NFL acts as one would expect

ou can’t blame a guy for trying — or the National Football League for that matter.

What this multibillion dollar nonprofit is trying for is all sorts of public largess in exchange for assigning the 2018 Super Bowl to Minnesota. In addition a long list of already negotiated tax exemptions, the league wants the state Legislature to extend an exemption of taxes on game tickets to include tickets for other tangentially related events.

After all, it’s just doing whatever it can to earn as much money for its owners as possible. That is no different from any other business owner or business association, large or small. The big difference is that the NFL has monopoly power for its product, protected by government forbearance, that most businesses don’t have. And it has succeeded in establishing a precedent that cities must grovel to get the Super Bowl.

So you can’t blame them for trying. But the Legislature’s reaction should be to recommend a strict training regimen to the league — like taking long walks off short piers.

On the other hand, we can console ourselves in the knowledge that what the NFL asks is peanuts compared to what FIFA, the international governing body for soccer, extorts from nations seeking the World Cup, or the International Olympic Committee, or ICO, for assigning the winter and summer games.

In Minnesota we already were set to build our stadium — the biggest single Super Bowl prerequisite — regardless of landing the game.

The common economic feature in all of this is that monopoly power creates “economic rents.” This has nothing to do with the traditional definition of rent.

Rather, as the term was first used two centuries ago by British economist David Ricardo, these are situations in which profits can be achieved well above what would happen in a free market when the owners of a scarce and valuable asset, such as a championship football game, have complete control over allocation of that asset.

For Ricardo, this asset was land. But it also can be monopoly control, either legally established, as for gas and electricity utilities, or de facto, as for TIVO or Microsoft. It could be the NFL, FIFA, the IOC.

That monopoly need not be absolute, and it is limited by ordinary demand. No one absolutely needs a TIVO. A 20-year old VCR provides some of the same service. And there are alternatives to Microsoft software. But both firms have at least a degree of monopoly power.

Similarly, no city or country needs to host the Super Bowl or World Cup, just as no city absolutely needs a professional football, basketball or hockey team. But to the degree that these are wanted, the controlling agency has a lot of power — pricing and otherwise.

Some monopolies, such as patented drugs, derive their power from a government act — the granting of a patent. Utilities usually have legal franchises from government to operate.

These are bolstered by the “barriers to entry” created by the huge capital investment needed for any potential competitor to offer a credible alternative product or service.

However, if new technology, such as cellular telephony, reduces those capital needs, the monopoly power of a utility can fade quickly as the old copper wire telephone companies have.

Just as for utility companies, governing bodies in sports enjoy barriers to entry by potential competitors because of large “economies of scale.” It is virtually impossible for someone to start a new pro football league that could compete with the NFL.

And how could one start an alternative to the Olympics that would be financially viable?

But there also is the question of how far government will kowtow to these sports bodies. The conventional view is that governments are in a “prisoners’ dilemma.”

If one doesn’t cop a plea deal, some other one may do so first and get off lightly while condemning the rest. If Minnesota doesn’t turn itself into a virtual candy store for the NFL, the NFL will simply find a different patsy.

Critics argue in vain that someone has to stand up to the bully. Others note that eventually many bullies overreach. The scandals surrounding the awarding of the 2022 World Cup to Qatar have further sullied FIFA’s tarnished image and perhaps have cut its bargaining clout as it suffers more public scrutiny. Image is important for such organizations.

Widespread public demonstrations in Brazil in 2012 and 2013, including rioting, also serve as a warning to governments that getting a big event doesn’t please everyone.

To some observers, the sheer size of the Olympics and the scale of demands by the IOC are causing many countries to drop out of the running. Greed may have natural limits.

Monopoly always causes inefficient use of economic resources, but there may not be much government could do to restore efficiency. Only baseball has a full statutory exemption from antitrust action and that should be repealed and a range of antitrust enforcement measures against all the major leagues considered. Moreover, the nonprofit status of the NFL and other leagues needs examination.

Supporters argue that the NFL is just an industry association, no different than the American Soybean Association or the used car dealers’ national association. Income from events like the Super Bowl gets passed through to the member teams, which in turn pay relevant taxes. This is all true. But no other such association is able to organize an event that brings in hundreds of millions of dollars. Even with the pass-throughs, these are not what most people, and the details of law, would recognize as a “nonprofit.”

Voters are the ultimate limit on government action. If voters revolt, largess will be limited. As in all public policy debates, public understanding of facts is key. Advocates for big events tout enormous benefits for bringing a Super Bowl or Olympics. They brandish studies supporting this. But many arms-length analyses after the fact show that the net benefits usually are much less than claimed.

Given the level of effective government subsidy of the 2018 Super Bowl, perhaps the Legislature ought to appropriate a $100,000 or so for a comprehensive evaluation once it is all over.