Sports League Expansion and Consumer Welfare

Abstract

This article studies sports league expansion and consumer welfare. The author assumes that as a sports league expands, the average quality of playing talent falls, and each fan sees superstars fewer times per season. Expansion thus imposes a negative externality on existing fans. If all revenues come from local sources, such as gate receipts and local media, then the optimal league size (which maximizes total fan utility net of team opportunity costs) is the same as the monopoly league size that maximizes total league profits, but the competitive (free entry) league size is too large. If all revenues are national, split evenly, and where a broadcast network charges a uniform national price to viewers, the optimal league size is between the larger competitive size and the smaller monopoly league size. The more elastic the supply of talent is, the closer the competitive size is to the optimum.