Some comparative economics of the organization of sports: competition and regulation in north American vs. European professional team sports leagues.

• Author: Andreff, Wladimir
• Position: Report

What is the future of comparative economics? This question has been with us since the collapse of the former communist regimes associated with "socialist centrally planned economies". Various responses have been suggested in the literature during the post-communist period of economic transformation and I will briefly sketch a few of them below (see section 1). But no one could imagine that a possible dividing line between a quasi-socialist system and a deregulated market economy were to persist in some area until today, 2010. Had it been so, would not all those involved into comparative economics have taken this opportunity to prolong the use of their usual economic and institutional tools of comparative analysis in that area? Amazing as it may seem, such an area does exist and my contribution is devoted to briefly present it as an avenue for new comparative economic research.

There is a dividing line between the North American closed league system in professional team sports--a sort of island of regulated "quasi-socialist" economy in the middle of a liberal American market capitalism--and the European open league system which has rapidly been almost completely deregulated, starting from European football (soccer) in 1995 and spreading throughout other European sports and all open professional team sport leagues. There are four dimensions along which closed and open team sports leagues can be compared: organizational (section 2), in a Walrasian model (section 3), using a Nash-equilibrium conjecture (section 4), and through empirical testing (section 5). I will briefly screen all four. The empirical evidence will show that European open leagues differ from North American closed leagues in that teams' budget constraints in the former are soft while they are hard in the latter. We thus meet Kornai's insight in unexpected places. A disequilibrium model would fit open leagues better.

1) Which future for comparative economic studies?

Jan Tinbergen (1961) was the first economist and Nobel Prize winner who stated and predicted that the core object of comparative economics, capitalism versus socialism, would vanish, since the two opposite institutional and economic systems may be replaced by a single system. This hypothesis is known as one of convergence between economic systems (Andreff, 1992). The collapse of the Soviet-type systems between 1989 and 1991 followed by two decades of post-communist transformation did not exactly confirm Tinbergen's (and others') convergence prognosis. The two former systems did not merge because one of them--the Soviet system--was definitely submerged by the other with a restoration of a capitalist market economy in former Soviet economies. Did the total collapse of the communist system and the associated globalisation of capitalism put an end to comparative economics and turn the latter into a branch of economic history? Nuti (1999) has contented that "nothing could be further from the truth". Let me offer an elaboration on Nuti's seven arguments:

1) Some Soviet-type economies are surviving in countries like Turkmenistan, Tajikistan, North Korea and even Cuba.

2) There are countries, namely Vietnam and China, which are neither traditional Soviet-type systems, nor post-transitional economies such as Central and Eastern European countries which have joined the EU; sooner or later, their systemic transformation will become a special case, as Kornai (2006), who adds the Muslim countries to the list, suggested. He concludes that 'transitology' (a variant of comparative economics when a system changes or collapses) is not over.

3) As long as we have different systems, the question of actual or possible transition from one to the other remains a topic for comparative economics, since different transition paths have been observed in the 1990s. Even within capitalism, institutions evolved in various countries at various speeds (Kornai, 2006).

4) Within the capitalist system itself, there exist several prototypes of a market economy which distinguish the Anglo-American model from a Japanese and South Korean networked version, German Mitbestimmung, and even more so (the former French) state capitalism in various developing countries (see also Boyer, 1993). On the other hand, it is the way which is now used by mainstream economics to re-integrate a liberal analysis of institutions into the so-called new comparative economics--see for instance Djankov et al. (2003), Glaeser et all. (2001 & 2003), Glaeser & Shleifer (2001, 2002 & 2003), and for a criticism Andreff (2006).

5) Even economic systems with identical economic institutions may behave very differently if their economic policies are systematically (permanently and consistently) different--for instance Thatcherite-Reaganite policy as against Scandinavian solidarity welfare policies.

6) There is some sort of study of economic engineering, i.e. of new or modified economic institutions, including yet untried sets of economic institutions ("utopias") as well as historical comparisons, e.g., with ancient economic systems and their "great transformation" (Polanyi, 1944).

7) History never end up: both single institutions and the systems they form evolve continually; in this sense, Karl Marx was the first notable practitioner of evolutionary economics through his theory of the development of "modes of production" (i.e., economic systems).

To make Nuti's listing absolutely comprehensive, I would add another issue which also pertains to comparative economics:

8) Emerging capitalism exhibits different features, institutions and--in line with the evolutionist view--different levels of and paths to economic development as compared to already developed fully-fledged capitalist market economies; this is exemplified nowadays by the attractiveness of BRICs or BRICS (2) to comparative economic studies.

Eleven years after Nuti's article, many studies in comparative economics have drifted towards either economic institutionalism or development economics which has translated, since 1997, into a rapid decrease in the number of Econlit-listed publications belonging to comparative economic systems, as noticed by Dallago (2004). With Nuti's arguments 2, 4 and 6, it may sound that the future of comparative economics lies with institutional economics, while arguments 3 (including path dependence) and 7 lead comparative economics to combine with institutional and development economics into an evolutionary approach. Comparative economics comes even closer to development economics if (our) argument 8 is accepted. Although Nuti was certainly right saying that post-communist "transformation has enriched the range of system morphology, and has greatly enhanced the importance and significance of the study of comparative economic systems, policies and institutions, and their processes of transition and evolution", in the long run, comparative economists might well be left with only four countries to study (argument 1) or must become--and specialise as--institutionalists, e volutionists or development economists. Comparative economics will be all the more phased out for those who consider Russia (and other transition countries) as having made remarkable economic and social progress in order to become a "normal country" (Shleifer & Treisman, 2005). However, such conclusion is debatable and, for instance, Rosefielde (2005) contends that a country like Russia is an abnormal political economy unlikely to democratize, westernize or embrace free enterprise any time soon.

In such a mood, it is crucial to find new avenues for comparative economics. I have discovered one of them in studying the economics of sports (Andreff 1981 to, among others, Andreff, 1989, 1996, 2001 & 2008; Andreff & Staudohar, 2000; Andreff & Szymanski, 2006; Poupaux & Andreff, 2007), because professional team sports leagues are not designed, organized, regulated and functioning with the same basic characteristics everywhere. On the one hand, closed North American sports leagues are exempt from the bulk of legislation that applies to any other U.S. industry, while a "quasi-socialist" monopolistic regulation is used to make sports leagues profitable to their owners. On the other hand, open European sports leagues operate in a more competitive environment due to their coverage by the European competition policy. However, since the major objective of a European sport club is not profit maximisation and its budget constraint is usually soft, some pieces of the former economic analysis of planned (shortage) economies seem to be relevant there. This is the story I would tell you to convince that the economics of sports, in particular the economics of professional team sports leagues, is a new promising area for comparative economics.

2) An organizational comparison between closed and open team sports leagues

Institutional rules that fix how a professional team sports league is organized, regulated and managed can be encapsulated in twelve 'stylized facts' (Andreff, 2007a; Szymanski, 2003).

1) A North American professional team sports league is an independent organization which is closed by an entry barrier created by franchise sales; a European league, like in soccer, is integrated in a hierarchical structure where the national soccer federation supervising the league is itself dependent on an international federation. Entry in a closed league is only possible by the purchase of an expansion franchise, if there is any for sale, when the new entering team's market and its assigned location are assessed profitable by a league commissioner. Moreover, entry in the league cartel must be approved by a qualified majority of incumbent teams. Competition can only occur with the creation of a rival major league in the same professional sport as another closed league. In open leagues, entry relies on a promotion/relegation system, but the creation of a second major league in the same professional sport in a given...