Government Regulation of the NFL

ARE YOU READY FOR SOME FOOTBALL? Millions of Americans have been asked this rhetorical question by country music star Hank Williams, Jr. for years. The answer has been a resounding “yes.”

Still, although millions of football fans in America are ready and willing to enjoy as much football as possible, they are simply unable to. The advent of the NFL Network, a cable channel owned by and centered exclusively on the National Football League, is currently available in only 35 million homes across the country.

Much like the content offered by other sports-themed networks like ESPN and Versus, the NFL Network offers highlights and analysis of the teams and players that make up the League. Not much of a controversy there. The problem for the League and the network arose last year when the NFL granted itself the permission to broadcast eight regular-season games to its viewers. These games include dates on Thursdays and Saturdays during the playoff push of the season, as well as a game on Thanksgiving.

The NFL Network broadcasts are all during primetime and available nationwide, as long as your cable or satellite provider carries the network. Therein lies the rub. So far, millions of Americans have been unable to receive the NFL Network in their homes. Cable giant Comcast, which offers cable television to nearly 25 million people across the Northeast, is currently locked in a dispute with the NFL over how to properly package the NFL Network.

The NFL is steadfast in its position that the NFL Network should be made available to all cable subscribers with no extra fee charged by the cable company. Comcast seems to disagree with the NFL’s position. Currently, the NFL Network is available through Comcast, but only through the purchase of a top-tier sports package. The sports package can cost subscribers up to $5 extra per month.

Comcast claims that the NFL has asked for too high a price per subscriber in order to carry the channel. The cable company argues that the expense will have to be passed on to all subscribers, rather than the people who specifically desire the 24-hour football channel.

Time Warner Cable, which offers cable television to nearly 15 million residents, no longer offers the NFL Network — not even for a fee. This leaves millions of fans in the dark when it comes to these telecasts, even if they are willing to pay more. The decision by Time Warner to drop the NFL Network cannot be described as anything but childish and petty. They are angry at the league and trying to take out their frustrations in the wrong way.

A Direct Concern

Cable companies have already been at odds with the NFL over the decisions it has made as far as television rights. All local regular season games are broadcast on either Fox or CBS. Nationally televised games are offered on NBC (Sunday night), ESPN (Monday night) or the NFL Network (Thursday and Saturday nights). Fox owns the right to broadcast games featuring NFC teams, while CBS shows games played between AFC teams.

In the case of an interconference matchup, the away team’s network will broadcast the game. For example, if the Green Bay Packers of the NFC are playing against the AFC’s Ravens in Baltimore, the game will be offered on Fox. These games, played at either 1:05 or 4:15 Eastern Standard Time on Sunday afternoons, are available only to viewers who live within a 75-mile radius of the metropolitan area representing the team. This means that fans in Green Bay and Baltimore will be able to view the game, while a Packers fan living in Raleigh, N.C. will not.

However, there is an alternative for such fans. In 1994, the NFL began offering a program called the NFL Sunday Ticket. This premium sports package offers every NFL game each week, broadcast live, to fans across the country. Now our friend from North Carolina can still see his favorite team every week.

Of course, there is an exception here as well. The Sunday Ticket package is owned exclusively by DirecTV. DirecTV has entered into a contract to pay the NFL $700 million each year until 2010 for this exclusive right. Now our Packers fan on Tobacco Road must become a DirecTV subscriber or miss the game.

This is clearly a very valuable asset that DirecTV has when it comes to competing for subscribers, and this exclusive deal does not sit well with the cable companies. The NFL is a powerful moneymaking force, and the NFL Network provides a great way for the league to advertise and market its product the way it wants. Time Warner seems to have no interest in helping the NFL accomplish this objective.

The Laser Rocket Arm of the Law

As we all know, sometimes change doesn’t occur until a serious problem presents itself. Politicians rarely fix roofs when the sun is out, and they also don’t seem to care much about football until their constituents are upset in an election year.

The NFL currently operates under an antitrust exemption that it has been afforded by the U.S. Congress. Sens. Arlen Specter (R-Penn.), Patrick Leahy (D-Vt.) and John Kerry (D-Mass.) have sent letters to NFL commissioner Roger Goodell urging him to make the NFL Network available to everyone.

The legislative outcry for change did not crop up when the NFL announced its network would be carrying live games. Rather, this objection was propelled by one single game.

On December 29, 2007, the New England Patriots visited the New York Giants in a season-ending contest. The schedule makers allotted this game to Saturday night, on the NFL Network, long before the season had begun. The lucky fans that live in an area where the NFL Network is offered would be able to see the game, as would fans that live in the New York and Boston areas. This was the case for all NFL Network games this season.

This game, however, was historic. With a victory, the Patriots would become the first team in NFL history to finish a regular season with a 16-0 record. The thought of this game being available only to a relative handful of viewers spurred all the controversy.

The NFL relented and made the decision to simulcast the game on NBC and CBS so that football fans across the country could witness the Patriots’ historic 38-35 win over the Giants. While there was political and public pressure put on the League to make this decision, the NFL did not miss the opportunity to use this platform to advertise its channel.

Of the 70 30-second ad spots that were available for the game, NBC and CBS were given the right to sell only 18 of them. Thus, the NFL pocketed the majority of the ad revenue made during this unprecedented simulcast. Much of this ad space was used on campaigns promoting the NFL Network and chastising the specific cable companies that refuse to carry the product.

The political opponents who kicked off this debate with the NFL will not be appeased by this one-game concession. Specter is threatening to propose legislation that would remove the NFL’s antitrust exemption.

Currently, the NFL negotiates its broadcasting licenses as a group of 32 teams, rather than each team handling the deal as a single entity. This is done in order to preserve the competitive balance of the game and to protect teams that exist in smaller markets from being crushed by teams in more lucrative areas. If teams negotiated contracts independently, just imagine how much more money a team like the New York Giants could command, compared with the Arizona Cardinals or Jacksonville Jaguars.

While in terms of business or sport, NFL teams do, in fact, compete with each other relentlessly, they also need one another in order to maximize the value of their product. When teams cannot afford to support themselves financially, everyone suffers.

If the NFL were to lose its antitrust exemption, fans would wind up suffering far worse than they would by missing a single Patriots game. In order for the NFL to exist at the level it currently does, the last thing it needs is more government legislation of its practices.

The NFL is seen by some as a monopoly of professional football in the United States. Because of the size and success of the League, there are significant barriers to entry for competitors. This does not mean that the NFL is necessarily a monopoly in need of regulation, though. The NFL acts as a natural monopoly that deserves to be protected. A rival league could certainly be established; the chance of it succeeding would just be slim. It is a group of 32 independently run businesses that operate under a single umbrella working for a greater purpose.

The New York Giants would not be successful if there were no Washington Redskins to play games against. This is why the government owes it to the public to leave the NFL alone and let it run its business in the only way suitable. If U.S. senators decided to ride in on horseback and trust-bust the NFL, they would be doing far more public harm than the NFL Network or the New England Patriots could ever dream of.

Because of the nature of competition in the NFL, too much money for one team in relation to another will eventually cause all the teams to lose money. If the League becomes less successful, team owners, players, coaches, fans and local city economies will suffer.

If the job of our elected officials is to ensure that football fans get to see every game they want to, they should be going after the companies that are keeping these games out of reach. Time Warner, Comcast and, to a certain extent, DirecTV have made sure that we see only a fraction of the games possible.

If the cable companies want to do what’s best for their customers, they need look no further than the simple question of a country music star. Yes, Hank, we’re ready for some football. Now just let us see it.

Until next time,
Jamie Ellis
January 4, 2008

The Daily Reckoning