Interview with Dr. Roger G. Noll: BP interviews the sports world’s preeminent economist

On January 8th, it was my good fortune to be able to spend about half an
hour speaking with Dr. Roger G. Noll. Dr. Noll is probably the world’s
foremost authority on the economics of big league sports, and is currently
at the Department of Economics at Stanford University. Dr. Noll has
extensively studied big league finances and economics and has produced two
reports to the MLBPA about the financial state of the league, once in 1985, and
again in 1994.

Here are some highlights from our conversation. Dr. Noll is one of the few
people in the world who speaks more rapidly than I do, so my notes may have
been a bit sketchy, and the responses below are not verbatim, primarily
because of my slow handwriting speed. In order to avoid misquoting or
misrepresenting his statements, I forwarded this piece to Dr. Noll for
his corrections and approval prior to publication at the Baseball Prospectus
web site.

GH: Currently, Major League Baseball has a relatively complicated web of
television rights. Local teams have local deals, and MLB has several national
deals, including deals with ESPN, Fox, and direct delivery systems like
DIRECTV. Despite a system in which nearly every game is televised, many
viewers can’t see the games they want to see because of the structures of the
various contracts. MLB is about to start another round of negotiations about
TV rights. What do you think will happen with the new contracts?

RN: There will be a great deal of continued change, but exactly what will
happen will take some time to play out. Baseball has historically done a
poor job of optimizing the sales of its broadcasting rights. The Sports
Broadcasting Act (SBA) is currently being challenged in Pennsylvania, and a
lot of what will eventually shake out will depend on how the courts rule on
that. It might end up that the SBA does not apply to cable and direct
satellite broadcast systems. It’ll probably take 3-4 years for that to play
out in the courts.

Traditionally, teams have sold their rights locally, and had exclusivity in
their own markets. That trend may be going away, depending on what
legislation and rulings eventually end up being in force. Eventually, teams
with national followings, like the Red Sox and Yankees, could aggressively
sell their televised games in markets across the country. If this happens,
you could see home teams in smaller markets claim games played in their
ballpark as their own property, and sell those rights individually.

GH: The current collective bargaining agreement between the players and
owners can, once again, be reopened before it expires. Do you think the
owners will reopen it early? Last time the owners did this, they were able
to publicly frame the debate, and as a result, public opinion was either
negative to both sides, or had little sympathy for ‘striking millionaires’.
Will things be different with this CBA?

RN: Yes, ownership will reopen the collective bargaining agreement before it
expires. As for public opinion, it has surprisingly little effect on
collective bargaining. Debating and framing the issues in the press is
primarily to affect other arenas, like legislation or issues of interest to
ownership. At the table, public opinion, in favor of either side, isn’t
really important.

GH: There isn’t an ownership group in any city that wouldn’t like to have
their city build them a brand new stadium. Is building a stadium a good deal
for municipalities, and, by extension, taxpayers?

RN: If building a ballpark were a profitable enterprise, owners would do it
privately. That being said, you can’t really have a definitive answer to
that question. No two proposals for public funding of ballparks are alike,
so a general model isn’t possible. Each funding mechanism needs to be
examined individually. In Cincinnati, the proposal calls for a sales tax.
In other cities, it’s often a combination of taxes, often on ‘tourist’
expenditures like hotels or rental cars.

Of course, those ‘tourist’ taxes aren’t really paid completely by the
tourist – they are paid in part by the businesses that tourists use. Tourists,
like other people, have limited budgets, and so respond to higher after-tax
prices by buying less, so a tourist tax will reduce sales revenue by the
businesses that cater to tourists. Because profits for most retail businesses
catering to tourists are a small proportion of sales, a seemingly modest
tourist tax can be devastating to some small tourist-oriented businesses.

But from a political point of view, it’s more palatable to tax visitors to
the city rather than residents, or, more accurately, to appear to do that.

GH: There’s a seemingly endless war between players and ownership. Will it
end anytime soon, and any comments about why, why not, or the effects of
this long-running conflict?

RN: It won’t end. The collective bargaining process could be less
amateurish, but collective bargaining is inherently conflictual because it
is a zero-sum game. Once you’ve determined the size of the pie, every
dollar gained by one side is a loss by the other. What’s often lost in the
process is the recognition that there is some mutuality of interest. As the
intensity of the negotiations have increased over the past several years, in
all sports, some mutually beneficial opportunities have gone unnoticed. Most
of the blame for this lies with the owners.

GH: Why do baseball owners cry poor all of the time? To listen to their
public pronouncements, you’d doubt that Major League Baseball would be a
going concern.

RN: The poormouthing doesn’t really affect the collective bargaining
process, but it does serve a purpose for ownership. They’re not trying to
curry public favor for negotiations with the players, but they are trying to
affect legislation and public policy for issues like franchise relocation,
the rules under which they can negotiate the sale of broadcast rights, and
potential changes in anti-trust laws.

GH: Thanks very much for your time, Dr. Noll.

RN: It has been a pleasure.

It has been a pleasure!