particular skills? And this input
into the inputs is a result of the enthusiasm for the sport in the area,
which in turn is both a consequence and a cause of the scale of
operations of the sport in the area. In other words, the larger the
scale of operations, the higher the quality of inputs and of products,
or the lower the cost of a constant quality game seat.
When one shifts one's focus from the use of resources or the
quality of product to the money costs it is reasonable to suppose
that less perfect inputs (producing lower quality games) will earn a
lower return, so that the cost per quality unit will not change as much
7. However, we know by introspection that the reduction will be small
since the appeal of the seat depends mostly on the uncertainty of the outcome
and on the weather.
PECULIAR ECONOMICS OF PROFESSIONAL SPORTS
as the quality changes. Both the "enthusiasm effect" and the lower
salaries of lower quality sportsmen will flatten any rising tendency
in money costs consequent upon diminishing returns. Enthusiasm
simultaneously increases (1) the demand for game admissions and
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therefore the derived demand for skilled players and hence their
salaries, so that the monetary cost of each unit of the larger supply
of higher quality players rises; and increases (2) the supply of
skilled players. The net effect of the increase in demand on gate
receipts and on derived demand will merely tend to shift the curves
northeastward without a "squeeze" on profits, while the underlying
"enthusiasm effect" will lower the supply schedule of inputs. Larger
scale, therefore, does not necessarily increase costs more than rev-
enue.
All this, of course, is in conformity with our economic expecta-
tions, but the supply mechanism is not market pricing. The supply
of skilled inputs is developed in the sphere of amateur activity —
specificially in the schools — so that the equilibrating mechanism
works not through price response but through enthusiastic response
and the human desire to conform to standards of group approval.
The net effect of diminishing returns, of the tendency toward
constant money costs in quality units of input, and of the "enthusi-
asm effect" may be constant costs, increasing costs, or decreasing
costs. In the absence of information, I guess that the long-run
supply curve of the league-firm is roughly constant for output units
of games by pairs of teams.
One usually expects a constant cost industry to be competitive,
ceteris paribus; but cetera non sunt paria. Even if professional
sports are constant cost industries the "World Champion utility"
can only be created by cartelization. Furthermore, there is inter-
dependence between demand and supply. The total size of the in-
dustry (in game-seats) is determined by the intersection of demand
with supply, and if the long-run supply curve is horizontal, one
might say that it is strategically determined by demand. But de-
mand itself is in large part a reaction to the sporting importance of
the events, the sporting importance depends upon the "fourth estate
effect" and the "public conversation effect," and since these effects
in turn depend upon the scale and universality of the championship
at stake, the function will move up to the right for a more conclusive
championship, and down to the left if the leagues decided to avoid
meeting in a play-off. Thus demand and supply tend to intersect
at the point of a single, monopoly championship wherever that in-
tersection may be (the You Don't Say Law).
10 QUARTERLY JOURNAL OF ECONOMICS
On the supply side the long-run cost curve is horizontal, but the
height of the curve above zero depends on the costs to the business
or league-firms. These costs consist mostly of two elements: (1)
fixed costs of interest or rent on the stadium capital and the cost
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of equipment and transportation for the firm, and (2) quasi-rents
for the players. The price of any player is partly a function of
his willingness to play, for the athlete need not enter the players'
market since he has alternative opportunities, but once his minimum
supply price is met the team firm is paying for an unreproducible
talent, or a quasi-rent. If there are two firms bidding for his talents
the quasi-rent will probably be higher than if there is only one
bidder who is engaged with the player in bilateral bargaining.
Since league firms typically prohibit multiple bidding by their team
component firms counterbidding arises only when there are two
independent leagues. 8 The existence of economically but not sport-
ingly competing leagues thus raises the money costs to both leagues
and so endangers profits. While in logic there is no reason why
both leagues cannot continue to enjoy profits, or at least no losses,
they are unlikely to do so. The salary of a player has much in com-
mon with ground rents, but the analogy must be understood to
apply by lot, and is not complete. As in the result only one store
actually uses one lot, so only one league employs one player. But
whereas several stores can compete in a shopping area when they
sell the same products because nonrental costs of and demand for
the products of each store are the same, two or more leagues prob-
ably will not enjoy identical nonrental costs and demand. Trans-
port to and from Kansas City from other points will not be the
same as to and from Houston, while the urge to go to a ball game
will differ from city to city (or from the Bronx to Brooklyn) . Only
in the unlikely event that both leagues field teams in exactly the
same cities (and with exactly the same appeal to historic loyalties)
will there be a no-profit-no-loss Chamberlinian equilibrium. One
therefore expects competitive bidding eventually to raise quasi-rents
for one league or the other above the spread between its other costs
8. A variety of liberties and restraints characterize the quasi-rent bar-
gaining process in professional sports. In American football the "player draft"
eliminates within-league counterbidding; in baseball the teams must bid
against each other to contract with a new player but once the contract is
signed the other teams cannot make counteroffers during the following years.
Similar arrangements exist in other team sports, but in the sports of individual
competition, e.g., boxing, the player and the business firm merge so that the
quasi-rent payment to the competitor merges with his windfall profits and his
income is undifferentiated.
PECULIAR ECONOMICS OF PROFESSIONAL SPORTS 11
and its receipts, at which point the fourth solution becomes the
second. 9
Competition exists not between teams or leagues but between
sports. Paying fans and newspaper readers prefer one or another
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sport — I suspect largely because Dad preferred it — but shifts in
taste do occur and the leagues, or even the component teams acting
independently, can encourage such shifts. Between the wars the
New York (football) Giants built a loyal following by selling tickets
extremely cheaply to children. Colorful people, youth leaders, im-
moral people, all can be used to attract attention to a sport. Ice
hockey undoubtedly has increased its popularity over what it would
otherwise have been by the public notice of brawls during games.
Definite divisions of the sports market seem to be characteris-
tic. First there are the national divisions, marking off American
baseball from Commonwealth cricket, American football from inter-
national soccer. Second, there are the seasonal divisions, leaving
baseball dominant in the spring and summer, football in the autumn,
and basketball in the winter. Third, there are divisions among
social classes: cricket is upper-class and soccer working-class in
England; baseball was the sport of the small town in America while
professional football grew up in the industrial cities. Although these
divisions may not be immutable they are certainly hard to change.
Professional football has crept back into the late baseball season
and forward into the basketball-hockey season, but efforts to estab-
lish an American soccer league in monopolistic competition with
baseball (during June, July, and August) have met with little favor.
Within the general framework of a whole-sport monopoly there
are some additional peculiarities. We are familiar with the cobweb
theorem, which depends upon next period's supply responding to this
period's demand. But in professional sports we have the
9. Professor Benjamin Higgins pointed out that some other trades re-
quire competition to succeed. One is law, a single firm needing others to
fight in court; another is fashion, the interest arising from the differences be-
tween two designers. There are perhaps more for there is no reason to believe
that a "peculiar economics" is confined to professional sports alone. How-
ever, the two examples, while requiring competition for profits, are not cases
on all fours with professional sports. Fashion requires separate, economically
as well as aesthetically, competing units and so does not tend to coalesce
into a monopoly. Furthermore, the supply of fashionable goods is the product
of many factories and stores all over the world, not of the designers them-
selves. They are more like leading architects than leading coaches. The
practice of law also does not tend toward monopolization of the business
firms; and unlike both sports and fashion its practice cannot be called incon-
sequential. The need for competition within the courts stems not from the
economics of business, as it does in professional sports, but rather from the
adversary structure of our system of justice. Whereas sports require sporting
competition and business monopoly, fashion and law require both interfirm
business as well as aesthetic and legal competition.
12 QUARTERLY JOURNAL OF ECONOMICS
Roger Maris Cobweb.
The demand for Roger Maris' services for next year depends
upon his performance this year. The cobweb has been inverted
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with demand reacting after a delay to supply; and the 1962 quasi-
rent depended upon how ruthlessly Maris pursued the home-run
mantle in 1961. Note that to introduce the concept of expectations
does not alter the point, for the famous hog cycle — in which the
sex urge of pigs responds to slaughtering prices in Chicago — is also
one of expectations. Here one might note that an explosive cobweb
is unlikely since the supply curve of talent in the quasi-rent range
must be vertical and the height above the minimum price which
Mr. Maris will accept and the depth below the maximum which
the Yankees will offer Mr. Maris depends upon bargaining tech-
nique. Below the minimum which Mr. Maris will take we have
a horizontal supply curve and Mr. Maris leaves the market.
Whether marginal analysis of input pricing will work at all is
doubtful. Whereas one can speak of the marginal steel worker
without naming him it seems a little foolish to speak of the marginal
quarterback of the Steelers. Marginalism seems to break upon the
Bobby Layne Rigidity.
There are possibilities of substitution of an indirect sort.
Clearly one cannot field more than eleven laborers in a football
game, "nor can one use two poor quarterbacks instead of one
good one"; but one can use a better line to give a weaker passer
more time or a faster fullback to make up for the absence of two
first-class halfbacks. Such considerations obviously weigh with
teams in their drafting and trading operations since Baltimore let
Mr. Lipscombe go and the Giants put more effort into finding de-
fensive personnel than into finding new offensive backs. But here
one fails to see just how the Colts and the Giants compute the mar-
ginal returns of tackles, of pass receivers, and so forth. In baseball
batting averages and earned-run ratings provide a better guide to
marginal productivity computations; but in both sports the value of
the marginal product is only indirectly and roughly related to these
sporting measures since it is the effect upon the gate receipts which
counts and gate receipts have no stable functional relationship with
the sporting measures. In boxing the idea breaks down completely
since the entire labor input is one and always tries to be its best.
Thus the ultimate of the Bobby Layne Rigidity is the
PECULIAR ECONOMICS OF PROFESSIONAL SPORTS 13
Archie Moore Indivisibility.
Having discussed the demand and cost structure of the profes-
sional sports industry certain parallels with other industries will
be apparent. The firm of economic theory is the league, and the
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league is a natural monopoly with demand and cost and profit ad-
justments always tending toward unification of all league-firms into
a single firma-firmorum.
The plant of economic theory is the game, which requires three
factors of production: namely, land, labor, and labor. In different
sports each of the factors has a critical minimum beyond which
additions to output fall off rapidly; but the law of variable pro-
portions is here invariable since two of the factors can be used
simultaneously only in specified quantities and in some sports all
three are subject to this limitation and the additional inputs logi-
cally come under the classification "repair and renewal." At this
point one can also see the importance of institutionalism for the
limits on the employment of labor trace back to ancient and irra-
tional traditions of sportsmanlike behavior, and to break them by,
say, fielding a fifth back armed with a switch blade would be im-
permissible to members of the tribal society despite the fact that
any United Nations expert could point out the obvious technical
advantages. To my knowledge only the Canadians have adopted
the fifth back, and there is no evidence in published reports that
even the Canadians have equipped this man properly. On the other
hand, economic sophistication of a high order is shown by the larger
end zone and the elimination of the fourth down in a country with
large unused areas of land and a small population.
We often think that if plant costs are constant (but here re-
member that the team or business firm does not constitute a plant)
there can be no advantages of scale except as monopsonistic power
is exerted; but we have already established those internal and ex-
ternal economies of scale called "league standing" and "fourth estate
effect." Thus we justify horizontal integration in a natural monop-
oly.
Vertical integration takes different forms in different sports.
We would have to stretch meanings to visualize vertical integration
in boxing, but we are all familiar with the phenomenon in baseball.
Here one familiar with the problems of underdeveloped countries
and the earlier stages of industrialization will recognize the charac-
teristic need to recruit and commit the labor force. It is also the
arena of free contract negotiation; and is finally analogous to the
tomato farms held by Heinz.
14 QUARTERLY JOURNAL OF ECONOMICS
In American football there is still another organization often
referred to as the university. The idea is to develop commitment
before recruitment largely on the grounds that it is cheaper — or
rather, on the grounds that the social costs of selection and training
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are shifted onto the community of academics, alumni, and taxpayers.
But here we can go no further since this information is as well hid-
den as are the accounts of peasants.'
Variety of organization is found in the organization of recruit-
ment more than in any other facet of the economy of professional
sports. One can mention, in addition to the two forms already dis-
cussed, the feudal organization of village and county cricket, the
climatic-linguistic character of ice-hockey recruitment, and less re-
cently the religious qualifications for animal wrestling in the Roman
arena. Here alone I feel economists should support the remaining
elements of freedom, conflict, and competition in the business or-
ganization of professional sports.
Otherwise it is clear that professional sports are a natural
monopoly, marked by definite peculiarities both in the structure
and in the functioning of their markets. Consequently professional
leagues have every economic ground to appeal to legislatures, to
courts, and to the public on the ground that
We fall if you divide us;
We stand if Johnny Unitas.
1. The university farm team also appears to be the last stronghold of
the third kind of integration problem. Most economists oppose integration of
business firms either horizontally or vertically, but somehow manage at the
same time to favor racial integration. This paradox is explained by the eco-
nomic inefficiency of racial segregation, and the uneconomic character is per-
haps sufficiently illustrated by an old lament of the Southwest which my daddy
used to sing:
There was a blackguard from the South
For our sisters he was born too uncouth;
He couldn't play Royal's
Or even Frank Broyles',
So Syracuse hired the youth.
UNIVERSITY of TEXAS
