A tale of two gate-sharing plans: the National Football League and the National League, 1952-1956.

1. Introduction

Gate-sharing rules reflect the tension within a professional sports league. While most industries are characterized by winnowing the weak, modern sports leagues often prefer to maintain weak clubs. One method of helping teams in small cities survive is through crosssubsidization, typically achieved through revenue sharing.

Many people believe that gate sharing exists to redress inequalities in revenue. However, owners, especially of successful teams, appear to disagree. If you owned the New York Yankees, your attitude might be, "I should get a large piece of the pie when I visit Tampa Bay, since I'm bringing in a strong (well-paid), attractive club. When the Devil Rays start bringing in a strong, well-drawing club to Yankee Stadium, I'll be willing to share more revenue."

This paper examines the experiences of two professional sports leagues with dissimilar gate-sharing plans during the 1950s: the National Football League (NFL) and baseball's National League (NL).

Because congressional investigations required owners to divulge financial records for the 1952-1956 seasons, this is a good era to study. While sports economists certainly wish that the legislators had demanded more information, the available information provides a rare, illuminating glimpse into the finances of professional sports. With this information we can examine whether the NL and NFL wanted gate-sharing rules to simply help poorer teams in smaller cities or whether there were other motivations for such rules. I also address the question of whether the NL's revenue-sharing plan was "flawed" by its seeming lack of "generosity" (in terms of proportions of home gate revenue shared), compared with the NFL's plan. In addition, the National League altered its revenue-sharing plan during the period examined. The change in the plan provides some clues as to the owners' attitudes regarding gate sharing. Finally, examining the gate-sharing experiences of the 1950s will shed light on the debate concerning whether fans preferred absolute or relative quality in the visiting team. Of course, there are significant differences between the 1950s and today's environment. Gate-based revenue still formed the bulk of a team's overall revenue. Television revenue was just beginning to be significant for professional sports, and owners started expressing concerns regarding the division of local television revenue.

In an earlier paper, I described the effects of baseball's American League's revenue-sharing plan during the 1950s with its flat-rate levies on box, reserved, general admission, and bleacher seats (Surdam 2002). The plan initially worked to redistribute home gate revenue from the wealthier New York Yankees and Detroit Tigers to the St. Louis Browns, Philadelphia Athletics, and Washington Senators. While the New York Yankees usually led the league in road attendance because American League fans appeared to prefer absolute to relative quality in their opponents, the Yankees started becoming net beneficiaries of gate sharing after 1953 when the Browns and Athletics relocated to Baltimore and Kansas City, respectively. The Orioles and Athletics now lost the most money from revenue sharing, even though these teams remained mediocre on the field.

American League teams already had evidence that, as a way of getting strong teams in large cities to subsidize weak teams in small cities, the existing revenue-sharing plan was a clumsy vehicle. During the late 1930s, when the New York Yankees were crushing the opposition, the team was occasionally a net beneficiary of revenue sharing. Between 1936-1939, the team lost a total of just $14,000 from revenue sharing (New York Yankees Baseball Club 1936-1939).

Since the two baseball leagues had similar revenue-sharing plans, one is entitled to ask whether the American League's experience from the 1950s was the artifact of the New York Yankees' strong attraction on the road or whether wealthy NL teams would also be net beneficiaries. Did NL fans of the lowly Pittsburgh Pirates and Chicago Cubs also prefer the absolute quality of the Brooklyn Dodgers to that of watching closely contested games with each other? The NL also had the unique situation of having two teams in New York City: the New York Giants and Brooklyn Dodgers. These teams played in different boroughs, but, clearly, a "road" game between the two of them was unlike road games with teams from different cities. What effect did the proximity of the Dodgers and Giants have on revenue sharing?

2. Past Discussions of Revenue Sharing

Baseball historian Harold Seymour and witnesses at the 1951 congressional hearings implied that gate-sharing rules were intended to redress revenue differences between teams that drew well and those that did not, but the owners often sang a different tune. Seymour (1971, p. 8) wrote, "Appreciating the results of inequality of markets, the owners tried to compensate by sharing gate receipts." Ironically, he also chronicled the underlying animosity between owners of large-city teams and their peers. The NL had difficulties with its New York and Philadelphia clubs during its inaugural season of 1876. The large-city owners refused to travel west to play some clubs, and, instead, offered to handsomely pay the western clubs to come east. The NL eventually (but only temporarily) settled on a fixed guarantee of $125 instead of a percentage split in 1886. Owners of teams in the smaller cities favored the percentage split, with the Detroit manager complaining, "We should be nice suckers ... to go to Boston or to Washington and put big money in their treasuries for $125." (Seymour 1960, p. 209). Albert Spalding, owner of the Chicago team, retorted that wealthier clubs were "tired of carrying along a club like Detroit." (Seymour 1960, p. 209).

Certainly, some sports historians believe such rules foster competitive balance. Leifer makes explicit his belief in the link between the NFL's generous gate-sharing rule and its competitive balance: "The main reason why the NFL did not experience high performance inequality, and early baseball leagues did, was the liberal revenue-sharing policies adopted by the NFL." (Leifer 1995, p. 103).

However, sports economists debate whether gate-sharing rules have much effect on competitive balance, but most agree that such rules may ensure the survivability of teams in smaller cities. In addition, most economists assume that gate sharing redistributes money from wealthier teams, typically in larger cities, to poorer teams, typically in smaller cities, creating, in essence, a "Robin Hood" effect. Rottenberg (1956) and Quirk and Fort (1992) argue that increased revenue sharing should have little effect on competitive balance but may serve to suppress player salaries. Scully (1989, 1995) and Quirk and Fort (1992) also share a belief that the "more equal the gate-sharing plan among the teams, the more equal the revenues." (Scully 1989, p. 80). Underlying their argument is the implicit assumption in their models that the stronger the team is, the more it draws at home but the worse it draws on the road (because the rival team is weaker): "Intuitively, gate sharing lowers the value of an additional win-percent to a team because the team only captures a fraction of any increased revenue at home games. On the road, the team generally loses revenue because, on average, the win-percent of its opponent has fallen." (Fort and Quirk 1995, p. 1287).

Kesenne (2000) and Marburger (1997) develop models where a team's ability to draw on the road is not necessarily inverse to its relative strength. Marburger alters this assumption and finds that revenue sharing can enhance competitive balance, a finding shared by Kesenne, under certain circumstances. Later, Szymanski and Kesenne (2004) demonstrate plausible conditions under which certain forms of revenue sharing might reduce competitive balance. With respect to football, Vrooman (1995) suggests that the short schedule may reduce the importance of the attractiveness of the visiting team, that is, there may not be a strong relationship between a team's relative strength and its ability to draw on the road.

There may be another motive underlying gate sharing. Canes (1974) argues that revenue sharing and other league rules may help leagues, because "their absence may encourage team owners to produce higher team quality than is socially efficient." (p. 92). He describes the externality problem thusly: "Since the owner's profits are not affected by decreased demand for games in which his team does not play, he will not take such effects into account; that is, they will be external to the owner's cost and revenue calculations." (p. 94). While owners might compensate each other for such revenue losses caused by fielding too strong a team, "this would require difficult decisions about which teams should be compensated and to what extent. Moreover, if not all team owners were party to the agreement, some could increase the quality of their teams and so displace the others, or could threaten to increase quality in order to be compensated not to do so." (p. 95). Thus, a properly designed revenue-sharing plan can reduce the incentive (in terms of marginal revenue product) to overinvest in team quality and also to help owners sidestep the potentially disputatious need to determine the compensation just described.

3. The Two Leagues' Revenue-Sharing Plans