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Does the NFL Blackout Rule Make Economic Sense?

NFL_Blackout

With the NFL playoff season well under way, football fans across the country are likely more concerned with the injuries of their team's star quarterback or the strength of its offense rather than the legalities of football broadcasting rights. However, MBA@UNC Marketing Professor Dr. William Putsis of the University of North Carolina at Chapel Hill Kenan-Flagler Business School found evidence that the NFL's highly contentious blackout rule creates significant negative repercussions for fans. Given the changing landscape of professional sports over the past 50 years, the blackout rule may not make economic sense today for anyone but the owners of the NFL teams.

NFL Blackouts 101
In 1961, Congress passed antitrust laws that strongly favored professional sports teams. The so-called "72-hour rule" allowed teams' managing organizations to deny local television broadcasters the rights to televise NFL games if those matchups had failed to completely sell out within 72 hours of kickoff. This was done to protect the financial interests of sports teams, since the majority of a team's revenue was generated through game-day stadium attendance in the 1960s.

However, fast-forward to today, and the NFL — and professional sports in general — bears little resemblance to the days when Congress passed this particular antitrust law. Nowadays, stadium revenues account for just a portion of the overall revenues generated by professional football teams. Merchandising, licensing, corporate sponsorships, TV revenues and other increasingly lucrative financial devices have resulted in massive profits for the NFL.

Enduring Rivalries
So what does this mean for today's football fan? According to Putsis, fans are being hit the hardest by these unfair and largely irrelevant antitrust regulations.

"Originally, the NFL argued that such agreements were necessary to maintain the long-run economic viability of professional football," Putsis wrote in a paper on the topic. "At face value at least, the rationale for the imposition of local blackouts appears to be considerably weaker in today's environment."

For holders of NFL season tickets, it will come as no surprise that the cost of attending games has risen steadily during the past several decades. Despite the fact that game-day attendance has become a relatively small source of revenue for professional football teams, ticket prices have become exorbitantly high — putting them out of reach for fans without the deepest pockets. In any other industry such practices would almost certainly be decried and likely result in litigation, but the same antitrust laws Congress passed in the 1960s protect the NFL from such action. According to Putsis, thanks to these largely outdated laws, blackout policies are enforced to the benefit of the team owners and no one else. To add insult to injury, most football fans have no idea that the blackout rule is no longer relevant today.

Effective Intervention
In addition to providing a fascinating economic and legal case study, the legality and financial feasibility of the NFL blackout rule also highlight the potential for the situation to become a relevant talking point about the nature and extent of U.S. antitrust laws.

"While the NFL blackout rule, as currently implemented, is based upon a mutually agreed upon contract between the league and each network, the NFL enjoys protected antitrust status that allows it to bargain with the major networks as a cartel," said Putsis. "Consequently, to the extent that the protected antitrust status is used to reduce societal welfare, public policy intervention becomes a viable policy option."

Regardless of which teams triumph on the field, there can be little doubt that, at least in the context of the antiquated blackout rule, the real winners remain the NFL team owners — at the expense of fans, sponsors and companies that may step in to buy tickets in masse in order to avoid local blackouts.

 
bill-putsis-299x238William Putsis focuses on the empirical application of game theoretic models of competition, competitive strategy, the marketing of private-label products, new product diffusion and product line strategy, international marketing, advertising and communications research, and sports marketing.

His numerous scholarly articles have been published in top journals, and he serves on the editorial board of Marketing Science, Journal of Marketing, International Journal of Research in Marketing, Review of Marketing Science and International Journal of Marketing Education. He served as a regular contributor and contributing editor to the Eastern European business journal, Business Tech International. He is also the author of Compete Smarter, Not Harder.

He has taught in executive non-degree programs for The Boeing Company, Barclays Bank, Royal Bank of Scotland, ABN AMRO, Amcor, British Airways, Baker Hughes International, the U.S. Navy, Matsushita, KONE and ExxonMobil.

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