Sterling, the Clippers, and $2B of Monopoly Money

Staples Center; LA Clippers Vs the Miami Heat.jpg

Is there a more crooked roulette wheel than the one that spins around in the circles of professional sports? I ask in the context of the punishment meted out to Donald Sterling, the in-limbo owner of the Los Angeles Clippers, who, for his commentaries about race in America, was banned from the league and might be “forced” to sell his team for $2 billion, about $1.5 billion more than it was worth before his girlfriend taped their tawdry talks.

On paper, let alone on the basketball court, the Clippers should be close to worthless—an inept franchise that has yet to win a championship in the 44 years of its existence, which began in Buffalo.

The magic of pro sports accounting, thanks to antitrust exemption from the US Congress, is that all team owners enjoy the perquisites of monopoly money, which entitles even the racist Sterling to billion-dollar pay days.

It makes sense that Sterling’s wife is trying to sell the Clippers to Steve Ballmer, the former CEO of Microsoft, who ought to know a thing or two about oligopoly.

Ballmer's bet is that the NBA’s cartel pricing will allow the team more revenue sharing from television, while paying less to the players, so that instead of paying 133 times earnings for a team earning about $15 million a year, he can reduce his paid premium to, say, 40 times earnings if the Clippers start earning $50 million annually.

Should the team acquisition simply be a rich man’s hobby, he can console himself for his losses by sitting court-side in Los Angeles with various starlets, although $2 billion is a lot to pay for a matchmaking subscription.

Nor is Ballmer alone among executives in celebrating the un-level playing fields of monopoly. The owners of major league teams in football and basketball have long understood that the points on the scoreboards are incidental to their business of collecting money, paid out by the cable television industry (another oligopoly), and from treating the workers as if they were (high-end) strip miners.

To be sure, many athletes in professional sports earn multimillion-dollar salaries. But they are paid as a coefficient of their ability to draw television ratings. Few other businesses in a country theoretically devoted to free enterprise are allowed to allot franchises as though they were noble fiefs, and to treat workers as indentured servants.

Even now, it takes years for baseball and football players to become free agents, and leagues impose salary caps, in theory to equalize competition, although in practice to save money.

If the movie or insurance businesses conducted a draft of prospective employees, Congress would cry foul and enforce an open and free labor market.

Not only can the professional leagues allocate talent as if at a slave auction, but they enjoy the further subsidy that colleges and universities (in basketball and football) operate their minor leagues at no cost to the professional owners.

On average, big-time universities earn about $50 to $100 million a year on their sports programs—much of that from basketball and football—but then become indignant when players, such as those at Northwestern University, suggest forming a union or ask for long-term healthcare benefits when they leave school programs with permanent injuries. Aren’t worthless degrees in something like social media enough reward?

Best of all, few of the operating costs are passed on to the beneficiaries, the peers of Donald Sterling, who unwrap their golden tickets even if their teams are losing or they are degrading the fan base.

With so much monopoly money to spread around among relatively few pro teams, owners can throw multimillion dollar, multiyear contracts blindly at athletes, who often look more like lottery winners than stars.

In the last two years, for example, the bloated New York Yankees have lavished C.C. Sabathia, Mark Teixeira, Alex Rodriquez, Derek Jeter, Curtis Granderson, and others more than $100 million a year, even though they have played in only a fraction of the games, or poorly.

During the last off-season, the Yankees committed another half a billion dollars to new free agents, including catcher Brian McCann, who as I write is batting an anemic .226.

In 2013 the iconic team reported a loss of $9.1 million, although Forbes listed the worth of the franchise at $2.5 billion, with annual revenues of $431 million. A closer look at the numbers, however, suggests the Yankees are a cable network (jointly owned with FOX) with a team, not the other way around.

Only monopoly economics allows the dimwitted Yankees to stay in business. Thanks to deductible ticket purchases by spendthrift corporate clients, the average seat at Yankee Stadium runs about $50, although the good seats cost over $200. The price of a monthly cable sports package in New York, at least for those that want a Yankees TV fix, can be another $1000 a year.

Were pro sports in the interest of the community and worthy of an antitrust exemption, anyone with a video camera could broadcast the games as a news event. Instead, the games are the property of the major league cartels, whose officials, acting as though they were OPEC magnates, allocate the product.

As if the pro sports honey pot needed anymore sweeteners, think, too, how easily many owners have extorted new stadiums from their home markets, in exchange only for agreeing to keep the team in the city. Or they skip town as soon as they're promised millions elsewhere.

According to several studies, some $17 billion in tax-exempt public funding has gone into stadium construction in recent years, another reason it’s impossible to lose as a team owner.

For the fans, the new $1.5 billion Yankee Stadium feels the same as the old one. But owners lobby for new, tax-subsidized ballparks, especially in the NFL, so they can increase the number of skyboxes; that money drops straight to the owner’s bottom line, avoiding the pools of revenue sharing.

Are there risks to owning these golden franchises? Pro football leagues will be hit with endless class-action lawsuits, until they can indemnify all current and past players with long-term disability in exchange for their primetime tackles and concussions. But I doubt these lawsuits will turn the NFL into flag football.

Another threat to pro sports could come from an end to monopoly pricing in the cable television industry. Once every phone and iPad is a handheld TV, will customers really pay Time-Warner $90 every month for 500 channels? Will there be networks with enough subscribers to pay billions to the major leagues? Will audiences continue to watch baseball on television if the stadiums are empty, as many are now?

Of course the best response to loutish team owners—among whom I suspect Donald Sterling is par for the course—would be to end the antitrust exemption and let the teams compete with other, newer teams and leagues. Why must pro sports be a regulated industry? Are they the equivalent of nuclear power?

Why can’t even small and medium-sized cities have teams? The community-owned Packers have flourished in Green Bay, and the United States is a country of Green Bays. As in European soccer, the major leagues could simply be the most successful teams, with the poor performers each year getting relegated to lesser divisions. The University of Alabama would move up, and the Jacksonville Jaguars would go down.

By those standards, the Los Angeles Clippers would long ago have been demoted to the California league, and their owner, one Donald Sterling, would not today be looking forward to a $2 billion check.

Matthew Stevenson, a contributing editor of Harper's Magazine, is the author of Remembering the Twentieth Century Limited, a collection of historical travel essays. His new book, Whistle-Stopping America, was recently published.

Flickr photo by David Jones: The Los Angeles Staples Center on a good night for the Clippers; they beat the Miami Heat 111-105.